Rygg Vik PEAB ANNUAL Annual report 2012 REPOR T 2012

Transcription

1 Annual report 2012

2 CONTENTS 2012 in summary 1 Comments from the CEO 2 Construction and civil engineering market 5 Business model 8 Group strategies 10 Financial and operative goals 11 Board of Directors report The Group 13 Business area Construction 16 Business area Civil Engineering 20 Business area Industry 23 Business area Property Development 26 Risks and risk management 28 Sustainability 29 Other information and profit disposition 34 Financial reports and notes Auditors report 84 Corporate governance report 86 Board of Directors 90 Executive management and auditors 91 The Peab share 92 Five-year overview 94 Financial and construction-related definitions 95 Summons to attend the Annual General Meeting 96 Shareholder information and addresses 97 Peab AB is a public company. Company ID Domicile Förslöv, Sweden. All values are expressed in Swedish krona, abbreviated to SEK and million to MSEK. Numbers presented in parentheses refer to 2011 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, published material. The formal annual and consolidated accounts which has been audited by the company accountant, pages Cover picture: Gothia Towers, Gothenburg, Sweden Photo: Andreas Ulvdell

3 A Nordic Community Builder Peab is a Nordic construction and civil engineering company with operative net sales of SEK 46 billion. We have 14,000 engaged employees and around 130 offices in Sweden, Norway and Finland. With our local presence and four collaborating business areas we can handle both small and large, complex projects. Our goal is to always surpass our customers expectations. Construction performs contract work for external customers, the other units in Peab and our own developed housing projects. Operations comprise everything from new construction of homes and premises to renovation and construction maintenance. Civil Engineering is active on the local civil engineering market as well as in infrastructure projects such as bridges and roads and the management and maintenance of streets and roads. Industry delivers among other things asphalt, cement, foundations, electricity services, transportation, machine and crane services as well as prefab to both external customers and the other units in Peab. Property Development primarily develops commercial property and apartment buildings. These operations are a vital part of developing Peab s contractor business and complete customer offers. Industry, 21% (21%) Civil Engineering, 24% (23%) Operative net sales per business area, 2012 Property Development, 1% (0%) Construction, 54% (56%) A Nordic Community Builder: World class events and shopping Arenastaden, Solna October 2012: Peab is building a completely new city district, Arenastaden, outside Stockholm with apartments, offices, a multi-arena and one of the biggest shopping malls in the Nordic region. Every part is unique in itself together they are exceptional. This is a place for special meetings and moments. Arenastaden, which breaks both construction technological and size records, was previously a rundown industrial area that is being transformed through state-of-the-art engineering. We are creating a city district that will take both inhabitants and visitors into the future. Read more about Arenastaden at

4 PEAB IN SUMMARY A Nordic customer base creates opportunities for profitable growth Peab works on a Nordic market. Sweden is the largest market at 81 percent. Norway and Finland increased their share of Group operating net sales during 2012 from 18 to 19 percent. Operative net sales per geographic market, 2012 Finland 6% (7%) Norway 13% (11%) Sweden 81% (82%) Private 58% (55%) Operative net sales per customer type, 2012 Other 11% (13%) Public 31% (32%) Highlights Peab is organized in four business areas; Construction, Civil Engineering, Industry and new in 2012 Property Development. In addition to continued investments in existing development projects, business area Property Development acquired a handful of large new projects, among them parts of Vasallen and at the same time sold others such as the housing development property to Domestica. As part of Peab s long-term program for Norrland, which Peab initiated over 20 years ago, we won a number of new contracts during the year from customers such as LKAB, Boliden and Northland Resources. Peab is currently one of the largest private employers in Norrland. Sweden s new national arena, Friends Arena, was built by Peab and inaugurated in October We continue to develop Arenastaden in Solna. We have started construction on housing there and on one of Sweden s largest shopping centers, the Mall of Scandinavia. Through a jointly owned company Peab and Folksam acquired KF Fastigheter s share of Kvarnholmen Utveckling AB as well as another company that came with development rights. After the acquisition Kvarnholmen Utveckling AB, which works with managing the development rights for the production of more than 1,500 new apartments, is owned equally by JM and by the Peab and Folksam jointly owned company. Peab is building the extension of E4 South at Sundsvall. The project is a general contract with functional requirements and a future management and repair contract that Peab s business areas Civil Engineering and Industry are jointly responsible for. In March 2013 Deputy CEO Jesper Göransson took over as CEO and acting President of Peab. He replaces Jan Johansson. The process to find a new ordinary CEO has been initiated by the Board.

5 2012 IN SUMMARY Stable volumes but lower profits Orders received for Construction and Civil Engineering increased by 2 percent to SEK 38,743 million. Order backlog at the end of the year was somewhat lower than at the start largely due to a high level of production during Group operative net sales increased by 5 percent to SEK 45,997 million due to the good market situation in the beginning of the year together with a high level of production throughout the year. Net sales increased in all the business areas. The operative operating profit decreased to SEK 1,002 million (1,483) primarily due to writedowns totaling SEK 675 million, of which SEK 300 million was for Tele2 Arena in Stockholm and SEK 375 million in construction operations in Norway. Cash flow from current operations increased to SEK 503 million (60) despite an increase in acquisitions of project and development property. Operative net sales MSEK 50,000 40,000 30,000 20,000 10, * * Pro forma including Peab Industri Earnings per share were SEK 2.47 (3.26). The equity/assets ratio amounted to 24.9 percent (25.4), which is on par with the financial goal. The Board proposes a dividend of SEK 1.60 per share, which is equivalent to 65 percent of the result for the year. An action plan was initiated in the business area Construction with the intent to improve profitability by methodically developing leadership, project organization and internal processes. This will, among other things, lead to a greater focus on profitability when choosing projects, ensure that we have the right resources for the projects we take on and that follow-up and control of ongoing projects function well. The Group s other operations and Group staff were reviewed during the year for the purpose of reducing costs and thereby raising profitability. Peab set up a Medium Term Notes program (MTN) with a loan ceiling of SEK 3,000 million. This extended our capital base with a new complement to traditional bank financing. At the end of the year obligations worth a total of SEK 1,000 million were outstanding under the MTN program. Operative operating profit and margin MSEK % 3,000 2,500 2,000 1,500 1, * * Pro forma including Peab Industri Financial summary Jan-Dec Jan-Dec Jan-Dec Operative net sales, MSEK 1) 45,997 44,015 38,184 Net sales, MSEK 46,840 43,539 38,045 Operative operating profit, MSEK 1) 1,002 1,483 1,563 Operative operating margin, % 1) Operating profit, MSEK 1,055 1,505 1,503 Operating margin, % Pre-tax profit, MSEK 813 1,195 1,513 Earnings per share before dilution, SEK Dividend per share, SEK 2) Return on equity, % Equity/assets ratio, % Cash flow before financing, MSEK 974 1, Net debt, MSEK 6,470 6,626 5,719 Orders received and order backlog Construction and Civil Engineering MSEK 40,000 30,000 20,000 10, Order backlog per 31 Dec MSEK 40,000 30,000 20,000 10,000 Order intake 1) Operative net sales and operative operating profit are reported according to pecentage of completion method. Net sales and operating profit are reported according to legal accounting. 2) Board of Directors proposal for 2012 to the AGM. Return on equity 1) % Goal >20% ) According to legal accounting Equity/assets ratio 1) % 35 Goal >25% ) According to legal accounting Dividend SEK % * Dividend per share Dividend, % * For 2012, Board of Directors' proposal PEAB ANNUAL REPORT

6 COMMENTS FROM THE CEO Lasting, sustainable and cooperation In many ways 2012 was an eventful year for Peab, a mixture of good news and disappointments. Production levels were high but our profitability was way too low. We had a stable and good level of orders received but we also watched demand on the Nordic construction market recede. The most significant factor behind the decline is the weak development of new production in housing. The housing sector did not drive construction investments the way it usually does. THE PAST YEAR During 2012 Peab worked in four business areas; Construction, Civil Engineering, Industry and Property Development. Our business areas make up a complete customer offer but they also comprise a vital diversification in terms of markets and customers. Three of the business areas Civil Engineering, Industry and Property Development developed well in 2012 but our largest business area was less successful than anticipated. During the year write-downs amounted to SEK 675 million at the same time underlying earning was far too low. Our highest priority now is to restore profitability in In March 2013 CEO and President Jan Johansson chose to quit his position and I was appointed CEO and acting President. The orders I and the other members of executive management have received from the Board are to speed up the work to lower costs and increase profitability. We also need to make changes in the balance sheet and reduce the amount of capital tied up. SUSTAINABLE COMMUNITY BUILDING In addition to our traditional role as a construction company in recent years Peab has developed its position as a community builder. We participate more and more in the creation of a forward looking and sustainable society by taking a broader responsibility and thereby benefiting the community. This means we offer fully functional sustainable and environmental solutions in our projects. Our customers are making increasingly higher demands on expertise and experience in matters that concern sustainability. Sustainability is often a matter of using common sense, exercising good judgment and maintaining order in our workplaces. This might revolve around how we take care of waste the best way, minimize energy consumption or what we think about certification. For example, all our own developed homes are environmentally certified. Peab s goal is to be on the cutting edge of efficient sustainability, not just talk the talk but walk the walk. We want whatever we build today to meet demands from future generations whether they be environmental, financial or social. Building sustainably means building to last. THE TUREBERG CHURCH Sollentuna 2 PEAB ANNUAL REPORT 2012

7 COMMENTS FROM THE CEO Jesper Göransson, CEO and acting President While we have to be sensitive and capable of changing, lasting is one of Peab s mottos LASTING While we have to be sensitive and capable of changing, lasting is one of Peab s mottos. By building lasting relationships with customers, suppliers and other partners we create stability in our organization. We have the same lasting view of our employees, and the expertise and experience they develop is a significant competitive advantage. Job satisfaction, safety and security at our workplaces are based on our long-term perspective and the best platform for achieving good results. By having this lasting perspective when we do things we can improve the way we produce, better develop construction material and provide our employees on all levels with the opportunity to grow. Lasting creates added value and credibility. COOPERATION From the very beginning Peab has been a company based on cooperation. Through internal collaboration between the Group s different business areas we can offer the market alternatives that are very competitive. Cooperation is also the way we work externally. Years of building networks with customers, authorities, suppliers and other partners facilitates and speeds up our daily operations. Cooperation is another motto at Peab and it s important that this collaboration is correct and transparent where all the partners involved participate on equal terms. By working together we can realize our ambition to bring costs down and reduce lead times without lowering our standards of quality. Although we have done quite a bit in this area there are always more ways to improve and this is something we work on every day. OUR VALUES Peab s core values Down-to-earth, Developing, Personal and Reliable make up the Group s value foundation. These values reflect our company culture and the way we want our customers and business partners to perceive us. Our value foundation is built on the credibility of our brand and this is a matter that concerns everyone in the company. It s a given that our customers must be able to trust us just as we must be able to trust them. We build our credibility when we keep our promises, meet deadlines, stay within a budget and comport ourselves with good ethics. We will always be a company that is open and acessible and which other companies and people want to deal with. Peab s brand stands and falls with our credibility. This concerns everyone in the Group and is something we all must cherish and take responsibility for. EFFICIENT CONSTRUCTION Peab s business areas Construction, Civil Engineering, Industry and Property Development cover together virtually anything and everything offered on the construction market. Having four business areas broadens the range of our expertise and this means we can offer our customers competitive, complete solutions in our community building. It also entails being able to further rationalize our processes on the worksite in both small and large projects, which is of benefit to our customers. A concrete example of how we can rationalize construction is the new production methods which have recently been implemented in logistics. Simple changes like respect for delivery times, an overhaul of the flows on sites, new ideas concern - ing waste management and more have lead to tangible improvements. The innovative thinking in logistics has had a very positive effect on the end result in several of our major projects like Clarion Hotel Post in Gothenburg, Waterfront in Stockholm, Arenastaden in Solna and the department stores in Peab s group level contract with IKEA. IMPROVED PROFITABILITY An action plan was adopted in 2012 that delineates how we can improve profitability. This will be done by developing leadership, project organization and internal processes. Work on this action plan will intensify during In order to generate the desired level of profitability everyone, on every level, needs to perform well. At the same time everyone in the Group has to constantly keep costs in mind. Even when the economy is slow we must meet our profit targets. We will therefore put even more energy into rationalizing our construction processes and avoiding projects that do not have the right risk profile. The old words of wisdom that say make sure the right resources are available before digging the hole ring truer than ever. Förslöv in April 2013 Jesper Göransson CEO and acting President PEAB ANNUAL REPORT

8 A Nordic Community Builder: Experience is passed from project to project IKEA, Uddevalla, June 2012: Peab was commissioned to build a new store for IKEA in Uddevalla as part of the agreement made in 2010 between IKEA and Peab. The store in Uddevalla is the third of ten included in the contract and is expected to be completed by the summer of As far as possible the same production leadership works with all the stores in the Nordic region. This provides us with valuable experiences that go from one project to the next. It also saves money and the environment, for the good of everyone involved. 4 PEAB ANNUAL REPORT 2012

9 Nordic construction and civil engineering market CONSTRUCTION AND CIVIL ENGINEERING MARKET Building houses, roads, bridges and other infrastructure is as old as our civilization. Today the construction and civil engineering industry is one of the most important and largest players in the global economy. It is also a market that grows over time, even though some years are affected negatively by a turndown in the economy. CONTRACTING WHILE INVESTMENTS ARE STILL NEEDED There are signs that the Nordic construction market is contracting. At the same time underlying investment needs continue to be substantial in Sweden, Norway and Finland. The housing market is not in balance, refurbishments are greatly needed in both homes and premises and an under dimensioned infrastructure requires extensive investments in communications, energy supplies and water and sewage networks. BIG HOUSING SHORTAGES Population growth and continued urbanization are strong forces on the housing market. The housing shortage in Sweden will accelerate in and hinder mobility in the labor force through uncertainty in households, more stringent financing requirements and sluggish planning processes. At the same time special municipal demands on housing design leads to higher and higher construction costs. RENOVATION AND RENEWMENT The need for renovation is considerable in both housing and premises in all three countries. Up to 300,000 apartments in Sweden from the period need to be refurbished in the next five years. Throughout the Nordic region public premises require renovation to meet demographic changes and older retail premises and offices need to be refitted to modern technical demands. ENERGY AND CLIMATE An important part of renewing buildings is drastically reducing energy consumption to achieve established climate goals. At the same time newly constructed buildings are expected to rapidly approach a zero energy standard and the construction industry s production processes are becoming more energy efficient. Parallel with this development, major investments in a more sustainable supply of energy are needed in every sector of society. GROWTH AND RISING INCOMES Despite a slowing business cycle, economies in the Nordic region are stronger and developments in disposable incomes more positive than in the rest of Europe. This creates a platform for a quick recovery in demand for housing and premises when the situation in the euro area begins to stabilize. CONTINUED URBANIZATION Populations continue to rise in growth regions in the Nordic countries. This puts higher demands on housing and public services,augmented by the needs of an aging citizenry. UNDER DIMENSTIONED INFRASTRUCTURE Greater mobility in the labor market raises the need for efficient commuting. Well functioning mass transit systems and transportation networks are essential to employment and growth. This, and EU s efforts to create a more effective trans-european transportation network, generate greater investments in road and railroad networks. LOW INTEREST RATES It appears that at least Sweden and Finland will continue to have low interest rates in 2013, which reduces the risk of falling housing prices and can facilitate recovery of the demand for housing. To a certain extent low rates also counter the negative effects of higher equity and amortization requirements to buy a home. Gross domestic product in the Nordic region Fixed prices, change in percent Interest rates and currencies 10 year government bonds % F Sweden Norway Finland F=Forecast Intrest Sweden Norway Finland Source: Konjunkturinstitutet, Sweden. Source: Sveriges Riksbank. Source text: Industrifakta. PEAB ANNUAL REPORT

10 CONSTRUCTION AND CIVIL ENGINEERING MARKET MACROECONOMY Sweden GDP in 2012 was slightly lower than forecasted and is expected to be to around 1.0 percent in Two underlying factors behind this development are weaker household consumption and exports. Unemployment is expected to increase in 2013 and CPI inflation is expected to fall further from an already low level. Even the policy interest rate is expected to continue to drop and only increase marginally in At the same time there are signs of a more expansive financial policy from the government. Norway Growth in Norway is still the highest in the Nordic region but it is expected to slow slightly to 3.0 percent in Household consumption increased in 2012 and is expected to remain on a high level in CPI inflation fell in 2012 but is expected to Housing investments Other building construction investments Housing investments, MSEK 60,000 50,000 40,000 30,000 20,000 10, F Sweden Norway Finland F=Forecast Other building construction investments, MSEK 160, , , ,000 80,000 60,000 40,000 20, F Sweden Norway Finland F=Forecast After the recovery in 2010 in Sweden and Finland, and in 2011 in Norway, construction of new housing diminished in 2012 in all three countries. The forecasts for 2013 are a continued drop in primarily single homes in Sweden and Finland and apartments in Norway. This means the gap between single home construction in Sweden and other countries will remain significant as sluggish planning processes and requirements for larger down payments presses single home production to new lows. At the same time it appears that investments in the renovation of apartment buildings, mainly from the period , continue to grow in Sweden where they have long been needed. GROWING HOUSING SHORTAGE Demographic changes and urbanization in all three countries are fueling the need for more housing in growth regions, and particularly in Sweden the low level of housing construction is beginning to have a negative effect on economic recovery. Forecasts indicate that in the already considerable lack of housing will increase by at least 50,000 apartments on top of the fact that nearly all the municipalities with growing populations have produced too little housing for the past several years. Similar problems exist in Norway and Finland even though there has been much more construction of new housing per inhabitant in recent years. LOW INTEREST RATES CAN STIMULATE Both Sweden and Finland have low interest rates which normally should stimulate housing demand. However, this may not be enough to counter the effects of rising unemployment, more stringent financing demands and the uncertainty about economic developments. In Norway, on the other hand, it is possible that continued stable employment levels, high housing prices and the strong development of disposable incomes will uphold the demand for housing for another few years. Other building construction investments in commercial, industrial and public premises showed strong growth in Sweden and Norway in with continued growth in Norway in In 2013 investments levels are expected to contract in both countries and in Finland premise construction is expected to remain on the same low but stable level as in recent years. OFFICE AND RETAIL SPACE There has been more construction in this sector in Norway than in the rest of the Nordic region, but despite a significant demand for premises in, for example, the Oslo region there was, just as in Sweden, a downturn in 2012 when external uncertainty increased. This decline is expected to continue in 2013 and reach Finland as well. One of the factors behind the weaker development in all three countries is that it has become more difficult to finance commercial space construction and the uncertainty surrounding how the service sector and retail stores will be affected by the developments in the rest of Europe. INDUSTRIAL CONSTRUCTION Industrial construction grew in both Sweden and Norway during 2012 primarily through major investments in base industry while in Finland developments were the opposite. Global turbulence is expected to lead to a decline in exports in 2013, which will dampen investments in industry in Sweden and Norway while Finland may experience a slight upturn from a low level. PUBLIC PREMISES Construction in the public sector in Sweden dropped slightly in 2012 while it continued to rise to new record levels in Norway. There was a minor upturn in Finland although investments are still on a low level. Construction in 2013 is expected to slowly cool down to more normal levels in both Sweden and Norway as a result of concerns about shrinking tax incomes in Sweden and the indebtedness of many municipalities in Norway. Source text: Industrifakta. 6 PEAB ANNUAL REPORT 2012

11 CONSTRUCTION AND CIVIL ENGINEERING MARKET rise again in Even the policy interest rate is expected to increase later in the year. This can dampen household borrowing and lead to a slightly weaker demand for housing. At the same time unemployment is expected to remain on the low level of around 3 percent in Finland Government finances continued to be stable despite lower growth in The forecasts for GNP in 2013 are on the same level as in Sweden despite slightly lower household consumption and growing unemployment. Comparatively high inflation of around 3 percent is expected to fall somewhat in the next two years, which can maintain real incomes. Household finances are also supported by an extremely low interest rate, which is expected to drop even further. Civil engineering investments Total construction and civil engineering investments Ongoing investments, MSEK 100,000 80,000 60,000 40,000 20,000 Total building construction and civil engineering investments, MSEK 300, , , , ,000 50, F F Sweden Norway Finland F=Forecast Sweden Norway Finland F=Forecast SWEDEN Civil engineering construction increased in 2012, in part through substantial private investments in energy supply. Even public civil engineering investments rose slightly but they are expected to fall back again in 2013 due to lower funding. Unchanged levels are forecasted for 2013 despite the enormous investment needs in mass communication and energy supply. NORWAY Civil engineering construction accelerated in Norway during 2012 and this is expected to continue in 2013 as well. Growth is generated in several areas but above all in roads and railroads as well as energy-related investments, including the offshore sector. Factors that may have a dampening effect on Norwegian civil engineering construction are the lack of available capacity and the inability of municipalities to finance major projects. FINLAND Finnish civil engineering investments were more or less unchanged in 2012 and this is projected for 2013 as well. Major mass transit investments are in progress in the region around the capital where an influx of new residents has created a need for more efficient communications including a new metro line. One area of uncertainty in the coming years is what will be prioritized in the government s financial policy. PUBLIC SPACE DOMINATES The greatest single sector in Nordic construction in 2012 was public premises with investments for a total of around SEK 190 billion. Included in this sum are a number of smaller sectors such as healthcare, education and public administration. Next in line was civil engineering construction at around SEK 170 billion followed by new and refurbished housing for some SEK 142 billion and private premises such as offices, stores and industrial facilities at around SEK 118 billion. In addition to the total construction investments of about SEK 620 billion, costs for maintenance, renovation and repair amounted to around SEK 430 billion. CONSTRUCTION DEVELOPMENT During the past five years total construction investments in Sweden and Norway have more or less hovered around SEK 200 to 250 billion per year, while total investments in Finland have been considerably more modest at around SEK 125 billion. And although Sweden and Norway have different underlying macroeconomic situations the two countries still had similar business cycles that were plainly affected by the crisis in the euro area. Finland, however, has had a completely different business cycle and a more stable investment level where, somewhat surprisingly, the effect of developments in the rest of Europe are not as obvious. Even the accumulated forecasts for 2013 vary between the countries. In both Sweden and Norway construction volumes are expected to contract while in Finland it looks like they will remain on the same stable level as the past few years. However, a prerequisite for this development is that no new negative events occur in the euro area that affect employment levels, financing terms etc. in the three Nordic countries. Source text: Industrifakta. PEAB ANNUAL REPORT

12 BUSINESS MODEL A Nordic Community Builder in constant development Peab s business model is built on our shared fundamental values that are in turn based on our four core values: Down-to-Earth, Developing, Personal and Reliable. These are the cornerstones of Peab s company culture and they steer the way we work. Together our four business areas form a comprehensive offer to the market. Fundamental Values Peab s business model is built on our shared values and the four core values that permeate every aspect of our business. We continually develop our personnel based on this foundation. OUR CORE VALUES Down-to-earth: We will be down-to-earth in the way we work, decision-making will be close at hand and we will be sensitive to the needs of our customers. Developing: We will be innovative, flexible and strive for continuous improvement. Personal: Through an honest and trustful dialogue with our customers and partners we will create and maintain long-term, good relationships. Reliable. We will always perform with good business ethics, competence and professional skill. Stakeholders Owners Financiers Customers Suppliers Employees Society External factors The economy Interest rates Financial market Market needs Demographic growth and urbanization The environment Stakeholders External factors Property Development Financial goals Earnings in Peab will be used to develop the business and generate a return to the owners. The business is steered by the financial goals: Return on equity The equity/assets ratio Dividends These are broken down into a number of operational goals adjusted to suit different operations in the Group. Read more about our goals on page PEAB ANNUAL REPORT 2012

13 BUSINESS MODEL A business concept that builds on local entrepreneurs with a big group s resources We have a clearly defined business concept that is built on a large number of entrepreneurs working close to our customers with access to the competence and scale advantages that only a big group can offer. BUSINESS CONCEPT Peab is a construction and civil engineering company that puts total quality in every step of the construction process first. Through innovation combined with solid professional skills we make the customer s interest our own and thereby build for the future. Vision Our vision PEAB BUILDS SUSTAINABLE COMMUNITIES FOR THE FUTURE We are the obvious partner for community building in the Nordic region. We come up with ideas, take initiative and break new ground. We conserve resources and our climate smart solutions have spearheaded developments. Our work is sustainable throughout its entire life cycle. PEAB IS THE NORDIC COMPANY FOR CONSTRUCTION Our entire organization works together to exceed our customers expectations. Peab is always close to our customers no matter whether they operate locally, nationally or globally. Satisfied customers contribute to our success in the entire Nordic region. PEAB ATTRACTS TALENTED PEOPLE We are the number one Nordic employer. Our values are simple and clear. Our personnel is deeply engaged and our leaders committed to helping people develop. When our employees grow, Peab grows. Construction Business concept Value creation Sustainable community building Customer benefits Return on investments Competence development Experience transfers Community benefits Fundamental Values Civil Engineering Value creation Financial goals Industry Strategies Four business areas that form a competitive offer With our four business areas Construction, Civil Engineering, Industry and Property Development we have access to, either through direct ownership or well-developed partnerships, the strategic resources required to carry out major, resource-demanding projects. This allows us to offer customers everywhere in the Nordic region effective comprehensive solutions. Read more about our business areas on pages Group strategies that lead to our vision We realize our vision through six Group strategies: Cost-efficient business Investment in profitable growth in the Nordic region Be seen and heard in the Nordic region Pioneers in sustainable community building Strengthen and develop customer relations Be the best workplace in the Nordic region Read more about our strategies on page 10. PEAB ANNUAL REPORT

14 GROUP STRATEGIES Group Strategies Our six defined Group strategies help us in the work to achieve our vision. Our strategic focus is long-term but can be adapted short-term to current conditions. Starting in the latter part of 2012 our focus has been on ensuring cost-efficient operations due to the latest developments in profitability and the weakening market. Strategy Cost-efficient business Description Cost efficiency is essential to developing a competitive business that can also produce a return for Peab s owners, which is why we are always focused on increasing efficiency throughout our operations. Investment in profitable growth in the Nordic region Profitable growth is essential to Peab s value creation. Growth is important since it improves our ability to compete in part because big companies are usually involved in big projects and in part because size is an advantage that lowers costs. Be seen and heard in the Nordic region We intend to make Peab a household name as a Nordic Community Builder. By being seen and heard, in our own industry and on the Nordic market, we can better attract customers, personnel and investors. Pioneers in sustainable community building By being pioneers in sustainable community building we not only create value for our customers and their customers, we create value for society at large, our employees and our owners. This, in turn, paves the way for new markets and business opportunities for both our customers and us. Strengthen and develop customer relations In addition to being the foundation of Peab s operations our strong customer relations are the key to efficient production at lower prices with higher quality. The best workplace in the Nordic region In the coming years more and more Peab employees will retire while the labor force will diminish as people born in the 40s leave it. This sharpens the competition for young, qualified workers in construction and in industry in general. At the same time Peab plans to grow which means we must be able to attract, develop and keep new employees. 10 PEAB ANNUAL REPORT 2012

15 Financial and operative goals FINANCIAL AND OPERATIVE GOALS The surplus from operations will be used in investments, to develop our business and deliver a return to our owners. FINANCIAL GOALS Peab s management steers operations based on the Board s guidelines that are founded on three financial goals; Return on equity, Equity/assets ratio and Dividends. They were adopted in the spring of 2007 and are valid for the entire Group. The goals are clear and simplify communication with financial markets. Over time goal achievement can vary with changes in the economy but also depending on the different stages of our development where some are characterized by expansion and others by consolidation. Last year Peab successively moved out of the expansive phase of the past few years that was coupled with heavy investments. We have acquired companies, started up in new places and invested in different development projects. These investments have been aimed at strengthening our position but they have charged profitability and cash flow in the short term. In 2012 we have continued to invest in housing and property development projects as well as machines. In coming years Peab will scale down investments below 2012 levels in all our business areas except Property Development which is under construction. OPERATIVE GOALS Peab consists of a number of different operations with different conditions and therefore they have internal goals that fit each individual business. These goals are regularly followed up through reports on projects and profit units. Operative goals are primarily focused on three areas: Profitability: This is measured through the operating margin where we focus on price-setting and particularly overhead, as well as through the return on capital employed in order to ensure optimal use of the capital tied up in facilities and project developments. Cash flow and liquidity: Cash flow before financing must always be positive in the long-term. Even if this may deviate for a particular year, the tied up working capital and investment levels must, over time, match the cash flow generated by operative units. The Group s liquid funds, including unutilized credit facilities, amounted to SEK 5.7 billion per 31 December Tied up capital: Tied up capital is an important steering instrument to ensure that the business is capital effective, that the Group prioritizes the right project and that Peab always has the resources it needs to grow. A Group level investment team decides on the business areas investments for both machines and project property. This keeps the entrepreneurial spirit in our units intact while ensuring that the Group s tied up capital is used optimally. PEAB GROUP S FINANCIAL GOALS Goal Comments Return on equity will be a minimum of 20 percent The goal is set to create an effective business and a rational capital structure based on Peab s business. In recent years returns on equity have fallen largely due to lower earnings in current operations. At the same time we have expanded our business which has in the shortterm charged profitability but will long-term strengthen our earnings. In 2012 profitability in business areas Civil Engineering, Industry and Property Development improved. The result in Construction was charged by project adjustments and write-downs that totaled SEK 675 million, which had a negative effect on the return on equity. In 2012 return on equity amounted to 9.2 percent. Return on equity % Goal >20% Equity/assets ratio will be a minimum of 25 percent The equity/assets ratio regulates the relationship between equity and debt. The goal, which is set to balance the owners demands on returns and the need to safeguard the business during times with a more difficult market situation, entails that a minimum of 25 percent of Group assets are financed through equity. The equity/assets ratio goal has been reached or surpassed in recent years. The high rate of investment in the past few years has led to a larger balance sheet total, which has resulted in a lower equity/assets ratio. In 2012 substantial write-downs in construction operations have, in addition, affected the equity/assets ratio negatively. The equity/assets ratio amounted to 24.9 percent per 31 December Equity/assets ratio % Goal >25% Dividends will be a minimum of 50 percent of profit after tax The goal is set to ensure the owners return on their contributed capital as well as meet the company s need for funds to develop operations. A dividend of SEK 1.60 per share is proposed for Calculated as a share of consolidated reported profit after tax the proposed dividend is 65 percent. The proposed dividend corresponds to a direct return of 5.2 percent calculated at the closing price on 31 december Dividends 1) % Goal >50% ) For 2012, Board of Directors proposal. PEAB ANNUAL REPORT

16 A Nordic Community Builder: Fewer accidents on straight roads E6 Bohus County, June 2012: E6 ties together the financially important regions Öresund, Gothenburg and Oslo. The highway has been notoriously crowded in Bohus County where heavy traffic, tourists and residents jostle shoulder to shoulder. The worn road has entailed major traffic problems and caused accidents. In June 2012 Peab opened new stretches of E6 that were now rerouted to keep heavy, through traffic off city streets. Through this project business areas Industry and Civil Engineering have laid yet another piece of the community puzzle that brings Nordic people closer to each other. Read more about E6 Bohus County at E6 Bohus County 12 PEAB ANNUAL REPORT 2012

17 BOARD OF DIRECTORS REPORT Board of Directors Report The Board of Directors and the Chief Executive Officer of Peab AB (publ), Corporate ID Number: , hereby submit the following annual report and consolidated accounts for the 2012 financial year. NET SALES 1) Group operative net sales for 2012 increased from SEK 44,015 to 45,997 million, which was an increase of 5 percent. Net sales in all the business areas increased. This increase is due to a relatively good market at the beginning of the year and a high level of production throughout the year. After adjustments for acquired and divested units operative net sales increased by 5 percent compared to the last year. The adjustment in housing reporting affected net sales by SEK 843 million (-476). Reported Group net sales for 2012 therefore increased by 8 percent to SEK 46,840 million (43,539). Of the year s net sales, SEK 9,551 million (7,616) were attributable to sales and production outside Sweden, which means that the Group has expanded its Nordic presence. PROFIT 1) Operative operating profit for 2012 was SEK 1,002 million compared to SEK 1,483 million last year. The adjustment in housing reporting affected operating profit by SEK 53 million (22). Reported operating profit for 2012 therefore amounted to SEK 1,055 million (1,505). The lower operating profit is largely due to project adjustments and write-downs in business area Construction for a total of SEK 675 million, consisting of SEK 300 million for Tele2 Arena in Stockholm and SEK 375 million in Norway. Underlying earnings in construction are stable but too low. An action plan to restore profitability was therefore initiated during the year. The other three business areas Civil Engineering, Industry and Property Development have developed positively during the year and operating profit increased in all of them. The operative operating margin was 2.2 percent compared to 3.4 percent in Corrected for project adjustments and write-downs for a total of SEK 675 million underlying Group operative operating margin amounted to 3.6 percent (3.4). Depreciation for the year was SEK 848 million (803). Net financial items amounted to SEK -242 million (-310), of which net interest expense amounted to SEK -294 million (-234). Received dividends were SEK 46 (20) million during the year. The effect of valuing financial instruments at fair value affected net financial items by SEK 39 million (-78). The income effect of valuing the Brinova holding at fair value until its divestiture in the third quarter amounted to SEK 27 million (-81), which explains most of the improvement in net financial items. Pre-tax profit amounted to SEK 813 million (1,195). Tax for the year was SEK -88 million (-252). Tax was affected by the sales of property projects through the divestiture of shares where the gains are not taxable. There have also been positive tax effects due to the lowered tax rate in Sweden, which affected deferred tax positively by SEK 80 million. Profit for the year amounted to SEK 725 million (943). FINANCIAL POSITION The equity/assets ratio on 31 December 2012 was 24.9 percent compared to 25.4 percent at the previous year-end, which is in line with the Group financial goal. Interest-bearing net debt amounted to SEK 6,470 million (6,626). During the year Peab has continued to invest in housing and property developments as well as machines. Net debt decreased during the fourth quarter by around SEK 1,600 million as a result of property sales, settling receivables in partly owned projects and the divestiture of the Catena holding. The average interest rate in the loan portfolio including derivatives was 2.9 percent (3.5) on 31 December Group liquid funds, including nonutilized credit facilities, were SEK 5,661 million (4,944) at the end of the year. INVESTMENTS Net investments of tangible and intangible assets increased from SEK 906 million to SEK 925 million during the year. Project and development properties were acquired for a total of SEK 822 million (273) during the year. CASH FLOW Cash flow from current operations was SEK 503 million (60). The acquisition of project and development property for SEK -989 BOARD OF DIRECTORS REPORT Operative net sales MSEK 50,000 40,000 30,000 20,000 10, * * Pro forma including Peab Industri Operative operating profit and margin MSEK % 3,000 2,500 2,000 1,500 1, * * Pro forma including Peab Industri Equity/assets ratio 1) % 35 Goal >25% ) According to legal accounting 1) Peab applies IFRIC 15, Agreements for the Construction of Real Estate, in legal reporting. As a result IAS 18, Revenue, will be applied to Peab s housing projects in Finland and Norway as well as Peab s own single homes in Sweden. Revenue from these projects will be recognized first when the home is handed over to the buyer. Segment reporting is based on the percentage of completion method for all our projects since this mirrors how executive management and the Board monitor the business. There is a bridge in segment reporting between operative reporting according to the percentage of completion method and legal reporting. Operative net sales and operative operating profit are reported according to the percentage of completion method. Net sales and operating profit are reported according to legal accounting. PEAB ANNUAL REPORT

18 BOARD OF DIRECTORS REPORT BOARD OF DIRECTORS REPORT million (-682) is also included in the cash flow from current operations. Cash flow from investment activities was SEK 471 million compared to SEK -1,131 million the previous year. The year has been affected positively by divestitures of property and settling interest-bearing receivables in partly owned projects as well as the disposal of the holdings in Brinova and Catena. During the year investments in housing and property development projects and in machines have continued. The redemption of futures for shares in Lemminkäinen Oyj has affected cash flow by the cash paid for shares. The previous year was characterized by broad expansion with investments in all our operations. Cash flow before financing amounted to SEK 974 million compared to SEK -1,071 million last year. ORDERS RECEIVED AND ORDER BACKLOG CONSTRUCTION AND CIVIL ENGINEERING Orders received in 2012 amounted to SEK 38,743 million compared to SEK 37,986 million in Included in orders received for Construction is Peab s single largest project ever, the Mall of Scandinavia in Solna, as well as housing connected to Arenastaden and other housing projects located primarily in major Nordic cities. Business area Construction has received new orders for a number of shopping centers, new construction or renovation of hotels in Sweden and several other large projects such as a new stage of MAX IV laboratory in Lund. Some of the orders received in the Environmentally classified senior and sheltered housing The demand for secure and comfortable housing is growing as the average age of populations rises. Peab is building senior and sheltered housing in several places in Sweden. One example is Sala where the fourfloor, 80 room building has been environmentally classified as a Miljöbyggnad (Environmental Building) Gold. The concept Miljöbyggnad documents important qualities in a building regarding energy, indoor environment and material. A building can be given one of three rankings and Gold is the highest. business area Civil Engineering were for local industries, new maintenance contracts for roads and extensions of Nordic roads. We also received an order from SSAB for an extension of the deep harbor in Oxelösund and a number of orders from the mining industry. Order backlog yet to be produced at the end of the year amounted to SEK 28,056 million (28,378). Although the number of orders received increased in 2012 compared with 2011, the high rate of production during the year meant that the order backlog was slightly lower at the end of 2012 than at the end of Of the total order backlog, 30 percent (24) is expected to be produced after Swedish operations accounted for 87 percent (86) of the order backlog. No orders received or order backlog is given for the business areas property Development and Industry. COMMENTS ON THE BUSINESS AREAS As of 1 January 2012 the Peab Group is presented in four different business areas: Construction, Civil Engineering, Industry and Property Development. The business areas are also operating segments. Comparable figures for the year 2011 have been translated into the new business areas. Construction of our own development projects is presented in segment reporting according to the percentage of Orders received and order backlog Orders received Order backlog Dec 31 Dec MSEK Construction 27,185 27,841 20,132 20,578 Civil Engineering 12,729 11,350 8,610 8,526 Eliminations 1,171 1, Group 38,743 37,986 28,056 28,378 Orders received and order backlog Construction and Civil Engineering MSEK 40,000 30,000 20,000 10,000 MSEK 40,000 30,000 20,000 10, Order backlog per 31 Dec Order intake Return on equity 1) % Goal >20% ) According to legal accounting Net investments incl. project and development property MSEK 8,000 6,000 4,000 2, * * Including the effect of the acquisition of Peab Industri Cash flow before financing Mkr 1, ,200-1, * * Including the effect of the acquisition of Peab Industri 14 PEAB ANNUAL REPORT 2012

19 BOARD OF DIRECTORS REPORT completion method. Unrealized internal profits and net sales are eliminated within the Group. When our own housing development projects are divested these effects are returned to the Group and the capital gains from the sales are reported in business area Property Development. Read more about our business areas on pages In addition to the business areas, central companies, certain subsidiaries and other holdings are presented. The central companies primarily consist of the parent company Peab AB and Peab Finans AB. Peab AB s operations consist of executive management and shared Group functions. The internal bank Peab Finans AB handles the Group s liquidity and debt management as well as financial risk exposure. The company is also a service function for the subsidiaries and works out solutions for loans and investments, project-related financing and currency risk hedging. Operating profit for the year for Group functions was SEK -232 million (-210). STOCKHOLM WATERFRONT Stockholm BOARD OF DIRECTORS REPORT Net sales and operating profit per business area Net sales Operating profit Operating margin Construction 27,992 27, % 2.2% Civil Engineering 12,643 11, % 3.4% Industry 10,723 10, % 6.7% Property Development % 16.4% Group functions Eliminations 5,815 6, Operative 1) 45,997 44,015 1,002 1, % 3.4% Adjustment in housing reporting 2) Legal 46,840 43,539 1,055 1, % 3.5% 1) According to percentage of completion method (IAS 11). 2) Adjustment of the accounting principle for own homes in Sweden and housing in Finland and Norway to the completion method (IAS 18). Share of Group operative net sales, 2012 Share of Group operative operating profit, 2012 Share of Group employees, 2012 Industry, 21% (21%) Property Development, 1% (0%) Property Development, 4% (2%) Industry, 62% (40%) Construction, 1% (35%) Civil Engineering, 35% (23%) Property Development, 1% (0%) Industry, 21% (20%) Construction, 54% (56%) Construction, 53% (55%) Civil Engineering, 24% (23%) Civil Engineering, 25% (25%) PEAB ANNUAL REPORT

20 BOARD OF DIRECTORS REPORT Business area Construction everything from construction maintenance to extensive community projects With many years of experience from all kinds of projects Peab s construction operations offer customers a wide range of expertise and cost-efficient solutions. Business area Construction provides complete service in housing, building construction, construction maintenance and project development. Operations comprise everything from construction service and renovation to developing entire city blocks. 16 PEAB ANNUAL REPORT 2012 ÄLVSJÖ RESECENTRUM Älvsjö

21 BUSINESS AREA CONSTRUCTION A year of challenges NET SALES AND RESULTS Operative net sales for 2012 increased marginally by around one percent from SEK 27,822 to 27,992 million. Operative operating profit for the year amounted to SEK -13 million compared to SEK 600 million in The drop in operating profit is due to the project write-down for Tele2 Arena in Stockholm which charged profits by SEK 300 million. Construction operations in Norway and Finland charged profits through higher costs and lower earnings in ongoing production. In the second quarter two projects in the Norwegian operations were written down by SEK 125 million. A revision of Norwegian construction operations was completed in the fourth quarter. This led to project adjustments and write-downs for a total of SEK 250 million attributable to write-downs in goodwill and receivables, a revaluation of disputes in a number of finished projects in the Oslo region and write-downs of development property. The operative operating margin sank to 0 percent compared to 2.2 percent last year. Adjusted for the previously mentioned project adjustments and write-downs of SEK 675 million, the operating margin was 2.4 percent (2.2). This shows a stable development during the year but nonetheless underlying earnings are too low. An action plan in progress will restore profitability Our expansion over the past few years, together with a wave of retirements, has entailed a great number of new employees and operations, and this requires more of our organization and leadership. We have initiated an action plan aimed at improving profitability by methodically developing our leadership, project organization and Gothia Towers Gothenburg high level logistics The 24 meter long main body of the bridge that connects the two Gothia Towers is being lifted into place here. This is high level logistics. Another logistics challenge is handling all the material being transported in and out of the busy city. Solving this type of complex problem in a cost-efficient and environmentally friendly way has become Peab s hallmark. Since 2012 Peab has been working on both expanding the existing hotel and conference facility Gothia Towers and building a completely new tower with 500 hotel room. This will make it the largest hotel in Sweden. The project is being carried out at the same time daily activity in the hotel and conference facility continues as usual, and work hours are stringently regulated to disturb the hotel environmental as little as possible. Completion of the new hotel tower is projected for the year-end 2014/2015. internal processes. This will, among other things, lead to a greater focus on profitability when choosing projects, ensure the Group has the right resources for the projects we take on and that follow-up and control of ongoing projects functions well. Weaker development in housing New production of Peab s own housing developments made up 8 percent of net sales in 2012 compared to 11 percent last year. Developments continued to be weak in the housing market. Only in Stockholm, Gothenburg and Helsinki are operations running more or less on a normal level. Own housing development start-ups were 1,679 (1,711). During the fourth quarter two major housing projects, one in Solna and one in Bromma with a total of some 300 apartments, were started up. The number of sold homes during the year was 1,738 compared to 1,531 during The number of our own homes in production at the end of the year was 3,134 compared to 3,470 at the previous year-end. The share of sold homes in production was 72 percent compared to 73 percent at the end of The current financial turbulence and the ceiling on mortgages in Sweden have entailed longer sales processes. This has a negative effect on our ability to start up new projects, given the requirements for presales at the start of production. The housing demand is affected by several factors such as demography, the economy, interest rates and access to housing loans. All in all these factors indicate a good demand in the long-term for housing with different kinds of ownership forms and we have noticed the demand for apartment buildings with rentals continues to be strong. The number of repurchased homes on 31 December 2012 was 191 compared to 183 per 31 December ORDERS RECEIVED AND ORDER BACKLOG Orders received for 2012, which included Peab s single largest project ever - the Mall BOARD OF DIRECTORS REPORT Business area Construction in summary The business is run in five geographic divisions in Sweden, one division in Norway, one in Finland and a new Nordic division, Special projects that specializes in larger, complex projects. MARKET SEGMENT Contract construction: Builds commercial and public facilities as well as industrial premises such as offices, shopping malls, arenas, schools and hospitals for private, municipal and federal customers. Construction maintenance: Works with maintenance, repairs, insurance claims, service to real estate companies and industries and smaller contracts. Customers are usually local although we have some nationwide Group contracts. Housing: Produces all kinds of housing which includes apartment buildings with tenantowners, condominiums and rentals. We also have a certain amount of single home construction. Customers are commercial and municipal players. We initiate our own projects in housing development that are then sold to private homeowners. Project development and ownership of apartments for rent are handled in business area Property Development. CUSTOMERS Peab has a number of Group customers on the Nordic market such as IKEA, McDonald s and Nordic Choice Hotels. Some new customers in construction maintenance for the year are Scania Real Estate and Volvo. Other large customers are real estate companies, municipalities, county council and municipal real estate companies, private customers like insurance companies and smaller regional and local customers. Business area Property Development is also an important customer. OTHER IMPORTANT PLAYERS Some of the important players on the market are Skanska, NCC, JM, Lemminkäinen, YIT and Veidekke. PEAB ANNUAL REPORT

22 BUSINESS AREA CONSTRUCTION BOARD OF DIRECTORS REPORT Jesper Göransson, acting Business Area Manager Construction Strategic priorities Greater focus on profitability such as closely monitoring the action plan initiated in Careful selection and prioritization of projects in order to optimize margins. Continued development of customer concepts, industrial construction and standardization and industrialization of all our processes and systems. Greater cooperation with customers through, for instance, Trust-based contracts that create value for all parties. Continued focus on human capital, particularly by continuously improving safety. of Scandinavia in Solna, were lower than in Production of ongoing projects has been rapid in recent years and order backlog at the end of the year amounted to SEK 20,132 million (20,578). COMMENTS ON THE YEAR The rate of production during the year was high. We worked in more than half of the municipalities in Sweden. The large projects initiated in 2012 were spread all over our geographic operational area from the very north to the very south of Sweden, in Norway and in Finland. We started construction on senior housing in Nyköping and Sala, stores in Uddevalla, Stockholm, Älmhult, Luleå and Kristianstad. We began hotel projects in Gothenburg, Malmö and Stockholm, a multi-hall in Vardö in the very north of Norway, a post office terminal in Sigtuna, a facility for traffic safety in Borås, the Emil i Lönneberg site in Vimmerby and much more. This list clearly demonstrates the wide range of Peab s building production. Arenastaden in Solna is one of Peab s largest worksites and a great deal happened there in The spectacular inauguration of Friends Arena generated an enormous amount of attention and we began construction of the Mall of Scandinavia, a project all Peab s business areas are involved in. During the year a whole new division was created; Special projects. Here we have collected our top notch expertise in the production of special projects like the Mall of Scandinavia and IKEA department stores. Peab has also continued to develop logistic systems. Not only large projects but nearly every worksite is affected by this. By improving logistics we can make major savings in the environment, costs, time and more. Continued development of standardized concepts In line with the strategy for the whole Group to strengthen and develop Peab s customer relations we have continued to develop our customer concepts during the year: Bolyftet, Peab Småhus and Annehem, and we launched a new one, Housing for Youths. Bolyftet is a comprehensive concept for sustainable refurbishment of the housing projects from the 60s and 70s. The concept balances social, financial, environmental and energy conservation aspects. In addition to specially designed construction and energy technique solutions, as well as financing alternatives, the concept contains measures to make the housing projects in need of upgrading safer and nicer, and cre- Important projects and events Friends Arena, Sweden s new national arena in Solna was completed and inaugurated in October. Demolition of the old arena, Råsunda, began after the inauguration and this area is now being planned for housing. Construction of housing in Arenastaden and Sweden s largest shopping center the Mall of Scandinavia commenced. Steen & Ström commissioned Peab to build the new Gallerian in Kristianstad. The first stage of the technically complicated laboratory Max IV in Lund was completed and a new contract for the second stage was signed. Peab was commissioned by Nyköping Municipality to build 146 apartments for senior and sheltered housing in Nyköping. The unit will also contain an assembly room, workshops for day activities, a restaurant with a kitchen and personnel and office space. Together with Peab s other business areas Construction will continue to work for Northland Resources in the Kaunisvaara mine. One new project is the construction of a concentrator. For more information on Northland Resources, see page 34, Important events after yearend. Events after the end of the period After a revision of the Norwegian operations, which resulted in project write-downs and in order to further improve profitability in Business Area Construction, leadership in the business area has been reinforced. As of 1 January 2013 Tore Hallersbo is responsible for the further development of divisions Norway, Finland and Special Projects. With its specialist expertise Division Special Projects will support operations in Norway throughout the entire production process. As of 8 April 2013 Roger Linnér is the operative manager for the Swedish construction divisions and business area staff. As of March 2013 Jesper Göransson is acting Business Area Construction Manager. Operative net sales MSEK 30,000 25,000 20,000 15,000 10,000 5, Operative operating profit and margin MSEK % 1, , Operating profit Operating margin, % 18 PEAB ANNUAL REPORT 2012

23 BUSINESS AREA CONSTRUCTION ate jobs there. Two examples of projects that were initiated during the year were Vallby in Västerås and Rosengård in Malmö. Peab Småhus is a concept for terrace houses, link houses and single homes. Based on a common technological platform the house models are developed with customers in mind. Prefabricated houses with low energy consumption are built efficiently and safeguarded from dampness. Thousands of single homes are in the planning stage within a 5-7 year horizon. During the year two projects were initiated, one in Ale municipality and one in Västerås. Annehem is a concept for Senior, Sheltered and Nursing Home housing where Peab, together with our partners who are municipalities and real estate companies, offer turnkey senior housing including associated facilities for services and activities in the buildings. During the year 63 apartments in Kristianstad were built based on PGS (Peab General System). A new customer concept was also initiated during the year called Housing for Youths. The idea is to make it possible for large numbers of young people to move away from home by building apartments with cost-efficient production. The methods are many and include rationalizing living space and smart interior solutions. A precursor to the concept is being built in Arenastaden in Solna. Almost 60 percent of those who have booked an apartment are born in the 1980s or 90s. Many of them are first-time buyers. PGS (Peab General System) is a module-based construction system. PGS develops and delivers a flexible system of Efficient logistics Modern, customized logistics are key to efficient construction projects. Well thought-out logistics with clear and specific demands on times, places and methods are exacting but they are also good for profits and the environment. Peab s concept for efficient logistics requires real commitment from everyone on a worksite. Every project tailors its model based on plain common sense. An example of a project where logistics functioned well is Stockholm Waterfront which Peab built next to Kungsbron in Stockholm. construction components that are manufactured in a factory and mounted on site into a complete apartment building. In other words, PGS entails industrial construction from fabrication to finished building. The result is shorter construction times and high, uniform quality in attractive, energy-saving and environmentally friendly housing. Some of our ongoing and future projects are: Sheltered Home Översten in Västerås, the rental apartments Pippi in Malmö and the tenant-owned apartments Eklyckan in Mölnlycke. THE MARKET Developments in Swedish building construction start-ups were slow in 2012, despite a relatively strong start at the beginning of the year. This is primarily due to the weak development in start-ups in private and public premises during the second half of the year. We can already see that housing production does not meet the need for new homes. This leads to a growing housing shortage, which hampers development on the labor market and can even affect economic growth. A large part of the investments made over the next few years will in all probability be in maintenance and repair. Norwegian building construction startups have had stable growth in 2012, although not at the same high rate as previous years. As a result of a dramatic drop in building construction start-ups in Finland during the third quarter developments in 2012 were slightly down from the previous year. Maintenance and repairs have developed stably in Sweden, Norway and Finland. This market is less sensitive to ups and downs in the economy. BOARD OF DIRECTORS REPORT Key ratios Operative net sales, MSEK 27,992 27,822 Operative operating profit, MSEK Operative operating margin, % Orders received, MSEK 27,185 27,841 Order backlog on 31 December, MSEK 20,132 20,578 Number of employees 7,384 8,169 Operative net sales 2012 per type of operations Construction maintenance, 10% (11%) Renovation, 24% (24%) Other, 2% (3%) New construction, 64% (62%) Own housing development production Number of housing starts during the year 1,679 1,711 Number of homes sold during the year 1,738 1,531 Total number of homes under construction, at year end 3,134 3,470 Share of sold homes, at year end 72% 73% Number of repurchased tenant-owned rights/shares in Finnish companies in the balance sheet, at year end PEAB ANNUAL REPORT

24 BOARD OF DIRECTORS REPORT Business area Civil Engineering infrastructure production and maintenance Peab is a major player in civil engineering in Sweden, Norway and Finland. The business area builds and maintains roads and railroads, bridges and other infrastructure. Civil Engineering works with operation and maintenance in more than half of Swedish municipalities as well as with road main tenance in many operational areas. 20 PEAB ANNUAL REPORT 2012 FORSBACKABRON Söderhamn

25 BUSINESS AREA CIVIL ENGINEERING Continued growth with improved margins Collaboration creates effective solutions Peab is expanding Fagernes terminal for Northland Resources in the Port of Narvik in Norway. The work includes building a pier, a heated loading facility for freight cars, a storage building and facilities for loading ships. Under the Cliffton brand Peab is also trucking the iron ore mined in Kaunisvaara to the reloading terminal in Pitkäjärvi outside Svappavaara. There the iron ore is reloaded onto freight trains and transported on the Malmbanan railroad to Narvik. Our collaboration with Northland shows how three cooperating business areas under the leadership of Peab Civil Engineering can build up an infrastructure in a cost-efficient and environmentally friendly way that is beneficial to the community. tivity in the entire business area. Another contributing factor is the broad range of services the business area offers which makes it possible to shift resources to the sectors NET SALES AND RESULTS Net sales for 2012 rose from SEK 11,554 million to SEK 12,643 million, which is an increase of 9 percent. Even after adjustments for acquired units the increase was 9 percent. This growth is primarily due to public and private investments. The Local market shows positive developments in net sales as a result of a highly active construction market. The increase in net sales combined with improved productivity affected the operating result positively. Net sales also increased in Operation and maintenance. Nonetheless operating profit was lower than last year. This is primarily a result of a weak start at the beginning of the year and tougher competition from other players which led to low prices on the market. Net sales and operating profit in Infrastructure and heavy construction were lower than last year. This business is dependent on political decisions which means net sales can vary from year to year. There were relatively few new projects in The lower level of activity affected operating profit negatively which was also charged by write-downs in some ongoing projects. The business area s operating profit for the year increased from SEK 390 million to SEK 440 million and the operating margin increased to 3.5 percent (3.4). This means that the trend of higher net sales and improved margins in the past few years continues. Two forces behind this are the positive developments in the market and our systematic work to improve producwhere demand is the most at the moment. In the short-term this means better capacity utilization. In the long-term it makes it easier to retain our employees, which is crucial to consistent and sustainable profitability. ORDERS RECEIVED AND ORDER BACKLOG The level of orders received increased by 12 percent in 2012 to SEK 12,729 (11,350). Due to an intense production of new orders the outgoing order backlog only grew marginally and at the end of 2012 it was SEK 8,610 million (8,526). COMMENTS ON THE YEAR During the year work on analyzing the tendering process and project management intensified. Procedures in connection with tenders on new projects have been overhauled to ensure that calculations are correct and that there is enough suitable competence and other resources available for the project. In other words, we will not take on projects that do not have the prerequisites to generate a satisfactory profit. Operation and maintenance is an important area for Peab. In order to clarify and draw attention to Peab s offer in the area of road maintenance and showcase that we are an important player, a new national brand, Peab Operation & Maintenance, was created in We make and take care of parks, places to swim, playgrounds, locks and harbors, keep traffic flowing, keep places clean, clear snow away and sweep sand all over Sweden. BOARD OF DIRECTORS REPORT Business area Civil Engineering in summary MARKET SEGMENTS Local market: Does landscaping and pipelines, foundation work and builds different kinds of facilities. Infrastructure and heavy construction: Builds roads, railroads, bridges, tunnels and ports as well as industrial plants. Net sales per business segment, 2012 Infrastructure and heavy construction 29% (32%) Operations and maintenance 20% (20%) Local market 51% (48%) Operation and maintenance: Operation and maintenance of national and municipal highway and street networks, parks, outdoor property caretaking as well as the operation of sewage and water supply networks. CUSTOMERS Local market: Customers are usually municipalities, local businesses and energy companies. Infrastructure and heavy construction: Customers are usually national traffic administrations, municipalities and industrials. The mining industry, with companies like LKAB, Northland Resources and Boliden, is another large customer group. Operation and maintenance: Customers are usually national traffic administrations, municipalities and property owners. OTHER IMPORTANT PLAYERS Local market: Local companies and big companies with local presence such as Skanska, Svevia and NCC. Infrastructure and heavy construction: Skanska, NCC, Veidekke, Lemminkäinen and Svevia. In addition, international, mostly European, companies such as Strabag and Hochtief are involved in certain market segments. Operation and maintenance: Skanska, NCC, Svevia, Mesta and others. PEAB ANNUAL REPORT

26 BUSINESS AREA CIVIL ENGINEERING BOARD OF DIRECTORS REPORT Roger Linnér, Business Area Manager Civil Engineering Strategic priorities Continued work on improving profitability through stricter cost control, regular reviews of our offer and better tendering procedures. Higher personal responsibility for making sure regulations for a safe work environment, which also has a direct effect on profitability, are followed. Better cost efficiency through specialization in selected market segments and tailored, effective support functions. Greater flexibility to better handle variations in demand. The Norwegian operations have developed well during the year. The Swedish business model has been implemented and the exchange of experience has intensified. Among other things, Swedish production management has worked in Norway. Two important projects during the year have been the extension of the harbor in Narvik and major road construction outside Trondheim for Statens Vegesen. Capacity in Finland has been adjusted to current demand. Implementation of the Swedish model has also been prioritized. Roger Linnér who has worked at Peab since 1996, mostly in Civil Engineering, took over after Tore Nilsson, who was previously Business Area Manager, on 1 January Civil engineering for growing transportation For years now necessary railroad extensions have not been made even though the advantages of this form of transportation are many, particularly in regards to sustainability, and therefore investments in railroads are expected to pick up. Peab has been commissioned by the Swedish Transport Administration to build a new doubletrack stretch of the railroad between Motala and Mjölby that will augment the capacity and punctuality of trains. This includes building bridges and developing the station area. THE MARKET AND FORECASTS Civil engineering construction in Sweden has gone against the trend in building construction and developed well in This is due to private and government investments in developing and maintaining public infrastructure. Civil engineering construction in Norway developed favorably in 2012 as well. In Finland the total volume of civil engineering in 2012 was unchanged compared to the previous year. Important projects and events Handling iron and granite as well as goods at LKAB s mine Gruvberget in Svappavaara will continue until September Construction of a test facility for traffic safety at AstaZero outside Borås. Several major highway projects were underway during the year: Two stages of E6 in Bohuslän as well as Österleden in Helsingborg, E4 Sundsvall, Väg 22 between Rolsberga and Fogdarp in Skåne and the first major road project in Norway - E6 outside Trondheim. Several contracts were signed with the Swedish Transport Administration for the operation and maintenance of roads in some fifty different operational areas in the middle of Sweden. Peab Operation & Maintenance, a new national brand, was created to clarify and draw attention to Peab s offer in the area of road maintenance. Peab was commissioned by the Swedish Transport Administration in February 2013 to extend the railroad line Barkaby Kallhäll which is part of the Mälarbanan project. Key ratios Net sales, MSEK 12,643 11,554 Operating profit, MSEK Operating margin, % Orders received, MSEK 12,729 11,350 Order backlog on 31 December, MSEK 8,610 8,526 Number of employees 3,553 3,664 Development 2012 vs 2011 Net sales Operating profit Local market Operations and maintenance Infrastructure and heavy construction Net sales Operating profit and margin MSEK MSEK % 15, , , , , Operating profit Operating margin, % 22 PEAB ANNUAL REPORT 2012

27 BUSINESS AREA INDUSTRY BOARD OF DIRECTORS REPORT Business area Industry a strategic resource for the construction and civil engineering industries We deliver material, equipment and services to external customers and internally to Peab s construction and civil engineering projects. Thanks to our well known brands, industrialized operations, strategically placed gravel and rock quarries and production units we are leaders on the Nordic market. PEAB ANNUAL REPORT

28 BUSINESS AREA INDUSTRY BOARD OF DIRECTORS REPORT High capacity utilization NET SALES AND RESULTS Net sales in 2012 increased from SEK 10,404 million to SEK 10,723 million, which is an increase of 3 percent. After adjustments for acquired and divested units the increase was 2 percent. Operating profit for the year increased from SEK 693 million to SEK 788 million and the operating margin increased thereby to 7.3 percent (6.7). Due to the high level of activity in the construction and civil engineering markets, net sales increased in almost all the business segments, with the exception of Asphalt and Gravel and rock. Gravel and rock was hit by fewer infrastructure projects and Asphalt struggled on a market weighed down by overcapacity, which had a negative effect on Peab s volumes. Thanks to high capacity utilization results were higher in all the business segments except Concrete compared to last year. The lower result in Concrete is due to a shrinking market where greater competition led to lower prices. COMMENTS ON THE YEAR Having gravel and rock quarries close to growth regions is important for the business area s continued expansion, which is why we continue to prioritize the planning and developing of new quarries. During the year eight new quarries were opened. Significant investments in better machines such as new tower cranes and machines for the mining industry continued in We also invested in a new concrete factory and several mobile factories. Several companies were acquired in 2011 and they were integrated into the New gravel and rock quarries open up for expansion During the year several new quarries, among them one in Hästeryd in Alingsås, were opened. Opening a new quarry is always preceded by years of work that includes extensive environmental testing. Strategically placed quarries next to growth regions is the foundation of local expansion. business area last year. This led to a reorganization of operations so that the entire business area can take advantage of our collective competence. The construction and civil engineering sectors are being standardized and rationalized to reduce costs and environmental impact. Industrialization of the business area s processes therefore continued. Sustainability work is essential to attracting both customers and new employees. A program to minimize energy consumption and reduce environmental impact and thereby make operations more costefficient was launched in More foreign players on the Norwegian market do not just mean more competition. They also give rise to new business opportunities. During the year we began developing comprehensive solutions for international companies using Industry s entire range of products and services. We have bolstered our expertise in certain technology during the year in order to meet customers demands in areas like solidification, additives and binders as well as logistics. THE MARKET The outlook for business area Industry is pretty much the same as for the construction and civil engineering sectors. Business area Industry in Summary MARKET SEGMENT Asphalt: Manufactures and lays asphalt. Concrete: Works with ready-mixed concrete and pumping concrete. Gravel and rock: Production and delivery of ballast material as well as raw materials for asphalt and concrete production. Transportation and machines: Rental and supply of transportation and machine services. A new unit was started up in Transportation and machines: Mining which supplies the mining industry with material and services in connection with establishing and running mines. Net sales per business segment, 2012 Industrial construction, 4% (3%) Rental, 16% (16%) Foundation work, 8% (7%) Asphalt, 25% (26%) Concrete, 13% (13%) Foundation work: Foundation work, pile production, pile-driving, tonguing, drill plinths. Rentals: Offers a broad range of rentals of construction machines, work wagons, scaffolding, construction cranes, mobile cranes, crane trucks, construction elevators, temporary installations, electrical material and generators as well as provides services in energy technology. Industrial construction: Delivers prefabricated concrete elements MAJOR CUSTOMERS Some of our major customers are the Swedish Share of net sales, 2012 Internal sales 38% (37%) External sales 62% (63%) Transport Administration, Norwegian Public Roads Administration, municipalities, heavy industry and other construction companies. A number of international companies that want to start up in the Nordic region have also shown interest in our products and services. Big mining companies like LKAB and Northland Resources as well as smaller mines in the middle of Sweden are also customers. OTHER IMPORTANT PLAYERS Asphalt, Gravel and rock: NCC, Skanska, Svevia, Lemminkäinen, Veidekke. Concrete: Betongindustri, Färdigbetong Skanska, Sydsten, Finja and Strängbetong. Foundation work: Per Aarsleff, Hercules, Skanska and Kynningsrud. Transportation and machines: BDX and DSV along with a number of local contractors and trucking companies. Rentals: Cramo, Ramirent, Skanska Maskin, BDX, Havator, Nordic Crane Group, ED Knutsen Maskin and a number of smaller, local players. Transport and machines, 27% (27%) Gravel and rock, 7% (8%) 24 PEAB ANNUAL REPORT 2012

29 BUSINESS AREA INDUSTRY Karl-Gunnar Karlsson, Business Area Manager Industry Strategic priorities Increase cost-efficiency by regularly adjusting our business and production structure to the current demand. Continue to establish strategically placed gravel and rock quarries. Greater investment in technological development in selected areas. Stronger focus on sustainability work. More concept sales with a wider range. BOARD OF DIRECTORS REPORT The past few years strong housing construction in Sweden, Norway and Finland declined in all three countries in The market in other building construction weakened in Sweden in 2012 while there was some growth in Norway. Civil engineering investments increased throughout the Nordic region in 2012 due to significant needs in energy and communications. The mining industry also developed well with the start up of several new mines. IMPORTANT BRANDS To a certain extent Peab has built its industrial operations on the acquisition of competent companies with strong, local brands that complement the Peab brand, for example: Important projects and events in 2012 Start up of a new unit, Mining, in Transportation and machines to meet the demand in the mining industry. Several new rock and gravel quarries were opened, among them in Växjö and Södertälje. A new concrete factory was established in Helsinki and several mobile concrete factories were started, among them one in Narvik. Key ratios Net sales, MSEK 10,723 10,404 Operating profit, MSEK Operating margin, % Number of employees 2,944 2,953 Net sales MSEK 12,000 10,000 8,000 6,000 4,000 2, Operating profit and margin 2012 MSEK % Development 2012 vs 2011 Net sales Operating profit Asphalt Concrete Gravel and rock Transport and machines Foundation work Rental Industrial construction 1,200 1, Operating profit Operating margin, % PEAB ANNUAL REPORT

30 BOARD OF DIRECTORS REPORT Business area Property Development develops commercial property Property Development is responsible for the Group s acquisitions, development and sales of commercial property and rentals in the Nordic region. 26 PEAB ANNUAL REPORT 2012 MEDIA EVOLUTION CITY Varvsstaden, Malmö

31 BUSINESS AREA PROPERTY DEVELOPMENT An active first year NET SALES AND RESULTS Net sales and operating profit from operations is derived from running our wholly owned property, shares in the profit from partly owned companies and joint ventures as well as capital gains from the divestiture of completed property and shares in partly owned companies and joint ventures. The unit is also charged by costs for running the business area. During 2012 net sales were SEK 345 million (189) and operating profit amounted to SEK 51 million (31). This includes capital gains of SEK 76 million (-) from property sales and other income of SEK 42 million (-). During the year profit has been charged with negative profit contribution in development projects from partly owned companies as well as a higher level of costs for organizing a new business area. COMMENTS ON THE YEAR This first year was intense. Not only did we establish the business area we also traded in shares and made a number of property deals. Some development projects were divested, among them two finished properties and four housing projects under production to Willhem AB, four housing projects to Domestica and an office building in Hyllie. The divestitures freed resources for new project investments. Some of the acquisitions made during the year were Vasallen with 135,000 m 2 office space in the middle of Sweden and the military area Almnäs outside Södertälje. We also invested in the Inspi project, which is developing a health center in Malmö, and a hotel in Malmö which Nordic Choice Hotels will rent and run. During the year the listed holdings in Point Hyllie, Malmö s latest city district under development Point Hyllie is one of the areas being developed by Peab s Property Development. Its close proximity to Malmö C, Kastrup Airport and central Copenhagen has made Point Hyllie a favorite with customers who want office space. Peab has already built two office buildings there and they are fully rented. A third office building and a hotel are now in the works. The hotel will be run by one of Peab s Nordic customers, Nordic Choice Hotels. They are developing this 18 floor building together with Peab. The hotel, which is 45,000 m2, will be the third stage of Peab s ongoing investment in Point Hyllie. Catena and Brinova were divested. Property Development has together with Peab s other business areas developed various projects within the domain of their respective businesses. MARKET AND OUTLOOK We believe the demand for property development projects in the Nordic region from local and international players will continue to be good. However, a necessary prerequisite for being able to make these deals is that potential buyers will be able to get financing. Tomas Anderson, Business Area Manager Property Development Strategic priorities Extending our Nordic presence. Continued investments in projects in new areas as well as existing ones like Point Hyllie, Arenastaden, Varvstaden and Ulriksdal. Continued divestments of finished projects and other assets in order to free resources for new development projects. BOARD OF DIRECTORS REPORT Business area Property Development in Summary BUSINESS SEGMENTS Listed holdings: Listed holdings during the year have primarily consisted of shares in Catena and Brinova. Both holdings were divested in Partly owned companies: Peab s holding in Tornet that manages rentals and Centur that manages and develops retailing property. Also included are companies connected to Arenastaden in Solna and some other holdings. Wholly owned companies and projects: A large number of holdings that include everything from land for development where zoning is underway to finished projects ready to be sold. SIGNIFICANT PARTNERS AND OTHER PLAYERS These are renters, investors, municipalities, and leading Nordic real estate companies. Key ratios Net sales, MSEK Operating profit, MSEK Operating margin, % Number of employees 81 PEAB ANNUAL REPORT

32 RISK AND RISK MANAGEMENT BOARD OF DIRECTORS REPORT Risk and risk management MATERIAL RISKS AND UNCERTAINTY FACTORS Peab s business is exposed both to operational and financial risks. The affects of risks on Peab s results and position depend on how well we handle daily operations in the company. In addition, as a construction and civil engineering company Peab is vulnerable to external risks such as developments in the economy and changes in circumstances due to amendments in laws and regulations, and other political decisions. The parent company is indirectly affected by the risks described in this section. RISK MANAGEMENT The management of operational risks is a continuous process considering the large number of projects the company has in different phases of started up, carried out and completed. Operational risks are managed in the line organization in the business areas. Financial risks are associated with capital tied up in the company and its capital requirements primarily in the form of interest risks and refinancing risks. Financial risks are handled on Group level. The table below describes the most important risks and how they are handled. OPERATIONAL RISKS Peab s business is largely project related. Operational risks in day-to-day business are connected to tenders where erroneous calculations can lead to incorrect tenders, which can then lead to losses in projects. With margins so low in the industry it can take several profitable projects to compensate for the losses in one project. Peab minimizes this risk through a well developed process and system support for following up projects. Price risks primarily refer to prices for input goods moving in a direction that was not foreseen. Other operative risks are wrong product and method choices and access to competent personnel. FINANCIAL RISKS AND RISKS CONNECTED TO FINANCIAL REPORTING The Group is exposed to financial risks, such as interest rate risks linked to changes in debt and interest rate levels. There are also risks connected to financial reporting. Since Peab uses the percentage of completion method in most of our ongoing projects erroneous project forecasts mean that reporting and follow-ups will be misleading. A number of balance items are valued based on estimations and assessments and this value can be affected by, for example, the current market and customers` preferences. For further information on financial risks, see note 37. 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 is affected by changes in some of the important Group variables. Sensitivity analysis MSEK Operative Calculation basis Change Pre-tax profit effect Volume (operating margin constant) 47,000 +/ 10% +/ 108 Operating margin (volume constant) 2.3% +/ 1% +/ 470 Material and subcontractors 24,000 +/ 1% /+ 240 Financial Net debt (interest rate constant) 6,470 +/ 10% /+ 19 Average effective int.rate 1) (net debt constant) 2.9% +/ 1% /+ 39 1) The calculation is based on the assumption that SEK 3,884 million of the total net debt of SEK 6,470 million, has a fixed interest period shorter than one year and is thereby affected almost at once by a change in market interest rates. Risk Tenders Erroneous tenders and cost estimates can lead to significant losses in projects as well as the loss of an order. Percentage of completion Peab applies percentage of completion in most of its projects. Miscalculation of percentage of completion can result in external accounting being seriously misleading or that strategic decisions are based on incorrect information. Price risks For Peab, price risks refer to aspects like unforeseen price hikes for materials, subcontractors and wages. Risks vary according to the type of contract. Fixed price contracts also involve the risk of incorrect tender calculations and the risk that price hikes deteriorate profits because the company cannot demand compensation from the customer for them. Circumstantial risk The uncertainty in the world around us and the financial markets can cause financing difficulties for customers, suppliers and subcontractors. This can in turn lead to postponement of planned investments as well as difficulties in meeting existing obligations. Risk management Structured risk assessment is crucial in the construction business to ensure that risks are identified, correctly priced in tenders submitted and that the right resources are available. A prerequisite for percentage of completion is reliable forecasting. Well developed procedures and system support for the monitoring and forecasting of each project is crucial to limiting risks of erroneous percentage of completion. Methods of limiting price risks include rationalising construction processes and purchasing procedures and always endeavouring to procure materials and subcontractors back in the tender stage or as early as possible in the process. Customers and suppliers credit worthiness is assessed and handled in the businesses. A prerequisite for contract project initiation is that the client has found financing for the project. 28 PEAB ANNUAL REPORT 2012

33 SUSTAINABILITY Sustainability Peab s vision of being a Nordic Community Builder means we have an obligation to contribute to a sustainable society. As community builders Peab can and wants to influence the society we and future generations will live in. UN S GLOBAL COMPACT AND GRI In the autumn of 2012 Peab signed the Global Compact, a UN initiative for responsible business which includes principles concerning human rights, labor rights issues, the environment and anticorruption. More detailed information concerning Peab s work on sustainable development is given in Peab s sustainability report which follows the international guidelines laid down by the GRI (Global Reporting Initiative). The report is available on Peab s website 95 percent recycling at Seinäjoki The Itikanmäki district is an important development project for the expansive city Seinäjoki in Finland. Peab is tearing down the old factory buildings located just a kilometer from the city center and creating new blocks complete with housing, offices, restaurants and other cultural spots. This is the largest demolition project in Peab s history and we will recycle enough demolition waste to fill a thousand trucks. A mere five percent of the waste will be sent to a waste disposal site. All in all some 17,000 tons of cement and 13,000 tons of brick waste will be collected from the site. Some of the waste will be crushed on location and reused to build courtyard walls and noise barriers. STRATEGIC SUSTAINABILITY WORK Peab started up a sustainability council in 2012 and gave it responsibility for producing goals and action plans for Peab s continued sustainability work. The council handles the Group s day-to-day sustainability issues as well as prepares matters that need to be decided on by the executive management. Peab endeavors to integrate sustainability into every part of our business. Responsibility and authority has been delegated out to our line managements and they are supported by special competence in the environment, ethics and social matters on different levels in the organization as well as a number of steering and supportive documents. Peab s management system, comprising quality, the work environment and the environment meets the requirements in the Swedish Work Environment Authority s Provisions, AFS 2001:1 as well as in ISO 9001 and ISO CODE OF CONDUCT Peab s Code of Conduct is the overriding steering document for our sustainability work. This document is integrated into our company policy and is based on the principles in the UN s Global Compact. The Code of Conduct clarifies how Peab s employees should behave towards each other and suppliers and it is also included in contract texts to ensure that suppliers and contractors will behave in the same manner. In addition to the Code of Conduct there are a number of underlying policies and guidelines, such as Peab s ethical guidelines, which are fundamental to Peab s sustainability work. SUSTAINABILITY DIALOGUES AND OVERRIDING PRIORITIES Peab has a long tradition of cooperating with stakeholders in different forums in order to strengthen relationships and be receptive to demands and expectations. In 2012 Peab initiated stakeholder dialogues focused on sustainability. The eight overriding priorities in Peab s work on sustainability produced were based on internal and external prioritizations in sustainability. Sustainability matters will be completely integrated into operations. Peab must be considered an ethical and transparent company. BOARD OF DIRECTORS REPORT Number of accidents per million man hours Sick leave Number % Sweden Norway Finland 0 Sweden Norway Finland The statistics from Finland as of 2012 are for all business areas, which explains the higher figure for In 2010 and 2011 the statistics were based only on construction operations. The comparable figure for 2012 for construction operations is 29. PEAB ANNUAL REPORT

34 SUSTAINABILITY BOARD OF DIRECTORS REPORT Peab must have competent and clear leadership which is responsible for sustainability. Employees must have good knowledge of, and a strong commitment to, sustainability matters. Peab has a vision of zero workplace accidents. Peab will take responsibility for sustainability aspects in the value chain. Peab will continually reduce its environmental impact by choosing the right material, more efficient use of resources and minimizing waste and emissions. Peab will support and contribute to developing the communities we are active in. OUR EMPLOYEES Preventive work at our workplaces Peab has a vision of zero workplace accidents. In order to prevent accidents Peab provides safety equipment, quality assured work methods and training in this area. The statistics for workplace accidents are based on accidents that lead to at least 8 hours absence. The Finnish application of sick leave rules in relation to occupational injuries differs from that in Sweden and Norway which explains the higher figures in the diagram on page 29. All incidents and accidents are followed up. In Sweden this is done on a Web-based system for reporting and registering accidents and incidents called OTR (Accident and incident registration). Norway uses a similar Web-based system called RUH (Registration of Undesired Events) and in Finland incidents and accidents are reported directly to the head of work environment. During the year two mortal accidents occurred. Peab s crisis organization, trained by MSB, the Swedish Civil Contingencies Agency, is called in when serious accidents occur. The work environment is prioritized at Peab. In 2012 we invested heavily to further improve the work environment in the company through communication programs to increase risk awareness on our worksites and revision of our safety regulations. Executive management and management groups in the business areas visited many workplaces in order to emphasis the importance of a good work environment. Health promoting work Peab is constantly working on being the best working place in the Nordic region. Our goal is to have the healthiest and most content employees in the industry and we work systematically with prevention and rehabilitation and promotional health care. In Sweden human resource consultants have been hired to support and develop a workplace perspective that promotes health. All our employees are invited to partake in activities in the healthcare organization in their country. Sick leave has declined in Norway and Finland but risen slightly in Sweden compared to Equal treatment Peab believes all people have the right to be themselves without being discriminated. We have an equal treatment plan for our employees, students, trainees, temporary personnel and job applicants to hinder discrimination and support equal opportunities for all, regardless of gender, age, sexual preference or ethnicity. Peab has zero tolerance of harassment or degrading treatment. If such a situation arises we take forceful measures in line with our equal treatment plan to stop it. Employee questionnaire The Handshake is Peab s personnel questionnaire and it is distributed every other year in the form of an anonymous questionnaire. The purpose of the Handshake is to identify areas where Peab can improve by finding out how our employees view their work environment, leadership and Peab as an employer. The last questionnaire was sent out in 2011 and 87 percent answered, which was a 1 percent increase since it was carried out in The Handshake showed that, for instance, 77 percent of our employees would happily recommend others to work at Peab and 63 percent believe the environment is taken into consideration in their workplace, which is an increase of three percent from the measurement in PEAB ANNUAL REPORT 2012

35 SUSTAINABILITY Profit-sharing Peab has always endeavored to get our employees to understand the mechanics of a profitable company and share in Peab s success. With this in mind we created a profit-sharing foundation. Another purpose of the foundation is to stimulate our employees interest in staying with the company and to create a better financial situation for our personnel after they retire. THE ENVIRONMENTAL AND ENERGY Important environmental aspects Peab continually identifies and analyses the environmental aspects of our business from a life cycle perspective. Environmental aspects are the basis for Peab s continuous work on minimizing our environmental impact. Five important environmental aspects have been targeted for business areas Construction and Civil Engineering: use of resources and material, waste, environmentally and health hazardous substances, transportation and energy. Important environmental aspects in the business area Industry are identified in each company since the companies run different kinds of operations. Our work with resource and material consumption means choosing products with as little environmental impact as possible and reducing the total amount of material we use. For example, we recycle considerable amounts of excavated material. The natural material left over after blasting and excavations is used as filler in areas nearby. Peab tries to minimize the amount of waste that ends up at the waste disposal site through optimal resource use, recycling and sorting more. All hazardous waste is handled correctly. The Swedish business has measured sorting levels for quite some time and the sorting level rose from 63 percent in 2010 to 68 percent in 2011 and 71 percent in 2012 in Peab s Swedish construction operations. In our endeavor to minimize the use of environmentally and health hazardous substances Peab uses trade systems and tools. BASTA and Byggvarubedömningen (BVB) are used in Sweden. In Finland we use TUKES safety data sheet and in Norway we use the CoBuilder/BASS system. Peab works on several fronts to reduce transportation and CO 2 emissions. In 2012 Peab was one of the first companies in Sweden to use electric vans. All our employees are encouraged to minimize travel by choosing video, telephone or web conferences over meeting in person. In Sweden we have even introduced economic incentives for employees to choose company cars with lower environmental impact through a vehicle environment fee. Energy efficiency is in focus in our core operations but also in the houses and buildings we turn over to customers after construction is completed. We are constantly working on reducing energy consumption and developing energy solutions. In 2012 we launched the development project Energy Smart Production which is run jointly by the business areas Civil Engineering and Industry. The purpose of the project is to chart the initiatives that generate results in practice, such as energy saving start-ups and efficient fuel use. Environmentally certified construction The trend to environmentally certify buildings has exploded in recent years. There is also an environmental certification system for entire city districts and civil engineering projects but the application of these has not come as far as the system for buildings. Peab decided some time ago that all our own property developments would be environmentally certified. Peab has also been active in developing environmental certification systems and the national adaptation of them. Peab has contributed with two of the four construction projects being used to test the Swedish manual of BREEAM, and a civil engineering project to test CEEQUAL (a certification system for land and civil engineering projects). Operations required to have permits or submit reports Peab runs operations required to have permits and submit reports in Sweden and Finland. They are gravel and rock quarries, BOARD OF DIRECTORS REPORT CO 2 emissions CO 2 emissions in Sweden and Norway, 148,416 tons (112,867) Electricity, 32 tons E85, 47 tons District heating, 651 tons Oil, 33,445 tons Energy sources purchased directly in Sweden and Norway Liters MWh Giga Joules Oil 11,532,882 9,485, ,795 89, , ,127 Gasoline 848,405 1,226,986 7,971 11,528 28,696 41,502 Diesel (Cars) 16,834,813 18,189, , , , ,328 Gasoline, 1,927 tons Diesel (Bulk) 25,066,604 12,248, , , , ,530 E85 136, , ,875 3,246 6,750 Total 54,419,075 41,433, , ,454 1,903,310 1,445,237 Diesel, 112,314 tons Energy sources purchased indirectly Sweden Norway Finland All countries Electricity MWh 118, ,663 1,840 2,620 10,750 11, , ,883 Giga Joules 427, ,587 6,623 9,433 38,700 41, , ,780 District heating MWh 21,432 29, ,450 8,500 27,371 38,123 Giga Joules 77, ,161 1, ,962 30,600 98, ,243 PEAB ANNUAL REPORT

36 SUSTAINABILITY BOARD OF DIRECTORS REPORT water operations, transportion of waste and hazardous waste, asphalting units, cement manufacturing and ballast operations. Renewal and supplementation of permits is continuous. The operations required to have permits represent about 2 (3) percent of Group net sales in 2012 and operations that must submit reports represent about 6 (6) percent. COMMITMENT TO THE COMMUNITY Peab s ambition is to be an active and responsible player in society and contribute with engagement, experience and resources in situations that promote sustainable development. Activities aimed at young people are particularly close to our hearts. The Peab School was opened in Gothenburg in 2012.This is the fifth Peab School in Sweden where theory is mixed with practice in the secondary school Construction and Civil Engineering program. There are currently Peab schools in Ängelholm, Malmö, Gothenburg, Solna and Upplands- Väsby with some 440 students in total. All the schools are quality certified as a Trade Recommended School by BYN (the Swedish Construction Industry Training Board) except for the new school in Gothenburg and an application will be sent in soon for that school as well. Read more about the Peab school at page 33. A new sponsorship policy was adopted in 2012 in which sponsoring focuses on Tervapääskynen in Helsinki wins Sustainable Stone Building Award Tervapääskynen in Helsinki won the Sustainable Stone Building Award The prize is awarded annually to people and companies that have participated in projects built with bricks and cement on site. Tervapääskynen comprises 65 apartments as well as cellars and attics. One of the challenges was that the frame of the building and its façade had different shapes. Another was to merge the old and new façade styles into a functioning unity. According to the jury Tervapääskynen was surprising but yet harmonious architecturally. promoting community contributions, societal development, belonging and team building. Another example of Peab s commitment to the community is Peab s role as the principle partner of Mentor, a non-profit organization that works to prevent violence and drug abuse among the young. Peab also works with AUF Arbeidernes Ungdomsfylking to build the new Utöya. In Södertälje our subsidiary Telge-Peab gives the unemployed, people receiving employment aid and refugees a chance to receive an education, training and work while building housing. BUSINESS ETHICS AND ANTI-CORRUPTION WORK Peab s ethical guidelines summarize how employees should behave in the company, society and in business. The steering document with our ethical guidelines is regularly updated and adopted by executive management to make sure it is current and written in a language everyone can understand. The most recent update was in August As part of our work against corruption and transgressions against Peab s ethical guidelines we started the educational program The Ethics Round in Since then over 3,500 white-collar workers in Sweden, Norway and Finland have gone through the program which teaches Peab s stance on ethics, the law and what is right. The course is tailored to Peab s needs and contains situations that illustrate different ethical dilemmas that can occur in operations. Peab s ethical council answers questions concerning ethics from our operations, internally and externally communicates Peab s stance on ethical issues and prepares and decides on matters where laws or ethical guidelines have been transgressed. At Peab, if an employee does not want to or cannot bring up a matter with their closet supervisor they may turn to their supervisor s boss. They can also contact the ethical council though a form where they can submit their views anonymously or openly. LASTING FINANCIAL VALUE CREATION Peab s operations affect many different aspects of economic development in society such as contributing to innovation, technical development and creative solutions that are good for the entire industry. Cost-efficient and sustainable construction is achieved through long-term planning, good relations with customers and an economic lifecycle perspective. In order to ensure good relations with customers Peab measures customer satisfaction in both housing and business customers via SCI surveys (Satisfied Customer Index) which Dredged material is solidified and reused in Gävle Harbor Peab worked together with Gävle Hamn AB in a partnering project to extend Gävle Harbor. In recent years the harbor has experienced considerable growth and therefore needs new piers, larger and broader port space and greater capacity to further expand. Dredged material is polluted with heavy metals and must be transported to land to be encapsulated (solidified). In Peab s specially built construction ProSol 2010 binders are mixed with the dredged material so that the pollutants are solidified and the material is stabilized. The material can then be reused in the harbor extension. This alternative is cheaper and entails less environmental impact than hauling the material to a waste disposal site. follow an international standard. Peab s project Mandolin received the housing trade s highest SCI rating in A high level of productivity in Peab is important to internal and external stakeholders since it saves money and resources. In order to raise productivity Peab is moving towards a more standardized construction model based on tried and true methods and knowledge-sharing. PGS (Peab General System) develops high quality pre-fabricated buildings at competitive prices. In BIM modeling 3D models are connected to the tools used in construction processes, which also ensures they will be efficient. Several pilot projects aimed at identifying the best way to utilize logistical possibilities have been carried out. In 2012 a Group logistic project which was run together with four selected suppliers was concluded. The purpose of the project was to find effective logistic solutions in projection, calculation, purchasing and production. Peab intends to continue to work with rationalizing our logistics and will successively implement logistic solutions in work procedures and processes. 32 PEAB ANNUAL REPORT 2012

37 Participation, security and confidence at the Peab School With a wave of retirements on the horizon Peab felt the need to ensure access to future employees. This factor, together with a deep concern for elementary students that do not have all the grades they need to go forward, was the foundation of the Peab School, launched in The Peab School offers the secondary school Construction and Civil Engineering program and is based on a pedagogic where focus is just as much on students becoming secure, aware community members as becoming skilled workers. The key to this is participation, security and confidence. Theory is mixed with practice at Peab s own worksites and around 70 percent of students who get their diploma have begun to work at Peab. BOARD OF DIRECTORS REPORT The Peab School s pedagogic methods are based on four cornerstones: Actively working with everyday values Ethics and values are cemented in a person s teens. We educate both community members and community builders and we take this responsibility seriously. An education in reality All possible professional know-how that can be taught at a workplace will be taught there - in real life situations. Comprehensive view and context All the subjects are connected together and integrated into projects. The individual in focus Goals and demands are the same for everybody but the way to reach and meet them is different depending on circumstances. Everyone is challenged to achieve their full potential. This innovative pedagogic has generated good results. The majority of students leave the school with a job and a complete set of secondary school grades even the students that came with almost nothing from elementary school. There are currently Peab schools in Ängelholm, Malmö, Gothenburg, Solna and Upplands-Väsby with some 450 students in total. All the schools are quality certified as a Trade Recommended School by BYN (the Swedish Construction Industry Training Board) except for the new school in Gothenburg and an application will be sent in soon for that school as well. PEAB ANNUAL REPORT

38 OTHER INFORMATION AND APPROPRIATION OF PROFITS BOARD OF DIRECTORS REPORT RESEARCH AND DEVELOPMENT Peab s R&D is an important part of our day-to-day production, in part to be able to offer our customers improved products and services, and in part to boost Peab s competitiveness. The individual business areas run their own R&D. One of the development projects that has been in progress awhile in business area Construction is PGS (Peab General System). PGS develops and supplies a flexible system of pre-fab building components that are assembled to make up a complete apartment building. PGS entails industrial building all the way from design to final assembly. The first PGS concept buildings were constructed in 2009 and today PGS houses are constructed from southern Sweden up to the Mälardalen region in the middle of Sweden. In certain cases business areas Industry and Civil Engineering develop products together. One example is the Vinnova financed innovation project; Sustainable production of fine grained products from rock. The object of the project is to substitute natural sand with industrially produced fine grained products from rock. The project is expected to be concluded in September Several innovation projects are also run by the Swedish Construction Industry Development Fund (SBUF), among them non-destructive asphalt, cement and stabilized soil testing. IMPORTANT EVENTS IN 2012 Peab was divided into four business areas on 1 January 2012; Construction, Civil Engineering, Industry and Property Development. In keeping with this, executive management has been expanded to include the managers of each business area. Tina Hermansson Berg has been appointed Head of Human Resources. She took up her new position on 1 June 2012 and became a member of executive management. Tina Hermansson Berg was previously Executive Vice President of Human Resources & Corporate Communication at Mölnlycke Health Care AB. Niclas Winkvist has been appointed Head of Strategy and Business Support and a member of executive management. He will keep his responsibilities for M&A, and he will also take on the overall responsibility for the Group s strategy work. Niclas was previously CFO for Peab Industri. Mats Johansson, Executive Vice President responsible for Business Ethics and Safety and Security, has left his position in accordance with his pension agreement. Responsibility for these issues has been handed over to Head of HR Tina Hermansson Berg. Roger Linnér was appointed the new Business Area Manager Civil Engineering and he is a member of Peab s executive management as of 1 January Roger succeeds Tore Nilsson as Peab s Business Area Manager Civil Engineering. Roger has 30 percent lower CO 2 emissions with low-temperated asphalt Over the last ten years Peab Asphalt has worked intensively to develop asphalt with a lower environmental impact and which is energy efficient to manufacture. Achieving this has made it possible to improve the quality of the finished pavement, lower working temperatures even more and increase recycling. Lowering the paving temperature by around 30 degrees reduces energy consumption by 20 percent, CO 2 emissions by 30 percent and flue gases and dust particles by all of 65 percent. This reduces the environmental impact and improves the work environment for our employees. been working in Peab since 1996 primarily in Civil Engineering. Peab has redeemed its futures for the purchase of 940,000 shares in Lemminkäinen Oyj, which is equivalent to 4.78 percent of the company s shares and votes. This means Peab directly owns 2,080,225 shares in Lemminkäinen Oyj, corresponding to percent of both shares and votes. Peab has issued bonds amounting to SEK 1,000 million in the MTN program, which was established in February The maturity of the bonds varies from 1.5 years up to a term of 4 years. Peab has divested its holdings in Brinova Fastigheter AB and Catena AB. IMPORTANT EVENTS AFTER YEAR-END In March 2013 CEO and President Jan Johansson chose to step down and Jesper Göransson was appointed CEO and acting President. The Board has initiated the process of finding a new ordinary CEO. In connection with the revision of the Norwegian operations, and in order to increase focus on improved profitability in Business Area Construction, there has been a division of responsibility. Deputy CEO Tore Hallersbo is, as of 1 January 2013, responsible for the further development of divisions Norway, Finland and Special Projects. With its specialist expertise Division Special Projects will support operations in Norway throughout the entire production process. As of 8 April 2013 Roger Linnér is the operative manager for the Swedish Construction divisions and business area staff. As of March 2013 Jesper Göransson is acting Business Area Construction Manager. Peab s business areas Construction, Civil Engineering and Industry are carrying out several major projects for Northland Resources connected to the iron ore mine in Kaunisvaara outside Pajala. As a result of the information released on 8 February 2013 by Northland Resources regarding the business reconstruction, Peab has declared that outstanding accounts receivable to companies in the Northland group amount in total to around SEK 160 million, of which around SEK 70 million are included in the reconstruction. No writedowns are deemed necessary. During the reconstruction period Peab will receive regular payments for work performed. Peab has a close dialogue with the company regarding its financial development. THE PEAB SHARE At the end of the year Peab s share capital amounted to SEK 1,583,866,056 divided among a total of 296,049,730 shares, resulting in a nominal value of SEK 5.35 per share. Of the shares, 34,319,957 are A shares with ten votes per share, and 261,729,773 are B shares with one vote per share. All shares carry equal rights to participation in the company s assets, profits and dividends. There are no restrictions in the articles of association concerning transferring shares or votes at the AGM. On 31 December 2012 there were approximately 31,800 shareholders in Peab. Mats Paulsson with companies represents the largest single shareholder with 15.9 percent of the capital and 22.3 percent of the votes. Erik Paulsson with family and companies was previously the second largest shareholder with 8.1 percent of the capital and 22.2 percent of the votes. During 2012 via his company Backahill Erik Paulsson sold most of his shares in Peab. All his A shares were sold to Sara Karlsson and Svante Paulsson via companies and the B shares have been purchased by, among others, Mats Paulsson via companies. The joint ownership related to the company s founders Mats and Erik Paulsson with families and companies amounted to 29 percent of the capital and 65 percent of the votes at year-end. The company has no knowledge of any agreements between shareholders that can result in restriction of the right to transfer shares. In 2007, Peab established a profitsharing foundation. In accordance with its investment policy the assets of the foundation must be placed mainly in Peab shares. As of 31 December 2012 the foundation owns 7,803,432 B shares in Peab. The articles of association specify that the Board members are elected at the AGM. The articles of association do not include any stipulation regarding the dismissal of Board members or changes to the articles of association. 34 PEAB ANNUAL REPORT 2012

39 OTHER INFORMATION AND APPROPRIATION OF PROFITS The AGM 2007 resolved to issue and offer convertibles to all employees. The convertibles matured on 30 November No conversion to shares has been made and the loan of SEK 598 million was repaid in its entirety. HOLDINGS OF OWN SHARES At the beginning of 2012 Peab s holding of own shares was 1,086,984 B shares which corresponds to 0.4 percent of the total number of shares. In order to offset any dilution effects from the convertible programs, to use in the financing of acquisitions etc. as well as adjust the Group s capital structure, Peab s Annual General Meeting on 15 May 2012 resolved to authorize the Board to, during the period until the next AGM, acquire shares so that the company would have at most 10 percent of the total shares in Peab. No own shares were purchased nor divested during See note 30. CORPORATE GOVERNANCE For a detailed description of the work of the Board of Directors, corporate governance and system for internal control, see page 86, Corporate Governance Report. REMUNERATION FOR SENIOR OFFICERS The Board will propose to the Annual General Meeting on 14 may 2013 that the remuneration policy remain unchanged. For more information about adopted guidelines regarding the salaries and other remunerations to the Chief Executive Officer and other members of executive management, see note 9. ANTICIPATED FUTURE DEVELOPMENT Total building construction contracted in Sweden during 2012 compared to There is a large degree of uncertainty about how the construction and property markets will develop in The level of housing production is currently too low relative to the need for housing. This leads to a growing housing shortage, which can hamper development on the labor market and, in turn, even affect economic growth. A large part of the investments made over the next few years will in all probability be in maintenance and repair. The greatest decline is expected in the industrial sector in Civil Engineering developed very well in The volume of investments is, however, expected to level off in 2013 and end up on the same level as in Norwegian building construction startups have had stable growth in 2012, although not at the same high rate as previous years and a hefty negative turn is expected in building construction start-ups in In 2012 civil engineering developed very well and this is expected to continue in Building construction start-ups in Finland were slightly down from the previous year. The assessment for 2013 is that building construction volumes will continue to contract but they will turn up slightly again in The total volume of civil engineering investments in 2012 remained unchanged and this holds true for the forecast for Renovation and maintenance have historically been much more resistant to financial crises and shifts in the economy. The forecast for 2013 is no exception and this area is expected to grow in all three Nordic countries. PARENT COMPANY The activities of the parent company consist of executive management and shared Group functions. Net sales in 2012 amounted to SEK 96 million (99) and primarily consisted of internal Group services. Operating profit 2012 amounted to SEK -54 million (-46). Shares in subsidiaries have been written down during the year by SEK 346 million (122), of which SEK 294 million refer to shares in Peab AS. The result after net financial items was SEK -227 million (1,573). Proposed appropriation of profits The following amounts in SEK are at the disposal of the Annual General Meeting: Share premium reserve 2,308,208,948 Special reserve 55,000,000 Fair value reserve 120,624,942 Profit brought forward 3,319,001,557 Profit for the year 226,843,827 Total 5,334,741,736 The Board of Directors propose the following appropriation of disposable profits and non-restricted reserves: Dividend, 296,049,730 shares at SEK 1.60 per share 473,679,568 Carried forward 1) 4,861,062,168 Total 5,334,741,736 1) Of which to share premium reserve 2,308,208,948 Of which to special reserve 55,000,000 Of which to a fair value reserve 120,624,942 BOARD OF DIRECTORS REPORT PEAB ANNUAL REPORT

40 A Nordic Community Builder: A new mining project in the north Kaunisvaara-gruvan, Pajala, October 2012: The picture shows Sweden s newest mining project in Kaunisvaara where Northland Resources began test deliveries of iron ore in October Peab has paved the way for the coming operations, built a concentrator, offices and housing. Peab will even be responsible for transportion from the mine in Kaunisvarra to the shipping port in Narvik. This is a Nordic project that enlists Peab s entire expertise and know-how in all our business areas. This is one example of Peab s role as a Nordic Community Builder. For more information about Northland Resources, see page 34 under Important events after the balance sheet date. Read more about our mining projects at KAUNISVAARA GRUVAN Pajala 36 PEAB ANNUAL REPORT 2012

41 INCOME STATEMENT AND REPORT ON COMPREHENSIVE INCOME FOR THE GROUP Income statement for the Group MSEK Note Net sales 3,4 46,840 43,539 Production costs 43,541 39,842 Gross profit 3,299 3,697 Sales and administrative expenses 2,378 2,265 Profit from participation in associated companies and joint ventures 18, Other operating income Other operating costs Operating profit 4,8,9,10,11,38 1,055 1,505 FINANCIAL REPORTS Financial income Financial expenses Profit from participation in joint ventures Net finance Pre-tax profit 813 1,195 Tax Profit for the year Profit for the year attributable to: Shareholders in parent company Non-controlling interests 4 0 Profit for the year Profit per share 15 before dilution, SEK after dilution, SEK Statements of comprehensive income for the group MSEK Note Profit for the year Other comprehensive income Translation difference for the year when translating foreign operations 12 0 Profit/loss from exchange risk hedging in foreign operations 2 1 Translation differences transferred to profit for the year 1 Change for the year in fair value of financial assets available-for-sale Change for the year in fair value of cash flow hedges Change in fair value of cashflow hedges carried over to profit for the year 17 Share in associated companies' other comprehensive income 1 2 Tax attributable to components in other comprehensive income Other comprehensive income for the year Total comprehensive income for the year Total comprehensive income for the year attributable to: Shareholders in parent company Non-controlling interests 4 0 Total comprehensive income for the year PEAB ANNUAL REPORT

42 BALANCE SHEET FOR THE GROUP FINANCIAL REPORTS MSEK Note Assets Intangible assets 16 2,126 2,231 Tangible assets 17 4,443 4,580 Participation in associated companies Participation in joint ventures 19 1,279 1,235 Other securities held as fixed assets 22,36, Interest-bearing long-term receivables 21,36,37 1,157 1,314 Deferred tax recoverables Other long-term receivables Total fixed assets 9,786 10,850 Project and development property 24 6,239 5,180 Inventories Work-in-progress 26 1,106 1,689 Accounts receivable 27 7,095 6,535 Interest-bearing current receivables 21,36, Tax assets Recognized but not invoiced income 28 5,240 4,580 Prepaid expenses and accrued income Other current receivables 23, Current holdings 36, Liquid funds 36, Total current assets 22,287 20,499 Total assets 32,073 31,349 Equity 30 Share capital 1,584 1,584 Other contributed capital 2,576 2,576 Reserves Profit brought forward included profit for the year 3,976 3,869 Equity attributable to shareholders in parent company 7,984 7,947 Non-controlling interests 1 0 Total equity 7,985 7,947 Liabilities Interest-bearing long-term liabilities 31,36,37 6,772 7,399 Other long-term liabilities 34, Deferred tax liabilities Provisions for pensions 32, Other provisions Total long-term liabilities 7,759 8,208 Interest-bearing current liabilities 31,36,37 1,854 1,735 Accounts payable 36,37 4,534 4,508 Income tax liabilities Invoiced income not yet recognized 28 5,246 4,269 Accrued expenses and deferred income 3,176 2,641 Other current liabilities 34,36 1,232 1,619 Provisions Total current liabilities 16,329 15,194 Total liabilities 24,088 23,402 Total equity and liabilities 32,073 31,349 See note 40 for information about the Group s pledged assets and contingent liabilities. 38 PEAB ANNUAL REPORT 2012

43 REPORT ON CHANGES IN GROUP EQUITY MSEK Share capital Equity attributable to shareholders in parent company Other contributed capital Translation reserve Fair value reserve Hedging reserve Profit brought forward including profit for the year Noncontrolling Total interests Opening balance equity ,584 2, ,388 7, ,673 Total comprehensive income for the year Profit for the year Other comprehensive income for the year Total comprehensive income for the year Total equity FINANCIAL REPORTS Transactions with Group owners Dividends Acquisition of own shares Sales of own shares Total transactions with Group owners Closing balance equity ,584 2, ,869 7, ,947 Opening balance equity ,584 2, ,869 7, ,947 Total comprehensive income for the year Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with Group owners Dividends Acquisition of non-controlling interests, previous controlling interests Changes in participation in subsidiaries, new issue 5 5 Total transactions with Group owners Closing balance equity ,584 2, ,976 7, ,985 PEAB ANNUAL REPORT

44 CASH FLOW STATEMENT FOR THE GROUP FINANCIAL REPORTS MSEK Note Current operations 44 Pre-tax profit 813 1,195 Adjustments for non-cash items 739 1,021 Income tax paid Cash flow from current operations before working capital changes 1,266 2,192 Cash flow from changes in working capital Increase ( )/Decrease (+) project and development properties Increase ( )/Decrease (+) inventories Increase ( )/Decrease (+) current receivables 1,344 1,721 Increase (+)/Decrease ( ) current liabilities 1, Cash flow from changes in working capital 763 2,132 Cash flow from current operations Investment operations Acquisition of subsidiaries, net effect on liquid funds Sale of subsidiaries, net effect on liquid funds Acquisition of intangible fixed assets 1 Acquisition of tangible fixed assets Sale of tangible fixed assets Acquisition of financial assets Sale of financial assets 2, Cash flow from investment operations 471 1,131 Cash flow before financing 974 1,071 Financing operations Repurchases of own shares 16 Withdrawal of own shares 300 Repayment of convertible promissory notes -598 Raised bonds Change of loans 1, Dividend distributed Cash flow from financing operations 1,493 1,227 Cash flow for the year Cash at the beginning of the year Exchange rate differences in cash 12 4 Cash at year-end PEAB ANNUAL REPORT 2012

45 INCOME STATEMENT AND REPORT ON COMPREHENSIVE INCOME FOR THE PARENT COMPANY MSEK Note Net sales Administrative expenses 9, Operating profit Result from financial investments 12 Result from participations in Group companies 88 1,862 Result from participations in associated companies 27 6 Result from securities and receivables recognized as fixed assets Interest expenses and similar loss items Profit after financial items 227 1,573 FINANCIAL REPORTS Appropriations Pre tax profit 227 1,417 Tax Profit for the year 227 1,292 Report on comprehensive income for the parent company Profit for the year 227 1,292 Other comprehensive income Change for the year in fair value of financial assets available for sale Other comprehensive income for the year Total comprehensive income for the year 326 1,271 PEAB ANNUAL REPORT

46 BALANCE SHEET FOR THE PARENT COMPANY FINANCIAL REPORTS MSEK Note Assets Fixed assets Tangible assets Machinery and equipment Total tangible assets 2 2 Financial assets Participations in Group companies 42 12,547 11,525 Participations in associated companies Receivables from Group companies 20,36 1,586 1,447 Interest-bearing long-term receivables 21,36, Other securities held as fixed assets 22, Other long-term receivables 23, Total financial assets 14,516 13,815 Total fixed assets 14,518 13,817 Current assets Current receivables Receivables from Group companies Other current receivables 23 2 Prepaid expenses and accrued income Total current receivables Liquid funds Total current assets Total assets 14,574 13,863 Equity and liabilities Equity 30 Restricted equity Share capital 1,584 1,584 Statutory reserve Non-restricted equity Share premium reserve 2,308 2,308 Special reserve Fair value reserve Profit brought forward 3,319 2,646 Profit for the year 227 1,292 Total equity 7,219 8,164 Untaxed reserves Long-term liabilities Liabilities to Group companies 36 7,122 4,794 Convertible promissory note 36, Deferred tax liabilities 14 2 Total long-term liabilities 7,122 5,386 Current liabilities Accounts payable Liabilities to Group companies Tax liabilities Other current liabilities 34, Accrued expenses and deferred income Total current liabilities Total equity and liabilities 14,574 13,863 Pledged assets and contingent liabilities for parent company Pledged assets Contingent liabilities 40 20,760 18, PEAB ANNUAL REPORT 2012

47 REPORT ON CHANGES IN THE PARENT COMPANY S EQUITY MSEK Restricted capital Non-restricted capital Share Statutory capital reserve Share premium reserve Special reserve Fair value reserve Profit/loss brought forward Profit for the year Total equity Opening balance equity, 1 January , , ,498 1,610 7,355 Profit for the year 1,292 1,292 Other comprehensive income for the year Total comprehensive income for the year 21 1,292 1,271 FINANCIAL REPORTS Allocation of profits 1,610 1,610 0 Cash dividend Acquisition of own shares Withdrawal of own shares Closing balance equity, 31 December , , ,646 1,292 8,164 Opening balance equity, 1 January , , ,646 1,292 8,164 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Allocation of profits 1,292 1,292 0 Cash dividend Closing balance equity, 31 December , , , ,219 PEAB ANNUAL REPORT

48 CASH FLOW STATEMENT FOR THE PARENT COMPANY FINANCIAL REPORTS MSEK Note Current operations 44 Pre-tax profit 227 1,573 Adjustments for non-cash items 73 1,638 Income tax paid Cash flow from current operations before working capital changes Cash flow from changes in working capital Increase ( ) /Decrease (+) current receivables 8 10 Increase (+) /Decrease ( ) current liabilities 40 5 Cash flow from changes in working capital Cash flow from current operations Investment operations Acquisition of financial assets 679 Sale of financial assets 1,583 1,596 Cash flow from investment operations 904 1,596 Cash flow before financing 660 1,508 Financing operations Repurchase of own shares 16 Withdrawal of own shares 300 Repayment of convertible promissory notes -598 Change of loans 558 1,047 Dividend distributed Cash flow from financing operations 659 1,509 Cash flow for the year 1 1 Cash at the beginning of the year 2 3 Cash at year-end PEAB ANNUAL REPORT 2012

49 CONTENTS NOTES Note 1 Accounting principles 46 Note 2 Important estimates and assessments 53 Note 3 Income distributed by type 53 Note 4 Operating segment 54 Note 5 Business combinations 55 Note 6 Other operating income 56 Note 7 Other operating costs 56 Note 8 Government grants 56 Note 9 Employees, personnel costs and remuneration to senior officers 56 Note 10 Fees and cost remunerations to auditors 58 Note 11 Operating costs divided by type 58 Note 12 Net financial income/expense 59 Note 13 Appropriations 59 Note 14 Taxes 59 Note 15 Earnings per share 61 Note 16 Intangible fixed assets 62 Note 17 Tangible fixed assets 63 Note 18 Participation in associated companies 64 Note 19 Participation in joint ventures 65 Note 20 Receivables from Group companies 66 Note 21 Interest-bearing receivables 66 Note 22 Other long-term securities holdings 66 Note 23 Other receivables 66 Note 24 Project and development properties 66 Note 25 Inventories 66 Note 26 Work-in-progress 66 Note 27 Accounts receivable 66 Note 28 Construction contracts 67 Note 29 Prepaid expenses and accrued income 67 Note 30 Equity 67 Note 31 Interest-bearing liabilities 68 Note 32 Pensions 69 Note 33 Provisions 69 Note 34 Other liabilities 70 Note 35 Accrued expenses and deferred income 70 Note 36 Valuation of financial assets and liabilities at fair value 71 Note 37 Financial risks and financial policy 73 Note 38 Operational lease contracts 76 Note 39 Investment obligations 76 Note 40 Pledged assets, contingent liabilities and contingent assets 76 Note 41 Related parties 77 Note 42 Group companies 78 Note 43 Untaxed reserves 81 Note 44 Cash flow statement 81 Note 45 Events after the balance sheet day 82 Note 46 Information on parent company 82 NOTES PEAB ANNUAL REPORT

50 NOTES Note1 Accounting principles Compliance with standards and legislation The consolidated accounts have been drawn up in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and interpretations from IFRS Interpretations Committee (IFRIC) which have been adopted by EU. In addition, the Swedish Financial Reporting Board recommendation RFR 1 Supplementary accounting rules for groups has also been applied. The accounting principles given below for the Group have been applied consequently for all the periods presented in the consolidated financial reports, if not otherwise stated. The Group s accounting principles have been applied consequently for reports and the consolidation of the parent company, subsidiaries, associated companies and joint ventures in the consolidated financial reports. The parent company applies the same accounting principles as the Group except in the cases stated below in the section on the parent company accounting principles. The Annual Report and the consolidated accounts have been approved of by the Board and CEO for publication on 3 April The consolidated income statement and balance sheet and the parent company s income statement and balance sheet will be presented for adoption by the AGM on 14 May Valuation basis applied for preparation of the parent company and Group financial reports Assets and liabilities are reported at historical acquisition values except for certain financial assets and liabilities which are assessed at fair value. Financial assets and liabilities valued at fair value consist of derivatives and shares and holdings that are not reported as subsidaries/associated companies or joint ventures. Functional currency and reporting currency The parent company s functional currency is the Swedish crown, which is also the currency in which the accounts of the parent company and the Group are reported. Thus the financial reports are presented in Swedish crowns. Unless otherwise indicated all amounts are rounded off to the nearest million. Estimates and assessments in the financial reports Preparing the financial reports in accordance with the IFRSs requires that the company management make estimates and assessments and make assumptions which affect the application of the accounting policies and the recognized amounts with regard to assets, liabilities, revenues and costs. The actual outcome may vary from these estimates and assessments. Estimates and assumptions are regularly reviewed. Changes to estimates are entered in the accounts of the period the change is made and, where applicable, in future periods. Assessments made by the company management when applying the IFRSs which have a significant impact on the financial reports and assessments made, which could result in substantial adjustments to following years financial reports, are described in more detail in note 2. Changed accounting principles Group accounting principles are the same as in the Annual Reports The amendments of IFRSs applied from 2012 have not had any significant effect on Group accounting. New IFRSs and interpretations that have not yet been applied The Group has chosen not to prematurely apply new standards or interpretations when preparing these financial reports and plans no premature application in the coming years. Amended IAS 19 Employee benefits eliminates the current rules that make it possible to even out actuary gains and losses over time. Instead actuary gains and losses will be recognized in the comprehensive income statements as they occur. The yield on plan assets in the result is recognized for an amount calculated on the discount rate used when calculating employee benefit obligations. The difference between the real and calculated yield of plan assets is recognized in the other comprehensive income statement. The amendments will be applied from the financial year 2013 and retroactively. EU has approved the application of the amendments. Amendments in IAS 19 are expected to affect Group equity per 1 January 2012 by around SEK 14 million after taking deferred tax into consideration. The translation effect on the Group result is expected to amount to SEK 1 million and SEK 7 million on the comprehensive result for Equity at the end of the year is expected to be affected by SEK 6 million taking deferred tax into consideration. The amended IAS 1 Presentation of financial statements means that items in other comprehensive income must be separated into two categories and presented in other comprehensive income based on whether the items will at a later date be reported as income or not. The amendment, now approved by the EU, will be applied from the financial year 2013 and retroactively. Group presentations are affected by the fact that translation differences will belong to the category that can be reversed whereas actuary gains and losses on defined benefit pension plans (see the above) will belong to the category that can never be reversed to profit/loss. Items that can be reclassified are, for example, translation differences and profit/loss on cash flow hedges. Items that are not reclassified are, for example, actuary gains and losses. IFRS 13 Fair value measurement will be applied onward from the financial year 2013 and is only expected to affect Group disclosures. IFRS 13 is approved for application by the EU. Amendments to IAS 32 Financial instruments: Classification regarding the rules for when financial assets and financial liabilities may be offset. The amendments to IAS 32 are approved for application by the EU and will be applied from the financial year 2014 and retroactively. New disclosure requirements in IFRS 7 Financial instruments: Disclosures regarding the offset of financial assets and financial liabilities will be applied from the financial year Disclosures will also be made retroactively. The amendments to IFRS 7 are approved for application by the EU. IFRS 10 Consolidated financial statements, IFRS 11Joint arrangements and IFRS 12 Disclosure of interests in other entities deal with when entities must be consolidated, how joint ventures and joint operations should be presented as well as which disclosures must be made regarding these investments. At the same time the consequential amendments in IAS 27 called Separate financial reports will be applied. IAS 28 has been revised as well and is called Investments in associates and joint ventures. When EU approved the above standards obligatory application was put off until 2014 with a requirement for retroactive application. The new standards and amendments above are not expected to affect Group accounting other than in certain disclosures. IFRS 9 Financial instruments, will replace IAS 39 Financial instruments: Recognition and measurement as of IASB has published the first two of at least three parts which will together form IFRS 9. The first two parts deal with classification and valuation of financial assets and financial liabilities. IFRS 9 has not yet been approved for application by the EU and approval is not expected until EU can take a position on all three parts of IFRS 9. Peab has therefore chosen to wait before making a consequence analysis. Other new or amended IFRSs together with interpretations are not expected to have any effect on Group accounting. Operating segments An operating segment is an entity in the Group that engages in business activities from which it may earn revenues and incur expenses and for which discrete financial information is available. An operating segment s results are reviewed by the company s highest decision maker in order to assess its performance and to be able to allocate resources to the segment. Segment information is provided for the Group only. Classification etc. Fixed assets, long-term liabilities principally consist of amounts which may be expected to be recovered or defrayed later than 12 months after the balance sheet date. Current assets and current liabilities principally consist of amounts which may be expected to be recovered or defrayed within 12 months of the balance sheet date. Consolidation principles Subsidiaries Subsidiaries are entities over which Peab AB exercises a controlling influence. The term controlling influence refers to a direct or indirect right to mould the company s financial and operating strategies in order to obtain financial benefits. When assessing whether a con- 46 PEAB ANNUAL REPORT 2012

51 trolling interest is involved, potential share voting rights which can be exercised immediately or can be converted must be taken into account. Business combinations are recognized using the purchase accounting method, under which acquisitions of subsidiaries are regarded as transactions through which the Group indirectly acquires the assets of the subsidiary and takes over its liabilities. The consolidated acquisition value is calculated in an acquisition analysis in conjunction with the acquisition. The analysis establishes the acquisition value of the participations or the business, the fair value on acquisition date of the acquired identifiable assets and the liabilities taken over. From 1 January goodwill in business combinations is calculated as the sum of transferred reimbursement, any non-controlling interest and the fair value of previously acquired shares (in step acquisitions) less the fair value of the subsidiary s identifiable assets and overtaken liabilities. Where the difference is negative this is recognized directly in profit/loss for the year. Goodwill from acquisitions before 2010 is calculated as the sum of transferred reimbursement and acquisition expenses less the fair value of acquired identifiable net assets from each acquired share after which the acquisition value of goodwill from all the separately acquired shares is aggregated. Acquisition costs for business combinations from 2010 on are expensed but are included in goodwill in acquisitions made before that date. Conditional consideration from 2010 on is measured at fair value at the time of acquisition and subsequent changes in fair value are recognized in profit and loss as they occur. For acquisitions before 2010 conditional consideration is only reported when it is possible to calculate a probable and reliable amount and any adjustments thereafter are recognized in goodwill. In subsidiaries acquired from 2010 on where there are owners with a non-controlling interest the Group reports net assets attributable to owners of non-controlling interests either as the fair value of all net assets excluding goodwill or the fair value of all assets including goodwill. The choice is made individually for each acquisition. Increased ownership in companies in stages is reported as step acquisitions. In step acquisitions from 2010 on that lead to control the previously acquired shares are remeasured based on the fair value of the latest acquired share and the resulting profit or loss is recognized in the income statement. Step acquisitions before 2010 are reported as an aggregation of the acquisition-date values and any remeasurement when control is achieved is recognized in the remeasurement reserve in equity. When control has been achieved the change in ownership is reported as a transfer in equity between the parent company and the non-controlling interests, without remeasuring the subsidiary s net assets. In changes in ownership while maintaining control prior to 2010 the difference between payment and the acquisition s share of booked identifiable assets were recognized in goodwill. From 1 January 2010 partial disposal of an investment in a subsidiary that results in loss of control triggers remeasurement of the residual holding to fair value. Any difference between fair value and carrying amount is recognized in profit or loss for changes in ownership. No such remeasurement was performed on residual holdings that formed a joint venture or associated company prior to When acquisitions of subsidiaries involve the acquisition of net assets which do not comprise operations, the acquisition cost of each identifiable asset and liability is divided based on its relative fair value at the time of acquisition. The financial reports of subsidiaries are recognized in the consolidated accounts from the date the controlling influence arises and remain in the consolidated report until the date it ceases. Joint ventures For accounting purposes, joint ventures are entities where the Group through co-operation agreements with one or more partners exercises a joint controlling influence over operational and financial management. From the date on which the joint controlling influence is assumed, participations in joint ventures are recognized in consolidated accounts in accordance with the equity method, whereby the value of participations in joint ventures recognized in the consolidated accounts corresponds to the Group s participation in the equity of joint ventures and Group goodwill and other possible residual Group deficit and surplus values. The Group s participations in joint ventures after tax and minorities adjusted for depreciation, write-downs or dispersal of acquired deficit and surplus values are recognized in consolidated profit for the year as Participations in profit of joint ventures. Only equity earned after the acquisition is recognized in the consolidated equity. Dividends received form joint ventures reduce the accounting value of the investment. Upon acquisition, any differences between the acquisition value of the holding and the owner company s participation in the net fair value of the joint venture s identifiable assets, liabilities and contingent liabilities is recognized primarily according to the same principles as for subsidiaries with the difference that acquisitions costs are activated in the acquisition value of the shares and that changes in ownership while maintaining joint control are reported as separate partial acquisitions respectively partial disposals of shares proportional to the groupwise value. The equity method is applied until the time the joint controlling influence ceases. Associated companies Associated companies are those companies in which the Group has a significant but not controlling influence over operating and financial control usually through shareholdings of between 20 and 50 percent. From the date on which the significant influence is assumed, participations in affiliated companies are recognized in consolidated accounts in accordance with the equity method. For a description of the equity method, see Joint Ventures above. Transactions which must be eliminated upon consolidation Intra-group receivables and liabilities, revenues or costs or unrealised gains or losses stemming from intra-group transactions between Group companies are eliminated completely when preparing the consolidated accounts. Unrealised gains arising from transactions with joint ventures are eliminated to the extent these refer to the Group s ownership participation in the company. Unrealised losses are eliminated in the same way as unrealised gains but only to the extent there is no write-down requirement. Foreign currency Transactions in foreign currency Transactions in foreign currency are converted to the functional currency at the exchange rate on the transaction date. The functional currency is the currency of the primary financial surroundings where the company operates. Monetary assets and liabilities in foreign currency are converted to the functional currency at the exchange rate applying on the balance sheet day. Exchange rate differences arising during translation are recognized in profit/loss for the year. Non-monetary assets and liabilities which are recognized at historical acquisition value are converted at the exchange rate applying at the time of the transaction. Non-monetary assets reported at fair value are recalculated to the functional currency at the exchange rate current at the time of valuation at fair value. The financial reports of foreign businesses Assets and liabilities in foreign entities including goodwill and other Group deficit and surplus values are converted from the foreign company s functional currency to the Group s reporting currency, Swedish crowns, at the exchange rate applying on balance sheet day. Earnings and costs in a foreign entity are converted to Swedish crowns at an average rate approximating to the rates applying on the respective transaction dates. Translation differences arising when converting the currency of foreign companies are recognized in other comprehensive income and are accumulated in a separate component in equity as a translation reserve. Net investment in a foreign company Translation differences arising from the translation of a foreign net investment are recognized via other comprehensive income in the translation reserve in equity. Translation differences also comprise exchange rate differences from loans which form a part of the parent company s investment in foreign subsidiaries (so-called extended investment). When a foreign subsidiary is divested, the accumulated translation differences attributable to the company are reclassified from equity to profit/loss for the year. Accumulated translation differences attributable to foreign companies are presented as a separate capital class and contain translation differences accumulated from 1 January 2004 onwards. Accumulated NOTES PEAB ANNUAL REPORT

52 NOTES translation differences before 1 January 2004 are divided into other own capital classes and are not recognized separately. Income Construction contracts Current construction contracts are reported in accordance with IAS 11, Construction contracts. Under IAS 11 income and expenses must be recognized as the contract is completed. This principle is known as the percentage of completion method. Income and expenses are recognized in profit and loss in proportion to the percentage completion of the contract. The percentage completion of the contract is determined based on the defrayed project costs compared to the project costs corresponding to the project income for the whole contract. The application of the percentage of completion method is prerequisite on it being possible to calculate the outcome in a reliable manner. In case of contracts where the outcome cannot be reliably calculated, income is calculated in proportion to the costs defrayed. Feared losses are charged to income as soon as they become known. In the balance sheet, construction contracts are entered project by project either as Recognized but non-invoiced income under current assets or as Invoiced income not yet recognized under current liabilities. Those projects with higher accumulated income than invoiced are recognized as assets whilst those projects which have been invoiced in excess of the accumulated income are recognized as liabilities. Swedish tenant-owned housing projects are reported according to IAS 11, Construction contracts, which entails applying the percentage of completion method as the project progresses based on expenses that have occurred in relationship to the project s calculated total cost. A contract is drawn up which regulates the sales of land and construction of the property with the tenant-owned association, which is an independent legal entity. Own developed housing projects for sale Since Peab has housing projects in Finland and Norway as well as our own home developments in Sweden Peab does not have an external independent other party at the start of a project, which means that the projects are reported according to IAS 18 Revenue and income from these projects is recognized first when the projects are handed over to the buyer. Expenses are recognized as work-in-progress in the balance sheet. On account invoices to customers are reported as non-interest-bearing liabilities, and loans to finance housing projects are reported as interest-bearing liabilities. Other income Other income excluding construction contracts is recognized in accordance with IAS 18 Revenue. Income from the sale of goods is recognized in profit/loss for the year when the material risks and benefits associated with ownership of the goods has been transferred to the buyer. Crane and machinery hire income is recognized linearly over the hiring period. Government grants Government grants are recognized in the balance sheet as government receivables when it is reasonably certain that the contribution will be received and that the Group will meet the requirements for the grant. Grants are amortised systematically in profit/loss for the year as cost reductions in the same way and over the same periods as the costs that the grants are intended to offset. Government grants related to assets are recognized as a reduction in the recognized value of the asset. Leasing Operational leasing agreements Expenses for operational leasing agreements where the Group is the lessee are recognized linearly in profit/loss for the year over the leasing period. Benefits obtained from the signing of an agreement are recognized linearly in profit/loss for the year over the term of the leasing agreement. Variable costs are expensed in the periods they occur. Revenues relating to operational leasing agreements where the Group is the lessor are recognized in a straight line over the life of the lease agreement. Costs arising from leasing agreements are recognized as they arise. Financial leasing agreements Minimum leasing charges are divided between interest costs and amortization of the outstanding debt. Interest costs are distributed over the leasing term such that an amount corresponding to a fixed interest rate for the debt accounted in the respective period is recognized in each accounting period. Contingent rents are carried as expenses in the periods it occurs. Financial income and expenses Financial income and expenses consist of interest income on cash at bank, receivables and interest-bearing securities, interest expenses on loans, dividend revenues, realised and unrealised gains and losses on financial investments and derivatives used within the financial business. Interest income on receivables and interest expenses on liabilities are calculated in accordance with the effective interest rate method. The effective interest rate is the discount rate for estimated future payments and disbursements during the expected life of a financial instrument to the financial asset s or liability s net book value. Interest income and interest expenses include accrued transaction costs and possible discounts, premiums and other differences between the original value of the receivable or liability and the amount received when it falls due. Dividend income is recognized when the right to payment is established. The results of sales of financial investments are recognized when the risks and benefits associated with ownership of the instrument are materially transferred to the buyer and the Group no longer has control of the instrument. Interest costs are charged to income during the period to which they refer except to the extent that they are included in that asset s acquisition value. An asset for which interest can be included in the acquisition price is an asset which must necessarily require considerable time to prepare for the intended use or sale. Interest costs are capitalised according to IAS 23, Borrowing costs. Interest rate swaps are used to hedge against interest risks connected to Group loans. Interest rate swaps are valued at fair value in the balance sheet. The coupon rate part is recognized on a current basis in profit/loss for the year as a correction of the interest expense. Unrealised changes in the fair value of rate swaps are recognized in other comprehensive income and are part of the hedging provision until the hedged item affects profit/loss for the year and as long as the criteria for hedge reporting is met. Taxes Income tax consists of current tax and deferred tax. Income tax is recognized in profit/loss for the year except when the underlying transaction is recognized in equity, in which case the relevant tax is recognized in other comprehensive income or equity. Current tax is tax that must be paid or will be received during the current year. This also includes current tax attributable to earlier periods. Current and deferred tax is calculated applying the tax rates and tax rules resolved upon or in practice resolved upon on the balance sheet day. Deferred tax is calculated according to the balance sheet method based on temporary differences between the accounted and tax values of assets and liabilities. Temporary differences are not taken into account for the difference generated by the recognition of groupwise goodwill and nor for difference that occurred at first recognition of assets and liabilities which are not business combinations and which at the time of the transaction did not affect either recognized or taxable profits. Further are not temporary differences attributable to participations in subsidiaries and joint ventures, which are not expected to be written back in the foreseeable future, taken into account. Valuation of deferred tax is based on how the underlying value of assets or liabilities is expected to be realised or regulated. When companies are acquired such acquisition either refers to business combinations or asset purchase. Asset purchase refers to, for example, the acquired company only owning one or more properties with tenancy agreements but the acquisition not comprising processes required to operate property business. When recognising asset purchase no deferred tax is recognized separately. The fair value of deferred tax liabilities is instead deducted from the fair value of the acquired asset. Deferred tax receivables relating to deductible temporary differences and loss carry-forwards are only recognized to the extent it is likely they can be exercised. The value of deferred tax receivables is reduced when it is no longer assessed they can be utilised. 48 PEAB ANNUAL REPORT 2012

53 Financial instruments On the assets side, financial instruments entered to the balance sheet include liquid funds, current investments, accounts receivable, securities holdings, loan receivables and derivatives. On the liabilities side, they include accounts payable, borrowing and derivatives. Recognition in and removal from the balance sheet Financial assets and financial liabilities are entered to the balance sheet when the company becomes involved in accordance with the instrument s contractual terms. Accounts receivable are reported when the company has performed and the other party has a contractual responsibility to pay, even if the invoice has not yet been sent. Accounts receivable are entered into the balance sheet when the invoice has been sent. Liabilities are recognized when the counterparty has performed the service and there is a contractual payment obligation even if the invoice has not been received. Accounts payable are recognized when the invoice is received. Financial assets are removed from the balance sheet when the rights of the agreement have been realised, fall due or the company loses control of them. The same applies to parts of financial assets. Financial liabilities are removed from the balance sheet when contractual obligations are discharged or have been otherwise extinguished. The same applies to parts of financial liability. Financial assets and financial liabilities are offset and recognized at a net amount in the balance sheet only where there is a legal right to offset the amounts and it is intended to adjust the items with a net amount or to at the same time capitalise the asset and adjust the liability. On-demand acquisitions and on-demand sales of financial assets are reported on the transaction date, which is the date the company undertakes to acquire or sell the asset. Classification and valuation Financial instruments which are not derivatives are initially recorded at acquisition value corresponding to the instrument s fair value with the addition of transaction costs for all financial instruments except for those classified as financial assets, which are recognized at fair value in profit for the year which are recorded at fair value minus transaction costs. Financial instruments are classified upon first recognition based on the purpose for which the instrument was acquired. Classification determines how financial instruments are valued after first recognition as described below. Liquid funds consist of cash and immediately available balances at banks and equivalent institutes and current liquid investments with maturities from the acquisition date of less than three months and which are exposed to only insignificant value fluctuation risks. Financial assets valued at fair value via profit/loss Financial assets in this category are constantly valued at fair value with value changes recognized in profit/loss for the year. This category consists of two sub-groups: financial assets held for trading and other financial assets which the company initially chooses to place in this category with the support of the so called fair value option. The first sub-group includes derivatives with positive fair value except for derivatives which are identified and in effect hedge instruments. The Group has decided to include listed shares which the executive management s risk management and investment strategy manages and values based on fair value in the second sub-group. Financial assets available-for-sale Included in the category financial assets available for sale are financial assets not classified in any other category or financial assets that the company has chosen to initially classify in this category. Shareholdings and participation not recognized at fair value via profit and loss, and which are not subsidiaries, associated companies or joint ventures, are reported in this category. Assets in this category are valued at fair value with the changes in value for the period reported in other comprehensive income. Accumulated changes in value are reported in a separate component of equity, with the exception of changes in value stemming from write-downs. Received dividends are reported in profit/loss for the year. When the asset is divested the accumulated profit/loss, which was previously reported in other comprehensive income, is reported in profit/loss for the year. Loans and receivables Loans and receivables are financial assets which are not derivatives with fixed payments or with payments which can be determined and which are not listed in an active market. These assets are valued at amortized cost. The amortized cost is determined based on the effective interest rate which is calculated at the time of acquisition. Accounts receivable are recognized at the estimated impact amount, i.e. after deduction of distressed debts. Financial liabilities valued at fair value via profit/loss Financial liabilities in this category are valued at fair value with the changes in value reported in profit/loss for the year. The category consists of two sub-groups: financial liabilities which are held for trading and other financial liabilities which the company initially chose to place in this category with the support of the so called fair value option. The first sub-category includes derivatives with negative fair value except for derivatives which are identified and in effect hedge instruments. The Group has not included any financial liabilities in the second sub-category. Other financial liabilities Loans and other financial liabilities, e.g. accounts payable, are included in this category. Liabilities are recognized at accrued acquisition value. Derivates The Group s derivatives consist of interest rate, exchange rate and share derivatives utilised to hedge risks of changes in exchange rates, interest rate changes and changes in the fair value of shares. Derivatives not used for hedge accounting are classified as financial assets or financial liabilities held for trading and are valued at fair value. Value changes are recognized in profit/loss. The valuation method involves the discounting of future cash flows. Derivatives are initially recognized at fair value, and consequently transaction costs are charged to profit/loss for the period. After first recognition derivatives are recognized as described below. If the derivative is used for hedge accounting and to the extent this is effective, the value change to the derivative is recognized on the same line in profit/loss for the year as the hedged item. Even if hedge accounting is not applied, the value gain or reduction to the derivative is recognized as income or expenses in operating profit or in net financials items depending on the purpose for which the derivative is used and whether its use relates to an operating item or a financial item. In hedge accounting, the non-effective part is recognized in the same way as value changes to derivatives that are not used in hedge accounting. If hedge accounting is not applied to the use of interest rate swaps, the coupon rate is recognized as interest and the remaining value change of the interest rate swap is recognized as other financial income or other financial costs. The exchange rate contracts used to hedge future cash flow is recognized applying the rules for hedge accounting. These hedge instruments are recognized at fair value in the balance sheet. The value changes for the period are recognized in other comprehensive income and the accumulated value changes in a separate component of equity (the hedging reserve) until the hedged flow matches profit/ loss for the year whereupon the accumulated value changes of the hedge instrument are reclassified to profit/loss for the year when the hedged transaction matches profit/loss for the year. Loans to foreign subsidiaries (extended investment) through investments in foreign subsidiaries have been to some extent financially hedged through forward contracts. Hedge accounting has not been applied. These loans are recognized at the price on balance sheet day and derivatives are recognized at fair value according to the above. Holdings of shares noted in foreign stock exchanges that are classified as financial assets available for sale have been hedged through forward exchange contracts. Hedging accounting has been used for these hedges by recognizing the translation effect from the translation of shares to the functional currency in profit/loss for the year instead of other comprehensive income. The translation effect is offset to the extent the hedge is effective by the changes in the fair value of the hedging instrument, which is also recognized in profit/loss for the year. Hedge accounting of net investments To a certain extent measures have been taken to reduce exchange risks connected to investments in operations abroad. This has been done by taking out loans in the same currency as the net investments. NOTES PEAB ANNUAL REPORT

54 NOTES These loans are recognized at the translated rate on balance sheet day. The effective part of the period s exchange rate changes in relation to hedge instruments is recognized in and the accumulated changes in a separate component of equity (the translation reserve), in order to meet and partly match the translation differences that affect other comprehensive income concerning net assets in the hedged operations abroad. In the cases where the hedge is not effective, the ineffective part is recognized directly in profit for the year as a financial item. Holdings of convertible certificates of claim Convertible certificates of claim may be converted to shares through the exercise of the option to convert the claim to shares. The option to convert a convertible certificate of claim to shares is not closely related to the claim right and therefore it is separated as an embedded derivative belonging to the valuation category financial assets held for trading. Therefore the derivative part is initially valued and subsequently on an ongoing basis according to a valuation model at fair value. Value changes are recognized in profit for the year as financial income and expenses. The claim part is ascribed to the loan and accounts receivable category and initially valued as the difference between the acquisition value of the convertible and the initial fair value of the option. Subsequently the claim part is valued at accrued acquisition value based on the derived implicit interest rate which gives an even return over the contractual life of the claim. Issued convertible promissory notes Convertible promissory notes can be converted to shares if the counterparty exercises the option to convert the claim to shares and are recognized as a compound financial instrument divided into a liability part and an equity part. The fair value of the liability at the time of issue is calculated by discounting future payment flows at the current market rate for similar liabilities without conversion rights. The value of the equity capital instrument is calculated as the difference between the issuing funds when the convertible promissory note was issued and the fair value of the financial liability at the time of issue. Deferred tax attributable to liabilities at the issue date is deducted from the recognized value of the equity instrument. Interest expenses are recognized in profit for the year and are calculated applying the effective interest rate method. Tangible fixed assets Owned assets Tangible fixed assets are recognized in consolidated accounts at acquisition value minus accumulated depreciation and amortization and any write-downs. The acquisition value consists of the purchase price and costs directly attributable to putting the asset in place in the condition required for utilisation in accordance with the purpose of the acquisition. Borrowing costs are included in the acquisition value of internally produced fixed assets according to IAS 23. The accounting principles applying to impairment loss are listed below. The value of a tangible fixed asset is derecognized from the balance sheet upon scrapping or divestment or when no future financial benefits are expected from the use or scrapping/divestment of the asset. Gains and losses arising from divestment or scrapping of an asset consist of the difference between the sale price and the asset s booked value minus direct costs of sale. Leased assets Leasing is classified in the consolidated accounts either as financial or operating leasing. Financial leasing applies in circumstances where the financial risks and benefits associated with ownership are substantially transferred to the lessee. Where such is not the case, operating leasing applies. Assets which are rented under financial leasing agreements are recognized as assets in the consolidated balance sheet. Payment obligations associated with future leasing charges have been recognized as long-term current liabilities. The leased assets are depreciated according to plan while leasing payments are entered under interest and amortisation of liabilities. Assets which are rented under operational leasing agreements have not been recognized as assets in the consolidated balance sheet. Leasing charges for operational leasing agreements are charged to income in a straight line over the life of the lease. Assets which are rented out under financial leasing agreements are not recognized as tangible fixed assets since the risks and opportunities connected to ownership of the assets are transferred to the lessee. A financial receivable referring to future minimum leasing fees is reported instead. Future expenses Future expenses are only added to the acquisition value if it is likely that the future financial benefits associated with the asset will benefit the company and the acquisition value can be reliably estimated. All other future expenses are recognized as costs as they arise. Borrowing costs Borrowing costs which are directly attributable to the purchase, construction or production of an asset and which require considerable time to complete for the intended use or sale are included in the acquisition value of the asset. Borrowing costs are activated provided that it is probable that they will result in future financial benefits and the costs can be reliably measured. Depreciation principles Depreciation is based on the original acquisition value minus the calculated residual value. Depreciation is made linearly over the assessed useful life of the asset. Buildings (operating buildings) years Land improvements years Asphalt and concrete factories years Vehicles and construction machinery 5 6 years PCs 3 years Other equipment and inventories 5 10 years The useful life and residual value of assets are assessed annually. Gravel and rock quarries are written down based on substance depletion, i.e. the amount of gravel and rock removed in relation to the calculated total amount of substance deemed recoverable in the gravel and rock quarry. Real estate Group real estate holdings are divided as follows: Buildings and land entered under tangible fixed assets Project and development properties as inventories among current assets Properties used in the Group s own operations consisting of office buildings and warehouses (operational buildings) are entered as buildings and land under tangible fixed assets. Valuation is made in accordance with IAS 16, Tangible fixed assets, at acquisition value deducted for accumulated depreciation and possible write-downs. Direct and indirect holdings of undeveloped land and redeveloped tracts for future development, developed investment properties for project development, improvement and subsequent sale and which are expected to be realized during our normal operational cycle are entered as project and development property under current assets. Valuation is made in accordance with IAS 2, Inventories, at the lowest of either acquisition value or net sales value. Intangible assets Goodwill Goodwill refers to the difference between the acquisition value of a business and the fair value of acquired identifiable assets and assumed liabilities. Goodwill is value at acquisition value minus any accumulated writedowns. Goodwill is divided between cash-generating units and is tested at least once a year for write-down needs. Goodwill stemming from the acquisition of joint ventures and affiliated companies is included in the recognized value of participations in joint ventures and affiliated companies. In the case of business acquisitions which are less than the net value of the acquired assets and the assumed liabilities, the difference is recognized directly in profit for the year. Research and development Research costs intended to acquire new scientific or technological knowledge are reported as costs as they arise. Development costs 50 PEAB ANNUAL REPORT 2012

55 where the results of research or other knowledge is applied to the production of new or improved products or processes are reported as an asset in the balance sheet if the product or process is technically or commercially useful and the company has adequate resources for completing development and then applying or selling the intangible asset. The recognized value includes all directly attributable expenses, including for materials and services, payroll costs, the registration of legal rights, depreciation of patents and licences, borrowing costs. Other development costs are reported in profit for the year as costs as they arise. Development costs are recognized in the balance sheet at acquisition value minus accumulated depreciation and possible write-downs. Other intangible assets Other intangible assets acquired by the Group are recognized at acquisition value minus accumulated depreciation, amortization and write-downs. Costs defrayed for internally generated goodwill and internally generated brands are reported in profit for the year as the costs arise. Depreciation policies Depreciation is linearly recognized in profit for the year over the estimated useful life of the intangible asset provided the useful life can be determined. Goodwill and other intangible assets with an indeterminate useful life is tested for the need for write-down annually or as soon as there are indications that the asset in question has declined in value. Depreciable intangible assets are depreciated from the date when the asset became available for use. The estimated useful lives are: Brands 10 years Customer relations Agency agreements 3 5 years 2 7 years Site leasehold agreements During the term of the agreement The useful life and residual value of assets are assessed annually. Inventories Inventories are valued at the lowest of acquisition value and net sale value. The acquisition value of stocks are calculated using the first-in, first-out method and include expenses arising with the acquisition of the stock assets and their transport to their current location and condition. For manufactured goods the acquisition value includes a reasonable share of the indirect costs based on a normal capacity. The net sale value is the estimated sale price in the current business minus estimated costs of completion and bringing about the sale. Impairment loss The recognized value of Group assets is checked each balance sheet day to assess whether there is a write-down requirement. IAS 36 is applied to the testing of write-down requirements for other assets besides financial assets which are tested in accordance with IAS 39, assets for sale and divestment groups recognized which are tested in accordance with IFRS 5, inventories, plan assets used for financing of remuneration to employees and deferred tax receivables. The recognized value of the above-mentioned excepted assets is tested applying the respective standards. Impairment test of tangible and intangible assets and participation in subsidiaries, joint ventures, associated companies etc. If write-down requirements are indicated, the recovery value of the asset is estimated in accordance with IAS 36. Moreover, the recovery value of goodwill, other intangible assets of indeterminate useful life and intangible assets which are not yet ready for use is estimated each year. If it is not possible to establish materially independent cash flows for a certain asset, when testing for write-down needs the assets are grouped at the lowest level where it is possible to identify materially independent cash flow a so-called cash-generating unit. Write-downs are recognized when the book value of an asset or a cash generating unit exceeds the recovery value. Write-downs are expensed in profit for the year. Write-downs of assets attributable to a cash-generating unit (group of units) are firstly allocated to goodwill, followed by the proportional write-down of the other assets in the unit (group of units). The recovery value is the highest of utility value and fair value minus cost of sale. When calculating utility value, future cash flows are discounted with a discount factor that takes into consideration the risk-free interest rate and the risks which are associated with the specific asset. Impairment test for financial assets Each time reports are drawn up the company assesses whether there are objective indications that a financial asset or a group of financial assets need to be written down. Objective indications partly consist of occurred observable circumstances which have a negative impact on possibilities of recovering the acquisition value and partly on significant or lengthy decreases in the fair value of an investment in a financial placing classified as a financial asset available for sale. Accounts receivable that need to be written down are reported as the present value of the anticipated future cash flows. Current receivables are, however, not discounted. Write-downs charge profit for the year. Equity instruments classified as financial instruments available for sale are written down if the fair value is significantly lower than the acquisition value, or when the decline in value has been a long, drawn out process. When an equity instrument classified as a financial instrument available for sale is written down, previously reported accumulated profit or loss in equity via other comprehensive income is reclassified to profit/loss for the year. The amount of accumulated loss that is reclassified from equity via other comprehensive income to profit/loss for the year consists of the difference between the acquisition cost and the current fair value after reductions for any write-downs on a financial asset which has already been reported in profit/loss for the year. Reversed write-downs A write-down is reversed if there are both indications that write-down requirements no longer exist and assumptions upon which the calculation of the recovery value were based have changed. However, write-downs of goodwill are never reversed. Reversing is only performed to the extent that the recognized value after reversing of the asset does not exceed the recognized value which would have been recognized deducted for depreciation where necessary if write-down had not been made. Write-downs of investments held to maturity or loans and receivables recognized at amortized cost are reversed if a subsequent rise in the recovery value may objectively be attributed to a circumstance occurring after write-down was made. Write-downs of equity instruments classified as financial instruments available for sale are reversed via other comprehensive income and not via profit/loss for the year. All revaluations that follow are based on the written down value and are reported in other comprehensive income. Share capital Repurchase of own shares Holdings of own shares and other equity instruments are recognized as a reduction in equity. Liquid funds from the divestment of such equity instruments are recognized as an increase in equity. Any transaction costs are charged directly to equity. Dividends Dividends are entered as liabilities after they have been approved by the AGM. Earnings per share The calculation of earnings per share is based on consolidated profit for the year attributable to the shareholders of the parent company and on the weighted average number of outstanding shares during the year. When calculating earnings per share after dilution, profit and the average number of shares are adjusted to allow for the effects of the diluting potential of shares which in the reported periods stem from convertible certificates of claim and options issued to the employees. Earnings per share after dilution are calculated by increasing the number of shares with the total number shares the convertibles represent and increasing profit with the reported interest cost after tax. Employee benefits Defined contribution pension plans Pension plans are only classified as defined contribution pension NOTES PEAB ANNUAL REPORT

56 NOTES plans where the company s obligations are limited to the contributions the company has undertaken to pay. In such cases the size of an employee s pension depends on the contributions the company pays to the plan or to the insurance company and the return on capital produced by the contributions. Consequently, the employees bear the actuarial risk (that payments will be lower than expected) and the investment risk (that the invested assets will not be adequate to produce the expected return). The company s obligations concerning contributions to defined contribution plans are expensed in profit for the year as they are earned by the employee performing work for the company during the period. Defined benefit pension plans The Group s defined benefit plans consist of the Swedish ITP Plan for Salaried Staff which is managed through insurance with Alecta, pension plans for a small number of executive personnel in Norway and the AFP pension in Norway. The Group s recognized net obligations relating to defined benefit plans refer to Norwegian pension plans and are calculated separately for each plan through an assessment of the future payments which employees have earned through their employment both during the present and previous periods. Such payment is discounted to a net present value deducted for the fair value of any plan assets. The discount rate is the market rate of Norwegian government bonds extrapolated to a period equivalent to that of the pension obligations. Calculations of pension liabilities are performed by a qualified actuary. The so-called corridor rule is applied. The corridor rule involves that part of the accumulated actuarial gains and losses which exceeds 10 per cent of the greatest of the obligation s net present value and the plan asset s fair value being recognized in the income statement over the expected average remaining working life of the employee covered by the plan. Otherwise account is not taken of actuarial gains and losses. Net interest on pension liabilities and anticipated returns on associated plans assets are recognized in net financial items. Other components are recognized as income or expenses in operating profit. Remuneration upon resignation or dismissal A reserve for remuneration relating to the dismissal of staff is only established if the company is demonstrably subject to, without any realistic opportunity for avoidance, a formal detailed plan for the termination of employment prior to the normal time. Current remuneration Current remuneration to employees is calculated without discount and are reported as a cost when the related services are received. A provision is recognized for the expected costs of participations in profits and bonus payments when the Group has an applicable legal or informal obligation to make such payments for services received from employees and the obligations can be reliably estimated. Provisions Provisions are entered in the balance sheet when the Group is subject to an actual or informal legal obligation as a consequence of a circumstance occurring and it is likely that financial resources will be required to meet the obligation and a reliable estimate of the amount can be made. Guarantees Provisions for guarantees are recognized when the underlying products or services are sold. The provisions are based on historical data about the guarantees and a weighing up of the conceivable outcomes relative to the probabilities that the outcomes are associated with. Restoration costs These refer to the estimated restoration costs for rock and gravel quarries after operations are terminated. The provision increases with the quarried amount and is reversed after restoration is completed. The reserved amount is expected to be utilised successively following completion of quarrying. Contingent liabilities A contingent liability is recognized in accounts when there is a possible obligation attributable to events occurred, the occurrence of which can only be confirmed by one or more uncertain future events, or when there is an undertaking not recognized as a liability or provision because it is not likely that the use of resources will be required. The parent company s accounting principles The parent company has prepared its annual report in accordance with the Swedish Company Accounts Act (1995:1554) and Swedish Financial Reporting Board recommendation RFR 2 Accounting rules for legal entities. The Swedish Financial Reporting Board statements concerning listed companies are also applied. RFR 2 requires that the parent company, in the annual report for the legal entity, use all EU adopted IFRSs and interpretations as far as possible within the framework of the Swedish Company Accounts Act, the Job Security Law and with due regard for the relationship between accounting and taxes. The recommendation states which exceptions and additions must be made to the IFRSs. The parent company accounting principles are unchanged in 2012 compared to Differences between the Group s and parent company s accounting principles Differences between the Group s and parent company s accounting principles are given below. The below stated accounting principles for the parent company have been applied consistently to all periods presented in the parent company s financial reports. Classification and design types The parent company s income statement and balance sheet are presented in accordance with the design in the Swedish Company Accounts Act. The difference to IAS 1 Design of financial reports which is applied to the design of the consolidated financial reports is primarily the reporting of financial income and expenses, fixed assets, equity and the presentation of provisions under a separate heading in the balance sheet. Subsidiaries, joint ventures and associated companies Participation in subsidiaries, joint ventures and associated companies is recognized in the parent company applying the acquisition value method. This means that acquisition costs are included in the reported value of the holding in the subsidiary. In Group accounting acquisition costs related to shares in subsidiaries are recognized directly in profit and loss as they occur. Financial guarantees The parent company s financial guarantee agreements mainly consist of personal guarantees to the benefit of subsidiaries and joint ventures. The parent company recognizess financial guarantee agreements as provisions in the balance sheet when the company has an obligation for which payment is likely to be required to adjust the obligation. Forestalled dividends Forestalled dividends from subsidiaries are recognized when the parent company alone is entitled to decide on the size of the dividend and the company has taken a decision on the size of the dividend before the parent company publishes its financial reports. Tangible fixed assets Tangible fixed assets in the parent company are recognized at acquisition value minus accumulated depreciation and any write-downs in the same way as for the Group but with the addition of possible write-ups. Leased assets All leasing agreements in the parent company are recognized according to the rules for operating leasing. Employee benefits Defined benefit pension plans The parent company applies different assumptions for the calculation of defined benefit plans than those in IAS 19. The parent company complies with the provisions of the Job Security Law and the instructions of the Swedish Financial Supervisory, as this is a precondition for tax allowance rights. 52 PEAB ANNUAL REPORT 2012

57 Taxes Untaxed reserves including deferred tax liabilities are recognized in the parent company. On the other hand, in the Group accounts, untaxed reserves are divided between deferred tax liabilities and equity. Shareholders contributions Shareholders contributions are recognized directly in the equity of the receiver and are activated in shares and participation in the provider wherever write-downs are not required. Group contributions Received and given Group contributions are recognized in net financial items as Profit from shares in Group companies and are specified in note. Note 2 Important estimates and assessments Group Management has together with the Board of Directors discussed developments, selections and information regarding the Group s important accounting principles and assessments, as well as the application of these principles and assessments. Certain important accounting estimates made when applying the Group s accounting principles are described below. The sources of uncertainty in the assessments given below refer to uncertainties that entail a risk that the value of assets or liabilities may be significantly adjusted in the coming fiscal year. Peab s operative business is sensitive to changes in, among other things, volume and margins. The financial risks are connected to the business tied-up capital, capital needs, interest risk and currency risk. For more information about how the changes in important variables affect Group profit after tax, see the sensitivity analysis on page 28. Percentage of completion Profit reported for contract projects in progress is calculated through percentage of their completion based on the degree of completion of the project. This requires that project revenue and costs can be calculated in a reliable manner. A prerequisite is a well functioning system for calculation, forecasting and project monitoring. Forecasts of the final outcome of the project are critical estimates crucial to accounting for the results of operations during the project. There is a risk that the final results of a project deviate from those that have been successively reported. Impairment tests of goodwill Groups s total goodwill amounts to SEK 1,733 million (1,778). When calculating cash generating units recoverable amount in order to assess the need to write-down goodwill, several estimations and assessments about the future have been made. These are presented in note 16. As is apparent in the description in note 16 changes beyond what can reasonably be expected during 2013 of the conditions for these estimations and assessments could have a significant effect on goodwill. This risk is, however, very low since the recoverable values are for the most part higher than the reported values in those cases where goodwill values are substantial. Project and development property Project and development property amounts to SEK 6,239 million (5,180). The book value has been estimated based on prevailing price levels per property at the respective location. Changes in supply and demand may alter reported values and write-downs may be required. For more information on Project and development property, see note 24. Disputes The actual outcome in disputed amounts may deviate from those, according to the best estimate, recorded. For more information on disputes, see note 33. Taxes Changes in tax legislation and changed praxis with regard to the interpretation of tax laws can have a considerable impact on the size of recorded deferred taxes. For more information on taxes, see note 14. Accounting principles Tenant-owner projects in Sweden Tenant-owner associations that Peab signs construction contracts with are autonomous and from Peab independent legal entities. Tenantowner associations are tools members of the association can use to order, construct and manage a property and this is beneficial for the tenant-owners. Peab signs contracts regarding the sale of land and construction contracts with newly established tenant-owner associations as clients. The contracts are signed by the board in the tenant-owner association at the start up of construction. No member of the board in the tenant-owner association represents Peab. Tenant-owner associations can influence the design of the buildings about to be constructed. A new obligatory financial plan is drawn up if changes are made that significantly affect the financial prerequisites. The contract gives the tenant-owner association normal client rights in relation to Peab. Our overall assessment is that the contracts meet the definition of a construction contract according to IAS 11. Real estate agents handle the sales of the tenant rights through direct contracts with the tenant-owner associations. The individual home purchasers sign sub-contracts with the tenant-owner associations. During construction the association finances the land and construction with two building loans, one where the association takes out a mortgage for the final financing and one that Peab stands surety for regarding the home purchasers deposits. The tenant-owner associations carry the entire value risk on the property. In addition, Peab guarantees that it will acquire any apartments from the tenant-owner associations that remain unsold six months after the building is complete, which is a requirement from the certifiers, i.e. insurance companies and banks. This repurchase obligation is limited since tenant-owner associations do not sign construction contracts until most of the apartments are under contract with a home purchaser and, in our experience, generally do not represent high amounts. The few apartments bought by Peab are usually sold within a short period of time without any other costs than a few months of fees to the tenant-owner association. Reserves are made for possible estimated costs. No other guarantees or obligations are given to the tenant-owner association than the normal guarantees in conventional construction contracts. Other accounting standards and interpretations New accounting standards and interpretations of existing standards can lead to changes that wherein certain transactions in the future are handled differently than according to current praxis. Note 3 Income distributed by type Income distributed by main income type Group Parent company Income from contracting 41,910 38,946 Sale of goods 1,653 1,423 Sale of property developments 1, Crane, machine and vehicle rental Transport services 1,429 1,473 Administrative services Other Total 46,840 43, NOTES PEAB ANNUAL REPORT

58 NOTES Note 4 Operating segment Group business is divided into operating segments based on how the company s highest decision makers, i.e. executive management, follow the business. From 1 January 2012 the Group has been divided into four business areas; Construction, Civil Engineering Industry and Property Development. The business areas are also operating segments. Comparable figures for 2011 have been translated into the new business areas. The Group s internal reporting is constructed so that executive management follows every business area up to and including operating profit. Capital frameworks for investments and project developments are decided for each business area, in connection with drawing up the budget for the year. These are then monitored during the year. Total assets and liabilities are only followed up on Group level. Segments are reported according to the percentage of completion in projects since that reflects the way executive management and the Board monitors operations. Peab applies IFRIC 15, Agreements for the construction of real estate, in legal accounting. IAS 18, Revenue, are applied for housing projects in Finland and Norway as well as our own home developments in Sweden. Revenue from these projects are recognized first when the home is handed over to the buyer. A bridge has therefore been created in segment reporting between operative reporting according to percentage of completion method and legal reporting. For more information regarding principles for housing production, see note 1. Construction of our own development projects booked as an asset in our own balance sheet is presented in segment reporting according to the percentage of completion method. Unrealized internal profits and net sales are eliminated within the Group. When our own development projects are divested these effects are returned to the Group and the capital gains from the sales are reported in business area Property Development. Internal pricing between Group segments is based on the arm s length principle, in other words, between well informed parties who are independent of each other and interested in the realisation of the transactions. Segment s operating profit include attributable items which can be reasonably and reliably allocated to the segments. Non-allocated items consist of financial income and expenses, and taxes. Assets and liabilities are not divided into segments since they are only followed up on Group level. Group 2012 Civil Engineering Segments The Group consisted during 2012 of following business areas; Construction: Business area Construction comprises the Group s construction related services and own housing projects. Operations are run in five geografic divisions in Sweden, one division in Norway, one division in Finland and a Nordic division, Special projects, which is specialized in larger, more complex projects. Production is primarily comprised of housing for external customers and our own housing developments but also public and commercial premises and buildings. Customers are private property owners, municipalities and companies as well as business area Project Development. Operations in Construction also include construction related services such as construction maintenance and repairs. Civil Engineering: Business area Civil Engineering works with the construction of larger infrastructure and civil engineering projects and smaller projects on the local market. Civil Engineering also operates and maintains roads and municipal facilities. The operations are run in geographical regions in Sweden, Norway and Finland. Customers are the Swedish Transport Administration, municipalities and local businesses. Industry: Business area Industry is run in seven product segments; Asphalt, Concrete, Gravel and Rock, Transportation and Machines, Rentals, Foundations and Industrial Construction. All of them work on the Nordic construction and civil engineering markets. Customers are mainly the Nordic Construction and Civil engineering companies. Most of the business is generated on the Swedish market. Property Development: Group operations revolving around acquisitions, development and divestiture of commercial property and rental property in the Nordic region are run in business area Property Development. During the year the business has been followed up in three areas; Listed holdings, Partly owned companies and Wholly owned subsidiaries and projects. Listed holdings during the year has primarily consisted of shares in Brinova and Catena. Both holdings were divested in Partly owned companies and joint ventures consists of, for instance, Peab s ownership in Tornet, in Centur, in companies connected to the development of Arenastaden in Solna as well as other holdings. Wholly owned subsidiaries and projects consists of a number of holdings that include everything from land for development where zoning is being worked out to completed projects ready for sale. Other operations are reported under Group functions. Property Development Total operative for the Group Adjustment for different accounting principles for housing production MSEK Construction Industry Group funcions Elimination Group External sales 27,601 11,448 6, , ,840 Internal sales 391 1,195 4, , Total income 27,992 12,643 10, ,815 45, ,840 Operating costs 28,056 12,203 9, ,782 45, ,919 Profit from participation in associated companies and joint ventures Other operating income Other operating costs Operating profit , ,055 Financial income 239 Financial expenses 443 Profit from participation in joint ventures 38 Pre-tax profit 813 Tax 88 Profit for the year 725 Other comprehensive income for the year 70 Total comprehensive income for the year 655 Depreciation Write-downs Significant non-cash items in addition to depreciation and write-downs that are not related to payments PEAB ANNUAL REPORT 2012

59 Group 2011 MSEK Construction Civil Engineering Industry Property Development Group funcions Elimination Total operative for the Group Adjustment for different accounting principles for housing production External sales 26,855 10,397 6, , ,539 Internal sales 967 1,157 3, , Total income 27,822 11,554 10, ,086 44, ,539 Operating costs 27,213 11,163 9, ,065 42, ,107 Profit from participation in associated companies and joint ventures Other operating income Other operating costs Operating profit , ,505 Financial income 158 Financial expenses 466 Profit from participation in joint ventures 2 Pre-tax profit 1,195 Tax 252 Profit for the year 943 Other comprehensive income for the year 207 Total comprehensive income for the year 736 Depreciation Write-downs Returned write-downs Significant non-cash items in addition to depreciation and write-downs that are not related to payments Geografic areas Income från external customers are grouped in geographic areas according to where customers are located. Information concerning intangible and tangible assets is based on geografic areas grouped according to where assets are located. Group Sweden Norway Finland Other markets Total External sales 37,289 35,923 6,532 4,387 2,988 3, ,840 43,539 Intangible and tangible fixed assets 5,421 5, ,569 6,811 Parent company Group functions Sweden Net sales Note 5 Business combinations 2012 In 2012 Peab aquired a further 50 percent of Fastighets AB Bryggeriet and 100 percent of P. Arvidssons Entreprenad AB. These acquisitions individually do not have any material acquisition effect from a Group perspective. Total transferred compensation amounted to SEK 31 million. In the period after acquisition the above subsidiaries contributed SEK 3 million to Group income and SEK 1 million to profit after tax in If the acquisitions had taken place on 1 January 2012, the combined effect of these acquisitions on Group income would have been SEK 7 million and on profit for the year after tax by SEK 5 million. During the year, the acquisition of assets occurred through the acquisition of shares (asset acquisitions which are not operational) which resulted in a cash flow of SEK -380 million. Acquisition after the balance sheet date There have been no acquisitions of importance in Group 2011 In 2011 Peab aquired a further 50 percent of Kokpunkten Fastighets AB, 65 percent of Terje Hansen AS, 90 percent of K. Nordang AS, 91 percent of Telemark Vestfold Entreprenör AS, 100 percent of Norweigan Aggregates AS, 100 percent of Hagström i Nås AB, 100 percent of Mora Orsa Byggtjänst AB, 100 percent of Gryttby Grus & Sand AB, 100 percent of Bjurholms Lastbilcentral Ekonomisk Förening and operations at Ängelholm Airport. The aquisitions are part of Peab s vision to become the Nordic Community Builder through the strategy of investing in profitable growth in the Nordic region. The above acquisitions in 2011 individually do not have any material acquisition effect from a Group perspective and the information on acquisition effects is therefore given collectively. In the period after acquisition the above subsidiaries contributed SEK 607 million to Group income and SEK 8 million to profit after tax in If the acquisitions had taken place on 1 January 2011, the combined effect of these acquisitions on Group income would have been SEK 824 million and on profit for the year after tax by SEK 18 million. NOTES PEAB ANNUAL REPORT

60 NOTES Effects of acquisitions in 2011 The acquisitions preliminary effects on Group assets and liabilities are shown below. The acquired companies net assets at the time of acquisition: 2011 MSEK Intangible fixed asset 70 Tangible fixed assets 148 Financial fixed assets 15 Deferred tax receivables 56 Project and development property 73 Inventories 19 Accounts receivable and other receivables 308 Liquid funds 50 Interest bearing liabilities 149 Accounts payable and other current liabilities 371 Deferred tax liabilities 37 Net identifiable assets and liabilities 182 Previous holdings 31 Negative goodwill recognized as income 12 Group goodwill 59 Consideration transferred 198 Goodwill consists of, among other things, human resources and future synergy effects regarding common systems and shared resources which do not meet the criteria for recognition as intangible assets at the time of acquisition. Goodwill value amounting to SEK 21 million provides a fiscal depreciation deduction. Transaction costs connected to acquisitions amount to SEK 1.3 million and relate to consulting fees concerning due diligence. Transactions costs are reported in the income statement as sales and administrative expenses. Acquired receivables amount to SEK 308 million and consist mainly of accounts receivables. Consideration transferred MSEK Paid in cash 192 Conditional purchase sum 6 Total consideration transferred 198 During the year, the acquisition of assets occurred through the acquisition of shares (asset acquisitions which are not operational) which resulted in a cash flow of SEK 182 million. The anticipated acquisition method has been used on acquisitions that are short of 100 percent of equity when there is a put/call option for the acquisition of the rest of the shares. The method means that the companies are consolidated to 100 percent and the calculated purchase price for the rest of the shares is reported as a liability. Note 6 Other operating income Group Capital gains from shares sold in Group companies/ joint ventures/ associated companies 54 Insurance compensation 21 Profit from sale of fixed assets Exchange gains on receivables/liabilities relating to operations 3 1 Negative goodwill 12 Other 5 9 Total Note 7 Other operating costs Group Loss from sale of fixed assets 2 5 Exchange loss on receivables/liabilities relating to operations 3 1 Other 7 3 Total 12 9 Note 8 Government Grants Group Goverment grants received as compensation for operating costs amounted in 2012 to SEK 25 million (24), and have reduced costs in the income statement. Note 9 Employees, personnel costs and remuneration to senior officers Payroll costs for employees Group Wages and remuneration 6,243 5,906 Pension expenses, defined benefit plans 3 7 Pension expenses, defined contribution plans Social insurance costs 1,815 1,709 Total 8,565 8,071 Average number of employees No. of employees 2012 Of were men 2012 percent No. of employees 2011 Of were men 2011 percent Parent company Sweden Subsidaries Sweden 12, , Norway 1, , Finland Poland Total in subsidaries 14, , Total in Group 14, , Gender distribution in the Board of Directors and executive management Percentage Percentage of women of women Parent company The Board of Directors 18% 18% Other senior officers 20% 0% Group total The Board of Directors 18% 18% Other senior officers 13% 0% 56 PEAB ANNUAL REPORT 2012

61 Salaries and other payments divided between senior officers and other staff, and social security costs Parent company 2012 Board of MSEK Directors and senior officers (13 persons) 1) Other employees Total Salary and remuneration (of which variable remuneration etc.) ( ) (0) (0) Social security costs of which pension costs Board of Group 2012 Directors and senior officers MSEK (16 persons) 1) Salary and remuneration 27 (of which variable remuneration etc.) ( ) Social security costs 18 - of which pension costs 8 The Board and senior officers were only registered in the parent company during The figures in the table below are the same for the parent company and the Group and are therefore reported in the same table. Group and parent company 2011 Board of MSEK Directors and senior officers (12 persons) 1) Other employees Total Salary and remuneration (of which variable remuneration etc.) ( ) (1) (1) Social security costs of which pension costs No variable remuneration was paid to executive management or other employees of the parent company in 2012 (0). Benefits for senior officers Remuneration and other benefits in 2012 Thousands, SEK Basic salary/ Board remuneration Variable remuneration Other benefits Pension costs Total Chairman of the Board, Göran Grosskopf Vice Chairman of the Board, Mats Paulsson 3,000 3,000 Other members of the Board Annette Brodin Rampe Karl-Axel Granlund Svante Paulsson Lars Sköld Fredrik Paulsson Anne-Marie Pålsson Total related to Board of Directors from the parent company 4,620 4,620 CEO, Jan Johansson 4, ,304 7,288 Other senior officers, remuneration from the parent company 1) 10, ,167 14,390 Other senior officers, remuneration from subsidiaries 6, ,578 9,859 Total 26, ,049 36,157 Remuneration from the parent company 20, ,471 26,298 Remuneration from subsidiaries 6, ,578 9,859 1) Comprises the number of persons that during the year received remuneration for the period they were senior officers. During the period January to June there were seven senior officers and during the period July to December there were eight. Benefits for senior officers Remuneration and other benefits in 2011 Thousands, SEK Basic salary/ Board remuneration Variable remuneration Other benefits Pension costs Total Chairman of the Board, Göran Grosskopf Vice Chairman of the Board, Mats Paulsson 3,000 3,000 Other members of the Board Annette Brodin Rampe Karl-Axel Granlund Svante Paulsson Lars Sköld Fredrik Paulsson Anne-Marie Pålsson Total related to Board of Directors from the parent company 4,620 4,620 CEO until Maj 2011, Mats Paulsson 1, ,713 CEO, Jan Johansson 2) 4, ,934 6,193 Other senior officers 1) 7, ,604 11,876 Total remuneration from parent company 18, ,538 24,402 1) Comprises the number of persons that during the year received remuneration for the period they were senior officers. During 2012 there were three other senior officers. 2) Wages for the period Jan-May 2011 amount to SEK 1,636 thousand, wages for the period Jun-Dec 2011 amount to SEK 2,485 thousand. Pension costs for the period Jan-May 2011 amount to SEK 623 thousand, pension costs for the period Jun-Dec 2011 amount to SEK 1,311 thousand. Comments on the tables From time to time the CEO and other senior officers may be offered variable remuneration. Other benefits refer to company cars. Pension costs refer to costs charged to the year. See note 32 for additional information about pensions. During the first half year of 2012, the group senior officers consisted of seven persons, of which four persons in the parent company. Thereafter the group of senior officers consisted of eight persons, of which five persons in the parent company. The Board of Directors The 2012 AGM decided on a remuneration to external members of the Board of a maximum of SEK 4,620 thousand (4,620), of which SEK 450 thousand (450) consisted of remuneration to the Chairman of the Board. A remuneration of SEK 2,765 thousand, like last year, was decided as a special compensation to the Vice Chairman of the Board for his availability to the Group in matters concerning customers and the market. Remuneration to all other members of the Board was a maximum of SEK 4,440 thousand (4,440), and SEK 180 thousand (180) for work in the remuneration and finance committees. During the year total remuneration amounted to SEK 4,620 thousand (4,620). Remuneration is not paid to members of the Board who are permanent employees of the Group. There are no agreements on future pension/retirement remuneration or other benefits either for the Chairman of the Board of Directors or for other members of the Board. Principles for the remuneration of senior officers The group other senior officers is comprised of eight senior officers who are members of executive management. During the first half of 2012 this group consisted of seven persons. The principles for remuneration of senior officers were adopted by the AGM Remuneration to the CEO and other senior officers consists of a fixed salary, eventual variable remuneration, extra health insurance and those benefits otherwise enjoyed by other Peab employees as well as pension. All pension obligations are defined contribution pensions. The total remuneration paid to each senior officer is based on market terms and the responsibilities and qualifications of the senior officer. From time to time, senior officers may be offered variable remuneration. Such variable remuneration may not exceed 60 percent of the NOTES PEAB ANNUAL REPORT

62 NOTES regular salary and must above all be based on the pre-tax profit of the Peab Group. Variable remuneration is decided upon each financial year. Variable remuneration is settled the year after being earned and may either be paid out as salary or as a one-off pension premium. If variable remuneration is paid out on a one-off basis, certain adjustments are made so as to neutralize the total cost for Peab. Notice on the part of Peab is a maximum of 24 months and senior officers are required to give a maximum of six months notice. If a severance pay is paid the total remuneration for salary during the period of notice and severance pay may not exceed 24 monthly wages. Variable remuneration Variable remuneration for the CEO and other senior officers is related to meeting profit targets for the Group. Variable remuneration for the financial year 2012 was maximized at SEK 2,880 thousand (2,800) for the CEO and a total of SEK 7,326 thousand (6,525) for the other senior officers. The CEO The CEO of Peab received a salary including benefits of SEK 4,984 thousand (4,212) in total in No variable remuneration for 2012 was paid (SEK 47 thousand). Pension premiums paid out for the CEO amounted to SEK 2,304 thousand (1,934) during the year. Pension commitments for the CEO give him the right to pension from the age of 65. There is a supplementary commitment whereby the company or the CEO can trigger early retirement from the age of 62. Annual pension premiums of 47 percent of basic salary are paid for these commitments. These pensions are part of defined contribution plans. Notice on the part of Peab is a maximum of 24 months and the CEO is required to give a maximum of six months notice. If a severance pay is paid the total remuneration for salary during the period of notice and severance pay may not exceed 24 monthly wages. Other senior officers The term other senior officers refers to the seven other persons that together with the CEO make up Peab s executive management. Salary and other remuneration including benefits for other senior officers amounted to SEK 17,544 thousand (8,113). Variable remuneration for 2012 for two persons that during the year were members of executive management amounted to SEK 960 thousand. For 2011 variable remuneration amounted to SEK 159 for all other senior officers. Pension premiums paid out for other senior officers amounted to SEK 5,745 thousand (3,604) during the year. There are early retirement pension commitments for other senior officers. All pension benefits are unassailable. Pension commitments for other senior officers give them the right to pension from the age of 65. There is a supplementary commitment whereby the company or the senior official can trigger early retirement from the age of 62. Annual pension premiums of 47 percent of basic salary are paid for these commitments. These pensions are part of defined contribution plans. If given notice by the company other senior officers are entitled to a maximum of two years salaries deducted by salaries from new employers. The period of notice from senior officers is six months. Long-term incentive program (LTI program) From time to time, senior officers may be offered to the opportunity to participate in a LTI program. In order to participate in a LTI program the senior officer must reserve at least 50 percent of their annual variable remuneration as a lump sum pension premium. Annual income from the LTI program may not exceed 40 percent of the fixed annual salary. Income from the LTI program and the provision of at least 50 percent of the annual variable remuneration are placed in a pension savings connected to the Peab share. During persons, including senior officers, were offered to participate in a LTI program. The LTI program runs until 2014 with annual reviews of targets for the Group. The targets were not met in 2012 and therefore no provisions were made for the LTI program. Profit sharing foundation In 2007, Peab founded a profit sharing foundation. The object of the profit sharing foundation is to create increased participation through employee co-ownership and to better our employees financial situation after retirement. Individual shares in profits will be proportional to the employee s working hours. Upon retirement employees can withdraw their share in the foundation. Under the foundation s investment policy, its assets must be mainly invested in shares in Peab. Peab has not allocated any funds in 2011 and 2012 for profit sharing. Senior officers have not been entitled to benefits from the profit sharing foundation. Convertible Promissory Notes 2007/2012 At the AGM 2007 in Peab AB it was decided to issue and offer convertibles to all employees. The convertibles ran from 1 December 2007 until 30 November 2012 and amounted to a nominal value of SEK 598 million. There have been no conversions to shares and the loan has been paid in full. Note 10 Fees and cost remunerations to auditors Group Parent company KPMG AB Auditing assignments Other audit-related assignments Other assignments Other Auditing assignments 0 1 Tax advisory services 1 Total Auditing assignments refer to examination of the annual accounts, accounting and administration by the Board of Directors and the CEO, other work which it is the business of the company auditor to perform and advice and other assistance stemming from observations made in connection with such examination of the performance of other similar work. Note 11 Operating costs divided by type Group Material 9,975 9,969 Subcontractors 13,954 12,075 Personnel expenses 10,135 9,729 Other production costs 10,133 9,040 Depreciation Write-downs Other operating costs Total 45,919 42, PEAB ANNUAL REPORT 2012

63 Note 12 Net financial income/expense Group Interest income 1) Dividend received related to financial assets valued at fair value Net profit related to financial assets valued at fair value 2) 31 4 Change in value of cash flow hedges transferred from equity 17 Change in value currency swaps (trading) 8 3 Other items 17 0 Financial income Interest expenses 3) Net loss related to financial assets valued at fair value 2) 85 Change in value currency swaps (trading) 0 1 Net exchange rate fluctuation 2 5 Other items Financial expenses Profit from participation in joint ventures 4) 38 2 Net financial income/expense ) Refers to interest from items valued at accrued acquisition value. 2) Of which shareholding in Brinova Fastigheter AB SEK 27 million ( 81). 3) Refers to interest from items valued at accrued acquisition value except current interest net from the interest coupon portion of interest swaps totaling SEK 11 million ( 6). 4) Interest expenses on loans from joint venture companies have been offset against profit from participation in joint venture companies. There is, according to the contracts, a legal right for offsets in the balance sheet accounts between the debt to joint venture companies and holdings of preference shares in joint venture companies. Profit from participation in Group companies Parent company Dividends 38 1,150 Paid Group contribution 1, Received Group contribution 1,484 1,003 Write-downs 1) Capital gains from sales 14 Total ) For more information about write-downs, see note 42. Profit from participation in associated companies Parent company Dividends Write-downs 130 Capital gains from sales 23 Total 27 6 Profits from securities and receivables recorded as fixed assets Parent company Dividends Interest income, external 1) 2 0 Interest income, Group companies 1) Net profit/loss related to financial assets valued at fair value 2) Net profit related to financial assets available-for-sale 4 Exchange rate gain/loss 4 3 Total ) Interest income refers to interest from items valued at accrued acquisition value. 2) Refers to shareholdings in Brinova Fastigheter AB SEK 27 million ( 81). Interest expenses and similar profit/loss items Parent company Interest expenses, external 1) Interest expenses, Group companies 1) Other items 8 8 Total ) Interest expenses refer to interest from items valued at accrued acquisition value. Note 13 Appropriations Parent company Transfer to tax allocation reserve 156 Change in additional depreciations, machinery and equipment 0 0 Total Note 14 Taxes Recognized in the income statement Group Current tax expenses/income Tax expenses for the year Adjustment of tax attributable to previous years Deferred tax expenses/income Temporary differences 81 9 Capitalised tax value of loss carry-forwards during the year Utilisation of capitalised tax value of loss carried forwards Changed tax rates 80 1 Revaluation of reported deferred tax values Total reported tax expenses in the Group Parent company Current tax expenses/income Tax expenses for the year Adjustment of tax attributable to previous years Deferred tax income Temporary differences Total reported tax expenses/income in the parent company NOTES PEAB ANNUAL REPORT

64 NOTES Reconciliation of effective tax Group MSEK (%) (%) Pre-tax profit 813 1,195 Tax with tax rate for the parent company Effect of other tax rates for foreign subsidiaries Non-deductible expenses Tax exempt income Deductible non profit-influencing items Revaluation of previous years reported values of deferred taxes Utilized non-capitalised loss carry-forwards Tax attributable to previous years Changed tax rates Increase in loss carry-forwards without corresponding activation of deferred tax Standard interest on tax allocation reserve Adjustment of net profit for joint ventures included in pre-tax profit Reported effective tax Tax attributable to other comprehensive income Group Pre-tax Tax After tax Pre-tax Tax After tax Translation difference for the year when translating foreign operations Loss from exchange risk hedging in foreign operations Financial assets available for sale Cash flow hedges Shares in associated companies/jv s other comprehensive income Other comprehensive income Reported in the balance sheet Deferred tax recoverables and tax liabilities Parent company MSEK (%) (%) Pre-tax profit 227 1,417 Tax in accordance with tax rate for the parent company Non-deductible expenses Tax exempt income Standard interest on tax allocation reserve Tax attributable to previous years Reported effective tax Group Deferred tax recoverables Deferred tax liabilities Net Changes recognized in income for the year Tangible assets Intangible assets Project and development properties Work-in-progress Inventories Accounts receivable Recognized but not invoiced income Other receivables Interest-bearing liabilities Provisions for pensions Provisions Invoiced income not yet recognized Other liabilities Loss carry-forwards Tax allocation reserve Safety reserve Tax recoverables/tax liabilities Offset Net PEAB ANNUAL REPORT 2012

65 Parent company Deferred tax recoverables Deferred tax liabilities Net Changes recognized in income for the year Interest-bearing liabilities The specifications in the above tables have been reclassified in comparison with the previous year. Ongoing correspondence between the Swedish Tax Authorities as well as assessments made together with external experts on the deductability of individual deductions have been taken into consideration when evaluating deferred tax receivables. Deferred tax attributable to deductions where the right to deduct is uncertain has not been reported as an asset. The value of the deferred tax from these deductions per is approximately SEK 355 million (386). Temporary differences between reported and fiscal value of participations directly owned by the parent company Normally there are no temporary differences between reported and fiscal values of shares directly owned by the parent company for business purposes, i. e. neither upon divestment or distribution of dividends, as such transactions are not taxable. Therefore no deferred tax has been reported for these holdings. Note 15 Earnings per share Earnings per share Before dilution After dilution SEK Earnings per share Earnings per share before dilution The calculation of earnings per share for 2012 was based on profit for the year attributable to the parent company s ordinary shareholders amounting to SEK 729 million (943) and on a weighted average number of outstanding shares in 2012 of 294,962,746 (288,929,907). Earnings per share after dilution The calculation of earnings per share for 2012 was based on profit for the year attributable to the parent company s ordinary shareholders amounting to SEK 759 million (975) and on a weighted average number of outstanding shares in 2012 of 302,993,347 (297,729,907). Outstanding convertible promissory notes of 8,800,000 shares matured on 30 November 2012 and there was no conversion to shares. The two components were calculated as follows: Weighted average numbers of outstanding ordinary shares before dilution 1) Thousands of shares Total number of outstanding ordinary shares per 1 January 294, ,742 Acquisition/disposal of own shares during the year 8,221 Total number of outstanding shares per 31 December 294, ,963 Weighted average numbers of outstanding ordinary shares before dilution 294, ,930 Unreported deferred tax receivables The fiscal value of loss carry-forwards for which deferred tax receivables have not been reported in the balance sheet was SEK 1 million (1) on and refers to the Polish and Latvian operations. These deferred tax receivables are due in the years Considering the losses in recent years in these operations and the very limited business planned for the future it is not likely that the deferred tax receivables can be offset against future taxable profits. Because the Norwegian operations have in recent years reported losses, the loss carry-forwards of 2012 amounting to SEK 147 million have not been activated since part of total loss carry-forward is uncertain if they can be used depending on taxable future surplusses. The fiscal value of the unactivated loss carry-forward is SEK 41 million. Profit attributable to the parent company s ordinary shareholders after dilution Profit attributable to the parent company's ordinary shareholders Interest rate effect on convertible promissory notes (after tax) Profit attributable to the parent company's ordinary shareholders after dilution Weighted average number of outstanding ordinary shares after dilution 1) Thousands of shares Weighted average number of outstanding ordinary shares before dilution 294, ,930 Effect of converting convertible promissory notes 8,030 8,800 Weighted average numbers of outstanding ordinary shares after dilution 302, ,730 1) Repurchased shares are not included in the calculation. NOTES PEAB ANNUAL REPORT

66 NOTES Note 16 Intangible fixed assets Group 2012 MSEK Goodwill Brands 1) Annual depreciation is reported in the following lines of the income statement: Production costs Sales and administrative expenses 2 8 Total Intangible fixed assets, external purchase Customer relations Tenancies gravel and rock quarries Other intangible assets Intangible fixed assets, internally developed Industrial construction Opening acquisition value 1, ,512 Purchases/acquisition of companies Revaluation 6 6 Translation differences for the year Closing accumulated acquisition value 1, ,525 Opening depreciation Depreciation for the year 1) Reclassifications Closing accumulated depreciation Opening write-downs Revaluation 4 4 Write-downs for the year 2) Reclassifications 1 1 Closing accumulated write-downs Closing book value 1, ,126 Group 2011 MSEK Goodwill Brands Intangible fixed assets, external purchase Customer relations Tenancies gravel and rock quarries Other intangible assets Intangible fixed assets, internally developed Industrial construction Opening acquisition value 1, ,406 Purchases/acquisition of companies Sales/disposals Reclassifications Translation differences for the year 1 1 Closing accumulated acquisition value 1, ,512 Opening depreciation Sales/disposals 4 4 Depreciation for the year 1) Reclassifications 2 2 Closing accumulated depreciation Opening write-downs Sales through companies sold Write-downs for the year 2) Reclassifications 1 1 Closing accumulated write-downs Closing book value 1, ,231 Total Total 2) Annual write-downs are reported in the following lines of the income statement: Production costs Sales and administrative expenses Total PEAB ANNUAL REPORT 2012

67 Goodwill impairment testing in cash generating units The balance sheet of the Peab Group included total goodwill of SEK 1,733 million (1,778). Cash generating units with significant reported goodwill values compared with the total reported values of the Group per segment are specified below. Construction Nybyggarna i Nerike AB Other units in Sweden Peab Oy Group Björn Bygg AS Group K Nordang AS Telemark Vestfold Entreprenör AS Other units in Norway Civil Engineering Berg & Falk AB Olof Mobjer Entreprenad AB Markarbete i Värmland AB Other units in Civil Engineering Industry Peab Industri Group 1,280 1,295 Property Development Ängelholms Flygplats AB Total 1,733 1,778 Goodwill write-downs Group goodwill write-downs in 2012 amounted to SEK 59 million (21). In 2012 write-downs of SEK 43 million (2) stem from Construction operations, SEK 13 million (3) are related to Industry and SEK 3 million (16) to Civil Engineering. Most of the write-downs in 2012 are a result of low profitability in existing operations. Write-downs from last year were primarily generated from shutting down operations. For the cash generating units where the recovery value was calculated and no write-down need was identified, company management has concluded that no feasible possible changes in important assumptions would result in a recovery value lower than the recorded value. Method for calculating recovery value The recovery value of all goodwill values has been based on the calculation of useful value for the cash generating units. The calculation model is based on a discount of forecasted future cash flows relative to the unit s reported values. These future cash flows are based on 5 year forecasts produced by the management of the respective cash generating unit. Goodwill impairment tests have an infinite time horizon and extrapolation of cash flow for the years after the forecast was calculated on a growth rate of 2 percent from year 6 onwards. Important variables when calculating useful value The following variables are important and common to all cash generating units in the calculation of useful value. Sales: The competitiveness of the business, expected changes in the construction business cycle, general financial conditions, investment plans of public and municipal customers, interest rate levels and local market conditions. Operating margin: Historic profitability levels and operative efficiency, access to key personnel and qualified manpower, the ability to cooperate with customers/customer relations, access to internal resources, raises in salary, materials and subcontractor costs. Working capital requirements: Individual case assessment of whether the working capital reflects the company s needs or whether it should be adjusted for the forecast period. A reasonable or cautious assumption for future development is that it parallels net sales growth. A high level of internally developed projects may entail a greater need for working capital. Investment needs: Assessment of the company s investment needs are based on the investments required to achieve the initially forecasted cash flow, i.e. not including expansion investments. Normally investment levels are equivalent to the depreciation rate of tangible fixed assets. Tax burden: The tax rate in forecasts is based on Peab s anticipated tax situation in Sweden, Norway and Finland in terms of tax rates, loss carry-forwards etc. Discount rate: Forecasted cash flows and residual values are discounted to current value applying a weighted average cost of capital (WACC). Interest rates on borrowed capital has been adjusted to the market in each country. The required return on equity is based on the Capital Asset Pricing Model. A pre-tax weighted discount rate has been used in calculating useful value. The discount rate used on cash generating units in Sweden is an average of 6.1 percent (6.6), in Norway 7.3 percent (7.4) and in Finland 6.4 percent (6.7). Note 17 Tangible fixed assets Group 2012 MSEK Buildings and land Machinery and equipment Construction in progress Total Opening acquisition value 2,331 6, ,918 Purchases Purchases through acquired companies Sales/disposals Sales through companies sold Reclassifications Translation differences for the year 2 2 Closing accumulated acquisition value 2,106 6, ,155 Opening depreciation 544 3,778 4,322 Accumulated depreciation in acquired companies Sales/disposals Sales through companies sold 5 5 Reclassifications Depreciation for the year Closing accumulated depreciation 601 4,096 4,697 Opening write-downs Sales/disposals 2 2 Write-downs for the year 1) 1 1 Closing accumulated write-downs Closing book value 1,501 2, ,443 NOTES PEAB ANNUAL REPORT

68 NOTES Group 2011 MSEK Buildings and land Machinery and equipment Construction in progress Total Opening acquisition value 2,572 5, ,667 Purchases ,138 Purchases through acquired companies Sales/disposals Sales through companies sold Reclassifications Translation differences for the year Closing accumulated acquisition value 2,331 6, ,918 Opening depreciation 471 3,332 3,803 Accumulated depreciation in acquired companies Sales/disposals Sales through companies sold Reclassifications Depreciation for the year Translation differences for the year 1 1 Closing accumulated depreciation 544 3,778 4,322 Opening write-downs Reclassifications 5 5 Write-downs for the year 1) 4 4 Closing accumulated write-downs Closing book value 1,782 2, ,580 1) Annual write-downs are reported in the following lines of the income statement: Production costs 0 4 Sales and administrative expenses 1 Total 1 4 Parent Company Machinery and equipment Opening acquisition value 8 8 Closing accumulated acquisition value 8 8 Opening depreciation 6 6 Depreciation for the year 0 0 Closing accumulated depreciation 6 6 Closing book value 2 2 Group financial leasing Companies in the Group lease vehicles, construction machinery and other production equipment through many different financial leasing agreements. The recorded value related to Group financial leasing amounted to SEK 601 million (582). When the leasing agreements terminate Peab normally has a liability to buy equipment at its residual value. The leased assets are owned by the lessors. Note 18 Participation in associated companies Group Acquisition value carried forward Disposal of associated companies 83 Dividend for the year Profit from participation in associated companies 1 18 Translation differences for the year 1 2 Book value carried forward 88 Specifications of Group s holdings in associated companies Company Share Book value, Share Book value, Registered office, Corp.Id.no percent MSEK percent MSEK Catena AB Gothenburg, Total 88 Consolidated values regarding the Group s share of income and costs, assets and liabilities from participation in joint ventures is specified below. Income 6 25 Expenses 5 7 Profit 1 18 Fixed assets 137 Current assets 21 Total assets 158 Current liabilities 7 Long-term liabilities 63 Total liabilities 70 Net assets/liabilities 88 Associated company participation has been reported in Peab with a quarterly delay since Catena is a listed company. Peab has divested its holdings in Catena AB in Parent company Acquisition value carried forward Disposal of associated companies 133 Write-downs 130 Book value carried forward 133 Specification of parent company s direct holding of shares in associated companies Company Share Book value, Share Book value, Registered office, Corp.Id.no percent MSEK percent MSEK Catena AB Gothenburg, Total PEAB ANNUAL REPORT 2012

69 Note 19 Participation in joint ventures Specification of Group holdings of participations in joint ventures Company, Share percent Book value, MSEK Share percent Registered office, Corp.ID.no Book value, MSEK TCL S.à.r.l. Luxemburg, S:t Eriks AB Staffanstorp, Nyckel 0328 AB Stockholm, Visio Property Ltd Buckingham, Mountain Resort Trysil AS Trysil, Dockan Exploatering AB Malmö, Sicklaön Bygg Invest AB Solna, Fotbollsstadion i Malmö Fastighets AB Malmö, Telemark Vestfold Utvikling AS Skien, Fastighets AB Centur Stockholm, Fastighets AB Partille 11 Gothenburg, Österåkers Näs Fastighets HB Stockholm, Log. Tostarp AB Helsingborg, Ale Exploatering AB Gothenburg, Stora Hammar Exploatering AB Vellinge, Fjällvärme i Lindvallen AB Malung-Sälen, I Tolv AB Eksjö, Svenska Fräs & Asfaltsåtervinning SFA AB Markaryd, Bondistranda Utvikling AS Oslo, Skiab Invest AB Malung-Sälen, Kungsörs Grus AB Kungsör, Sjökrona Exploatering AB Helsingborg, Skanör Invest AB Båstad, KB Älvhögsborg Trollhättan, Hälsostaden i Ängelholm AB Ängelholm, Nya Bara Utvecklings AB Bara, Kirkebakken Vest AS Horten, Tomasjord Park AS Tromsö, Log. Sunnanå AB Helsingborg, Book value, MSEK Company, Share percent Share percent Registered office, Corp.ID.no Book value, MSEK KB Blåsut Åstorp Stockholm, Mälarstrandens Utvecklings AB Västerås, Expressbetong AB Halmstad, Östersund Sport & Eventarena AB Östersund, Byggutveckling Svenska AB Linköping, Fastighets AB ML4 Malmö, Trysil Suiter AS Trysil, Trysil Hotellutvikling AS Trysil, Fastigheten Preppen HB Gothenburg, Råsta Holding AB Solna, Floodelokka 1 KS Skien, Hemsö Gransångaren Fastigheter AB Stockholm, Fastighets AB Bryggeriet Gothenburg, Dampskipskaia H-fest AS Hammerfest, Floodelokka 1 AS Skien, Others no specified items 1 1 Total 1,279 1,235 The items below show Group value of participation in the income and costs, assets and liabilities of joint ventures. Income 1,017 1,108 Expenses 936 1,102 Less: Result from property projects reported in gross profit 102 Result 21 6 Fixed assets 5,888 2,746 Current assets 1,423 1,871 Total assets 7,311 4,617 Long-term liabilities 5,136 2,869 Current liabilities Total liabilities 6,032 3,382 Net assets/liabilities 1,279 1,235 NOTES PEAB ANNUAL REPORT

70 NOTES Note 20 Receivables from Group companies Parent company Acquisition values carried forward 1,447 1,015 Added receivables 1, Settled receivables 1, Book value carried forward 1,586 1,447 Note 21 Interest-bearing receivables Interest-bearing long-term receivables Group Parent company Receivables from joint ventures Other interest-bearing receivables Total 1,157 1, Interest-bearing current receivables Receivables from joint ventures Other interest-bearing receivables Total Note 22 Other long-term securities holdings Group Financial assets recognized at fair value through the income statement Fair value option Shares and participation 1) Available-for-sale financial assets Shares and participation Loan receivables Total ) Of the Group holdings in 2011 SEK 491 million refer to shares i in Brinova Fastigheter AB. Of which, other long-term securities holdings valued at fair value Parent Company Acquisition values Opening balance 1 January Acquired assets 1 Divested assets 272 Closing balance per 31 December Accumulated change in value through the income statement Opening balance 1 January Unrealized change in value through the income statement for the year Divested assets 246 Closing balance per 31 December Book value 31 December For additional information about fair value per category and class, see Note 36. Note 23 Other receivables Other long-term receivables Group Parent company Receivables from joint ventures Other long-term receivables Total Other current receivables Group Parent company Receivables from joint ventures Other current receivables Total Note 24 Project and development property Group Directly owned project and development property 5,479 4,485 Participation in Finnish housing companies Repurchased participation in tenant-owner's associations and similar Other 2 12 Total 6,239 5,180 Project and development properties were written down for a total of SEK 22 million (14). Recovery Of book value of project and development property of SEK 6,239 million (5,180) approximately SEK 4,800 million (approximately 3,800) is expected to be recovered through the start of production or sales more than 12 months after the balance sheet day. The remaining part is expected to be recovered within 12 months of the balance sheet day. Note 25 Inventories Group Raw materials and consumables Products in progress Finished products and goods for resale Total Note 26 Work-in-progress At the end of the year there was work-in-progress for a total of SEK 1,106 million (1,689) in the Group refering to costs in housing projects reported according to IAS 18, Revenue. Note 27 Accounts receivable Accounts receivables were written down for factual and feared bad debts for a total of SEK 35 million (74). Factual bad debts amounted to SEK 37 million (5) in the Group, of which SEK 30 million were written down in The loss was a result of some of the company s customers going bankrupt. The parent company had no bad debts. 66 PEAB ANNUAL REPORT 2012

71 Note 28 Construction contracts Recognized income not yet invoiced Group Recognized income on incomplete contracts 37,455 30,682 Invoicing on incomplete contracts 32,215 26,102 Total 5,240 4,580 Invoiced income not yet recognized Group Invoiced sales on incomplete contracting projects 45,433 42,079 Recognized income on incomplete contracting projects 40,187 37,810 Total 5,246 4,269 Recognized income from contracts in progress is reported with the application of percentage of completion method. The degree of recognition is calculated on the basis of the project costs incurred at the end of the period in relation to the project income corresponding to project costs for the whole project. Contract assignments are reported in the balance sheet on the basis of gross project for project, either as Recognized but non-invoiced income in current assets or as Invoiced but unrecognized income in current liabilities. Projects that have higher recognized incomes than the amount invoiced are reported as assets, while projects that have been invoiced for more than recognized income are reported as liabilities. Note 29 Prepaid expenses and accrued income Parent Company Accrued interest income 1 2 Prepaid overhead expenses 4 5 Total 5 7 Note 30 Equity Shares and share capital Group A shares B shares Number of issued fully paid shares Share capital, SEK Number of issued shares 1 January ,319, ,729, ,049,730 1,583,866,056 Total number of issued shares 31 December ,319, ,729, ,049,730 1,583,866,056 An A share entitles the holder to 10 votes and a B share to 1 vote. The par value of all shares is SEK For those shares in the company s own holding (see below) all rights have been revoked until these shares are reissued. Repurchased own shares that have reduced the equity item Profit brought forward including profit for the year Amount that Number of shares 1) affected equity, MSEK 2) Opening repurchased own shares 1,086,984 9,308, ,213 Purchases during the year 360, Divestments during the year 8,581, Closing repurchased own shares 1,086,984 1,086, ) A withdrawal of 5,500,000 shares was made in ) Amount affecting equity refers to the accumulated net sum of acquired and divested own shares. Other contributed capital Refers to equity contributed by the owners. Includes premiums paid in conjunction with new issues. Reserves Translation reserve The translation reserve comprises all exchange rate differences generated by translating the financial reports from foreign companies prepared in another currency than the one used in Group financial statements. The parent company and the Group present their reports in Swedish crowns (SEK). The translation reserve also consists of exchange rate differences from extended investment in foreign business and re-borrowing from foreign operations. Fair value reserve The fair value reserve incudes the accumulated net change of the fair value of financial assets available-for-sale until the asset has been eliminated from the balance sheet. Hedging reserve The hedging reserve comprises the effective part of the accumulated net changes in fair value in a hedge instrument attributable to a hedged risk in a cash flow which has yet not affected the income statement. Profit brought forward including profit for the year Profit brought forward including profit for the year consists of profit in the parent company and its subsidiaries, associated companies and joint ventures. Previous provisions for reserve funds, excluding transferred premium funds, and previous investment funds are included in this equity item. Repurchased shares Repurchased shares comprise the purchase cost minus the sales income for own shares held by the parent company. As of 31 December 2012, the Group s holding of own B shares was 1,086,984 (1,086,984). NOTES PEAB ANNUAL REPORT

72 NOTES Dividend After the balance sheet day the Board of Directors and the CEO proposed the following dividend; A cash dividend of SEK 1.60 (2.10) per share totalling SEK 473,679,568 (621,704,433), calculated on the number of registered shares. Total dividends are calculated on outstanding shares at the time of distribution. The dividend will be proposed for adoption by the AGM on 14 May The parent company Restricted reserves Restricted reserves may not be reduced by the distribution of dividends. Reserve fund The purpose of the reserve fund is to retain a part of the net profit which is not allocated to cover balanced losses. The reserve also includes amounts transferred to the share premium reserve before 1 January Unrestricted equity Together with profit for the year the following funds make up unrestricted equity, i.e. the amount available for dividends to the shareholders. Premium reserve When shares are issued at a premium, i.e. when more must be paid for the shares than their nominal price, an amount equivalent to the amount received in excess of the share s nominal value is transferred to the share premium reserve. The amount transferred to the share premium reserve starting 1 January 2006 is included in unrestricted capital. Special reserves Refers to allocations to reserves upon the reduction of share capital for use as resolved by the AGM. Reserve for fair value The company uses the Annual Accounts Act rules for the valuation of financial instruments at fair value according to chapter 4 paragraph 14a-e. A change in value is recognized in the reserve for fair value when it refers to a hedging instrument and the principles applied for hedge accounting allow for a portion or the entire change in value to be recognized in equity. A change in value caused by an exchange rate change on a monetary item which is part of the company s net investment in a foreign unit is recognized in equity. Profit brought forward Consists of the previous year s profit brought forward after the distribution of profits. Note 31 Interest-bearing liabilities Long-term liabilities Group Bank loans 4,239 5,363 Convertible promissory notes 592 Bonds 1, Financial leasing liabilities Liabilities to joint ventures 9 Other long-term liabilities 128 Total 6,772 7,399 Current liabilities Bank loans including overdraft facilities 1, Commercial paper Current part of leasing liabilities Liabilities to joint ventures 100 Other current liabilities 42 Total 1,854 1,735 Convertible promissory notes 2007/2012 1) Group Nominal value after issue of 8,800,000 convertible promissory notes 598 Original amount classified as equity 35 Capitalized interest 28 Recorded liability on 31 December 591 1) The convertible promissory notes ran from 1 December 2007, with settlement day in January 2008, to 30 November 2012 with a coupon interest rate of 5.44 percent. Convertible promissory notes Peab Industri 2007/2012 2) Group Remaining part of the liability, 2007/ Recorded liability on 31 December 1 2) Remaining part of Peab Industri s personnel convertibles which had not been acquired per 31 December Financial leasing liabilities Financial leasing liabilities fall due for payment as follows; Group Minimum leasing charge Minimum leasing charge Capital Capital Interest amount Interest amount MSEK Within one year Between one and five years Later than five years Total Variable leasing fees were SEK 9 million ( 4). For futher information concerning Group financial leasing, see note PEAB ANNUAL REPORT 2012

73 Note 32 Pensions Defined benefit pension plans Group Present value of unfunded obligations 7 15 Present value of fully or partially funded obligations Total net present of obligations Fair value of plan assets 8 30 Net present value of net obligations Unrecognized actuarial gains (+) and losses ( ) 8 20 Net reporting of defined benefit plans recognized as provisions for pensions 7 13 Review of defined benefit plans Defined benefit plans consist of the Swedish ITP plan for white-collar workers which is secured through insurance with Alecta, pension plans for a small number of executive personnel in Norway and the AFP pension in Norway. As Alecta cannot submit the information required to account for the ITP plan as a defined benefit plan, it is reported as a defined contribution plan (see below). Changes in the current value of obligations for defined benefit plans Net obligations for defined benefit plans as of 1 January Paid out remunerations 8 3 Cost for service during the current period and interest expenses 3 5 Actuarial gains and losses 3 7 Effect of business acquisitions 16 Settlements and curtailments 39 Translation differences 1 1 Obligations for defined benefit plans on 31 December Changes in the recognized fair value of plan assets Fair value for plan assets as of 1 January Contributions from employer 1 2 Expected return 0 1 Difference between expected and actual return 0 1 Settlements and curtailments 23 Effect of business acquisitions 7 Fair value of plan assets on 31 December 8 30 Expenses charged to income statement Cost for service during the current period 3 6 Interest expenses on obligations 0 1 Expected return on plan assets 0 1 Gains and losses on settlements and curtailments 2 Recognized actuarial gains ( ) and losses (+) 2 2 Total net expense in the income statement 3 8 Expenses are recognized in the following lines in the income statement Production costs 3 3 Sales and administrative expenses 0 4 Financial expenses 0 1 Total 3 8 Actual return on plan assets 0 0 Assumptions for defined benefit plan obligations The most important actuarial assumptions on balance sheet date Discount rate 2.20% 2.68% Expected return on plan assets 3.60% 4.08% Future salary increases 3.25% 2.60% Future increase in pensions 2.25% 3.00% Historical information Present value of defined benefit plan obligations Fair value of plan assets Plan deficit Retirement pension and family pension obligations for white-collar workers in Sweden are secured through insurance with Alecta. According to a statement from the Swedish Financial Reporting Board, UFR 3, this is a defined benefit plan that comprises several employers. The company did not have the necessary information required to recognize this plan as a defined benefit plan in the 2012 financial year. Therefore the pension plan which is secured through insurance with Alecta is reported as a defined contribution plan. Annual charges for pension insurance from Alecta amounted to SEK 149 million (133). Alecta s surplus may be distributed among the policyholders and/or the insured. At the end of 2012, Alecta s surplus in the form of collective consolidation level amounted to 129 percent (113). The collective consolidation level is made up of the market value of Alecta s assets as a percentage of the insurance undertakings calculated in accordance with Alecta s insurance adjustment assumptions, which do not accord with IAS 19. Defined contribution plans The Group has defined contribution plans which are entirely paid for by the company. Regular payments are made to these plans according to the rules of each plan. Group Parent company Cost of defined contribution plans 1) ) This includes SEK 149 million (133) referring to an ITP plan financed in Alecta, see above. Note 33 Provisions Provisions which are long-term liabilities Group Guarantee risk reserve Re-establishment costs Disputes 2 6 Other Total Provisions which are current liabilities Group Guarantee risk reserve Close-down costs Disputes Other 5 13 Total NOTES PEAB ANNUAL REPORT

74 NOTES Provisions which are long-term liabilities Group 2012 MSEK Guarantee risk reserve Re-establishment costs Disputes Other Opening book value Provisions set aside during the year Amounts requisitioned during the year Reversed unutilized provisions during the year 2 0 Closing book value Provisions which are current liabilities Group 2012 Guarantee MSEK risk reserve Re-establishment costs Disputes Other Opening book value Provisions set aside during the year Amounts requisitioned during the year Reversed unutilized provisions during the year 21 Closing book value Guarantee risk reserve Refers to the estimated cost of remedying faults and deficiencies in terminated projects that arise while the project is under warranty. Resources are consumed during the guarantee period of the project which is generally two to five years. As the effect of the time point for payment is not significant expected future disbursements are not valued at their current value. Close-down costs Refers to costs in business area Construction in Norway and Finland. Re-establishment costs Refers to restoration costs for gravel pits and rock quarries after termination of operations. The provision grows in relation to the amount quarried and is reversed after restoration is complete. The reserved sum is expected to be used successively after operations are terminated. The estimated restoration time is 1 to 15 years. Disputes Refers to disputes in business area Industry and Construction. Others Refers to provisions in business area Construction, Industry and Property Development. Note 34 Other liabilities Group Other long-term liabilities Additional purchase price 3 21 Interest rate swaps Other long-term liabilities Total Other current liabilities Liabilities to joint ventures 17 Additional purchase price Tax at source, social security costs Value added tax On account work-in-progress Other current liabilities Total 1,232 1,619 Parent company Other current liabilities Tax at source 1 1 Other current liabilities 2 5 Total 3 6 Note 35 Accrued expenses and deferred income Parent company Accrued payroll expenses 9 9 Accrued social security expenses 6 5 Accrued interest expenses 3 Accrued overhead expenses 1 1 Total PEAB ANNUAL REPORT 2012

75 Note 36 Valuation of financial assets and liabilities at fair value Under IAS 39, Financial instruments, financial instruments are valued either at accrued acquisition value or fair value depending on which category they belong to. Classification largely depends on the purpose of the holding. Items which have been the object of valuation at fair value are listed shareholdings, different types of derivatives and unlisted funds. The fair value of listed shareholdings and share derivatives are calculated according to the closing price at the end of the accounting period. Market values from the managing financial institution were used to calculate the fair value of unlisted shareholdings. When calculating the fair value of interest-bearing receivables and liabilities and interest rate swaps, future cash flows were discounted to the listed market interest for the remaining terms of maturity. Spot rates on the balance sheet date were used to calculate the value of currency swaps. The booked value of non-interest-bearing asset and liability items such as accounts receivable and accounts payable with a remaining maturity of less than six months is believed to reflect their fair value. The adjacent tables show the reported values compared with the estimated fair value per type of financial asset and liability. Group Financial assets valued at fair value through income statement Derivatives used in hedge accounting Financial assets availablefor-sale Accounts and loan receivables Financial liabilities valued at fair value through income statement Other financial liabilities Total recognized value Total fair value Financial assets Other securities held as fixed assets 15 1) 530 1) Interest-bearing long-term receivables 1,157 1,314 1,157 1,314 1,165 1,327 Other long-term receivables Accounts receivable 7,095 6,535 7,095 6,535 7,095 6,535 Interest-bearing current receivables Prepaid expenses and accrued income 1 2) 1 2) Other current receivables Current holdings Liquid funds Total financial assets ,586 9,937 9,897 10,667 9,907 10,677 Financial liabilities Interest-bearing long-term liabilities 6,772 7,399 6,772 7,399 6,764 7,407 Other long-term liabilities Provisions for pensions Interest-bearing current liabilities 1,854 1,735 1,854 1,735 1,854 1,735 Accounts payable 4,534 4,508 4,534 4,508 4,534 4,508 Accrued expenses and deferred income 8 2 ( Other current liabilities Total financial liabilities ,465 13,843 13,575 13,925 13,567 13,933 Unrealized profit/loss ) Refers to shares and participations where fair value option was applied 2) Refers to derivatives classified as holdings for trading purposes The effect of valuing financial instruments at fair value was included in the Group s profit for a total of SEK 39 million ( 79), of which SEK 27 million ( 81) referred to market valuation of shareholdings in Brinova. Market valuation of interest rates and currency swaps was included for a total of 8 (2). NOTES PEAB ANNUAL REPORT

76 NOTES Parent company Financial assets valued at fair value through income statement Financial assets available-for-sale Accounts and loan receivables Other financial liabilities Total recognized value Total fair value Financial assets Long-term receivables Group companies 1,586 1,447 1,586 1,447 1,586 1,452 Other securities held as fixed assets 15 1) 501 1) Interest-bearing long-term receivables Other long-term receivables Current receivables Group companies Prepaid expenses and accrued income Liquid funds Total financial assets ,748 1,504 2,019 2,196 2,020 2,201 Financial liabilities Long-term liabilities Group companies 7,122 4,794 7,122 4,794 7,122 4,794 Convertible promissory notes Accounts payable Current liabilities Group companies Accrued expenses and deferred income Total financial liabilities 7,179 5,400 7,179 5,400 7,179 5,405 Unrealized profit/loss ) Refers to shares and participations where fair value option was applied The effect of valuing financial instruments at fair value was included in the parent company s profit for a total of SEK 31 million ( 85), of which SEK 27 million ( 81) referred to the market valuation of shareholdings in Brinova. Fair value Measurement of fair value is based on a three level hierarchy. Level 1: prices that reflect quoted prices on an active market for identical assets Level 2: based on direct or indirect observable inputs not included in level 1 Level 3: based on inputs unobservable to the market The table below shows the allocated level of financial assets and financial liabilities recognized at fair value in the Group balance sheet. Group Level 1 Level 2 Level 3 Total Financial assets Other securities held as fixed assets Other long-term receivables 1 1 Prepaid expenses and accrued income Other current receivables 5 5 Total financial assets Financial liabilities Other long-term liabilities Accrued expenses and deferred income Other current liabilities Total financial liabilities The table below is a reconciliation between the opening and closing balance for assets included in level 3. Group Other securities held as fixed assets 1) Opening balance Investments during the year 8 18 Repayment of investments 0 4 Reported in net financial items in profit for the year 2 Reported in other comprehensive income 2 Closing balance ) Refers in its entirety to an investment in a unlisted fund. The holding is valued at fair value through other comprehensive income. 72 PEAB ANNUAL REPORT 2012

77 Note 37 Financial risks and financial policy Finance and treasury The Group is exposed to various types of financial risks through its operations. The term financial risk refers to fluctuations in the company s profits and cash flow resulting from changes in exchange rates, interest rates, refinancing and credit risks. Group finance and treasury is governed by the financial policy established by Peab s Board of Directors. The policy is a framework of guidelines and regulations in the form of a risk mandate and limitations in finance and treasury. The Board has appointed a finance and treasury committee which is chaired by the Chairman of the Board. It is authorised to take decisions that follow the financial policy in between meetings of the Board. The finance and treasury committee must report any such decisions at the next meeting of the Board. The Group staff Finance and treasury and the Group s internal bank Peab Finans AB manage coordination of Group finance and treasury. The overall responsibility of the finance and treasury function is to provide cost-effective funding and to minimise the negative effects on Group profit due to the price of financial risks. The liquidity risk refers to the risk of Peab having difficulties in meeting its payment obligations as a result of a lack of liquidity or problems in converting or recieving new loans. The Group has a rolling one month liquidity plan for all the units in the Group. Plans are updated each week. Group forecasts also comprise liquidity planning in the medium term. Liquidity planning is used to handle the liquidity risk and the cost of Group financing. The objective is for the Group to be able to meet its financial obligations in favourable and unfavourable market conditions without running into significant unforeseen costs. Liquidity risks are managed centrally for the entire Group by the central Finance and treasury function and at year-end liquid funds were available as shown below. The financial policy dictates that Group net debt should mainly be covered by loan commitments that mature between 1 and 7 years. At Available liquid funds Group MSEK Liquid funds and bank holdings 439 1,122 1) Unutilized overdraft facilities 1,369 1,189 Other unused credit lines 3,853 2,633 Total 5,661 4,944 1) Of which SEK 200 million are reported as interest-bearing current receivables. the end of the year, the average loan period for utilised credits was 31 months (30), for unutilised credits 21 months (23), and for all granted credits 25 months (28). Peab s base financing was renegotiated and extended in The bilateral loan agreements from 2007 amounted at the end of the year to SEK 2,950 million (2,950) split between 5 banks (5). The loan agreements, which are not subject to amortization, run until September There are also additional credit facilities of SEK 1,200 million (200). The base financing in Peab Industri, which was acquired in December 2008 after the company was distributed to Peab s shareholders in 2007, is made up of bilateral loan agreements totaling SEK 2,300 million divided among four banks. The loan agreements, which are not subject to amortization, run until June The bilateral loan agreements all have the same basic documentation and contain financial covenants in the form of interest coverage ratios and equity/assets ratios that the Group must meet, which is standard for this kind of loan. Peab had exceeded these key ratios by a broad margin at the end of the year. Peab set up a lending program for commercial papers in Under the program, Peab can issue commercial papers for a maximum of SEK 3,5 billion. The borrower is Peab Finans AB and the guarantor is Peab AB. At the end of the year, Peab had outstanding commercial papers worth SEK 343 million (818). Peab issued convertible bonds to all employees in December Settlement was in January A total of 8.8 million convertibles were issued for a total nominal sum of SEK 598 million. The convertibles of 2007/2012 matured on 30 november None were converted to shares and the loans have been paid in full. In 2011 Peab issued unsecured bonds for a nominal value of SEK 1,000 million that run for three, four and five years. In February 2012 Peab received FSA approval and registration for the issuance of Medium Term Notes (MTN) with a loan limit of SEK 3 billion. During 2012 bonds for SEK 1,000 million have been issued under the MTN program. At the end of the year Peab had outstanding bonds totaling SEK 2,000 million (1,000). Total credit commitments, excluding unutilized leasing lines, excluding that part of the certificate program which has not been utilized and excluding the unutilized part of the MTN program amounted to SEK 13,855 million (12,969) per 31 December SEK 8,633 million (9,147) was utilized of the total credit commitments. Age analysis of financial liabilities, undiscounted cash flow including interest Average interest Nominal value, Group 2012 rate on balance original Amount Maturing Maturing Maturing Maturing Maturing Maturing MSEK Currency sheet date, % currency SEK in 2013 in 2014 in 2015 in 2016 in Bank loans SEK 2.3 5,065 5,065 1,077 3, Bank loans NOK Bank loans EUR Commercial paper SEK Bonds SEK 3.5 2,229 2, ,032 2 Financial leasing liabilities SEK Financial leasing liabilities NOK Total interest-bearing financial liabilities 9,195 1,991 3, , Accounts payable SEK 3,985 3,985 3,985 Accounts payable NOK Accounts payable EUR Other liabilities SEK Interest rate swaps Total non-interest-bearing financial liabilities 4,948 4, Total financial liabilities 14,143 6,820 3, , NOTES PEAB ANNUAL REPORT

78 NOTES Group 2011 Average interest rate as per blance Nominal value, original Amount Maturing Maturing Maturing Maturing Maturing Maturing MSEK Currency sheet day, % currency SEK in 2012 in 2013 in 2014 in 2015 in Bank loans SEK 3.3 4,664 4,664 1, , Bank loans NOK 3.7 1,019 1, Bank loans EUR Commercial paper SEK Bonds SEK 4.3 1,193 1, Convertible promissory notes SEK Financial leasing liabilities SEK Financial leasing liabilities NOK Total interest-bearing financial liabilities 9,941 3, , Accounts payable SEK 3,937 3,937 3,937 Accounts payable NOK Accounts payable EUR Other liabilities SEK Interest rate swaps Currency swaps Total non-interest-bearing financial liabilities 4,761 4, Total financial liabilities 14,702 8, , Interest rate risk The interest rate risk is the risk that Peab s cash flow or the value of financial instruments may vary with changes in market interest rates. Interest rate risk can result in changes in fair values and cash flows. A crucial factor affecting interest rate risk is the fixed interest period. On 31 December 2012, interest-bearing net debt amounted to SEK 6,470 million (6,626). Total interest-bearing liabilities amounted to SEK 8,633 million (9,147), of which SEK 1,854 million (1,735) were shortterm. The financial policy dictates that the average fixed interest period Rate derivates MSEK Currency Effective rate % As the table below shows, the fixed interest rate period for SEK 5,206 million (6,423) of the Group s total interest-bearing liabilities, including derivatives, is less than 1 year. Interest-bearing asset items totaling SEK 1,322 million (1,494) have short fixed interest rate periods, with the result that the fixed interest rate period for SEK 3,884 million (4,929) of Group net debt, including derivatives, is less than 1 year, making these liabilities directly susceptible to changes in market interest rates. Since the majority of the financial liabilities have a short maturity most of the interest rate risk is considered a cash flow risk. For further information see the sensitivity analysis on page 28 in the Board of Directors report. Loan period for utilized credit per 31 December 2012 Fixed interest period Amount, MSEK Average effective interest rate, percent Share, percent , Total 8, Fixed interest rate period on utilized credits, including derivates per 31 December 2012 Fixed interest rate period Amount, MSEK Average effective interest rate, percent Nominal value, original currency Share, percent , , Total 8, on total borrowing may not exceed 24 months. Peab has chosen relatively short fixed interest periods for outstanding credits. Per 31 December 2012 there were interest rate swaps in SEK 3,300 million (2,550) with maturity between 3 and 10 years at an effective interest rate of 2.5 percent (2.6) according to the table below. Peab pays a fixed annual interest rate and receives floating rates (Stibor 3 months) in the interest rate swap. The swap agreement is recognized at fair value in book closing. Per this fair value was SEK 108 million ( 57). Amount SEK Maturing in 2013 Maturing in 2014 Maturing in 2015 Maturing in Maturing in Maturing 2018 Interest rate swaps SEK 2.5 3,300 3, ,100 Interest rate swaps SEK 2.6 2,550 2, ,000 Currency risks The risk that fair values and cash flows from financial instruments may fluctuate with changes in the value of foreign currencies is referred to as a currency risk. Financial exposure Group borrowing is done in local currencies to reduce currency risks in operations. Assets and liabilities in foreign currency are translated at the rate on the balance sheet date. Borrowing in the interest-bearing liabilities per 31 December 2012, including leasing but excluding currency derivatives, was allocated as follows: Local currency in millions MSEK SEK 7,642 7,642 NOK EUR Total 8,633 Internal loans are used to handle temporary liquidity needs in Peab s foreign operations. Currency swaps are used to eliminate exchange risks. Currency swaps usually run three months. Currency swaps are reported at fair value in book closing and value changes are reported as unrealized exchange rate differences in the income statement and as current receivables and liabilities in the balance sheet. At the end of the year, there were EUR 56 million (29) and NOK 293 million (148) in outstanding currency swaps relating to financial exposure. Of the currency swaps referring to financial exposure EUR 31 million (22) are a hedge for the shareholding in Lemminkäinen Oyj. Exchange rate differences in net financials items from financial exposure were SEK 2 million ( 5) in Exchange rate differences in operating profit were SEK 0 million (0). 74 PEAB ANNUAL REPORT 2012

79 Exposure of net assets in foreign currency The translation exposure arising from investments in foreign net assets is primarily hedged through loans in foreign currency or forward exchange contracts. At the end of 2012, hedging through forward exchange contracts and loans in NOK for foreign net assets in Norway amounted to NOK 200 million (233). Hedges of foreign net assets in Finland through forward exchange contracts and loans were in euros for a total of EUR 21 million (16). Foreign net assets Local currency in millions Of which hedged Of which hedged NOK 1, EUR PLN 6 5 LVL 1 1 A 10 percent stronger euro rate on 31 December 2012 would entail a positive translation effect on equity of SEK 59 million (63). A corresponding strengthening of the Norwegian crown would generate a positive translation effect on equity of SEK 107 million (74). The translation effects are calculated on that part of foreign net assets which are not hedged. The effects on profit for the year of corresponding exchange rate changes are limited. Annual exchange rate differences in equity (net assets in foreign subsidiaries) amounted to SEK 14 million (0). Commercial exposure Although international purchases and sales of goods and services in foreign currency are currently small, they are expected to increase as the Group expands and the competition grows in terms of purchasing goods and services. Contracted or forecast currency flows can be hedged for 6 months from the date of the contract. At the end of the year, there were exchange rate hedges related to forecasted currency flows of NOK 0 million (260), EUR 5 million (26) and 0 MUSD (1). Since anticipated currency flows are hedged there are no transaction or translation effects on equity (other than in the hedged reserve) or in profit for the year if currency rates change. Market price risk Peab is exposed to market price risk through shareholdings in the listed companies Victoria Park and Lemminkäinen. On closing date the total reported value of those holdings was 271 million (201). The holdings in Brinova and Catena have been divested during Credit risk Credit risk refers to the risk of a counterparty failing to meet their obligations. Credit risks in financial instrument Credit risks in financial instruments are very limited since Peab only deals with counterparties with high credit ratings. Counterparty risks are primarily associated with receivables on banks and other counterparties involved in the purchase of derivatives. The financial policy contains special counterparty regulations which specify the maximum credit exposure for various counterparties. The framework agreement of the International Swaps and Derivatives Association (ISDA) is used with all counterparties in derivative transactions. Peab did not suffer any financial instrument losses in Total counterparty exposure related to derivative trading calculated as a net receivable per counterparty amounted to SEK 0 million (0) at the end of The estimated gross exposure to counterparty risks related to liquid funds and current investments amounted to SEK 439 million (1,170). Credit risk in accounts receivable The risk that Group customers cannot meet their obligations, i.e. payment is not received from customers, is one customer credit risk. Bad debts are very rare in construction since invoicing is continuous during production in most projects. The Group s customers undergo a credit rating control providing information on customers financial positions from various credit rating companies before a project is undertaken. The Group has established a credit policy for handling customer credit. For instance, it specifies where decisions regarding credit limits of various magnitudes are taken and how uncertain receivables should be handled. Bank guarantees or other collateral are required for customers with low credit ratings or insufficient credit history. The maximum exposure to credit risk is the reported value presented in the Group balance sheet. Total bad debts in construction operations amounted to SEK 37 million (5). Peab has receivables to the Northland Group for a total of SEK 160 million. Northland Resources is under reconstruction. Write-downs of receivables are not expected to be necessary. See also note 45 Events after the balance sheet date. The credit quality in accounts receivable that are not yet due and not written down is otherwise considered good. Age analysis, not written down accounts receivable due Book value of recivables not written-down Accounts receivable, not fallen due 5,426 5,201 Accounts receivable, fallen due 0 30 days Accounts receivable, fallen due days Accounts receivable, fallen due days Accounts receivable, fallen due days Accounts receivable, fallen due > 360 days Total 7,149 6,535 Accounts receivable written down Opening balance Reversed write-downs Write-downs for the year Translation difference 1 0 Balance carried forward There are no mature receivables of significant amounts for other financial receivables. Capital management Peab aims to have a good capital structure and financial stability in order to provide a stable basis for continuing business activities, thereby enabling the company to keep existing owners and attract new ones. A good capital structure is also intended to promote the development of good relations with the Group s creditors in a manner which benefits all parties. Capital is defined as equity and refers to the equity attributable to the owners of shares in the parent company. Equity Share capital 1,584 1,584 Other contributed capital 2,576 2,576 Reserves Retained earnings including profit for the year 3,976 3,869 Equity related to shareholders in parent company 7,984 7,947 One of Peab s targets is an equity/assets ratio (equity divided by the balance sheet total) in excess of 25 percent. The Board of Directors believes that this level is well suited to Peab s construction and civil engineering operations in Sweden, Norway and Finland. The target is a part of the Group s strategic planning. If the equity/assets ratio is expected to exceed this level on a permanent basis, the capital should be transferred to the shareholders in the appropriate form. The equity/assets ratio at the end of 2012 was 24.9 per cent (25.4). It is the ambition of the Board of Directors to preserve a balance between a high rate of return on equity, which can be done through increased lending, and the security and benefits associated with a higher equity ratio. Therefore, one of Peab s financial targets is a return on equity (profit for the period attributable to holders of participations in the parent company divided by the average equity attributable to holdings of participations in the parent company) in excess of 20 percent. The return on equity was 9.2 percent (12.1) at the end of 2012, which is a return far from Peab s goal. The Board believes the target figure is a long-term relevant level for Peab. By way of comparison, the Group s average interest expenses on interest-bearing borrowing was 2.9 percent (3.5). NOTES PEAB ANNUAL REPORT

80 NOTES Peab s goal concerning dividends is an annual distribution of 50 percent of profits after tax to shareholders. The level of dividends should be reasonable in relationships to developments in Peab s profit and consolidation requirements. An ordinary dividend of SEK 1.60 per share (2.10) is proposed for Calculated as a share of the Group s reported profit after tax, the proposed dividend amounts to 65 percent (66). Exclusive of the 1,086,984 B shares owned by Peab AB on 13 February 2013, which do not entitle to dividend, the proposed dividend is equivalent to a total dividend distribution of SEK 472 million (619). Besides the ordinary dividend, extra cash dividends may be proposed if the Board of Directors finds there are sufficient funds which are not considered necessary to Group development. Extra dividends may also be made in other forms besides cash. At the start of 2012, Peab s holding of own shares amounted to 1,086,984 B shares, corresponding to 0.4 percent of the total number of shares. On 15 May 2012, the Peab Annual General Meeting authorise the Board of Directors to acquire at the most the number of shares in Peab AB such that after acquisition Peab would hold a maximum of 10 percent of the registered shares in the company. During 2012 has no repurchases or divestitures have taken place, which means that Peab s holding of own shares at the end of 2012 amounted to 1,086,984 B shares, corresponding to 0.4 percent of the total number of shares. The purpose of the purchase of own shares is to improve the capital structure of the company, to be used in the financing of acquisitions. Some of Peab s loan agreements contain financial covenants in the form of interest coverage rate and equity/assets ratio which the Group must comply with, which is normal for this type of loan agreement. At the end of the year, Peab fulfilled these covenants with a broad margin. Note 38 Operational lease contracts Expensed leasing payments for the period: Group Minimum leasing payments Total leasing costs Interminable leasing payments amount to: Within a year Between one and five years Later than five years 14 2 Total Rental of premises and office inventory costs are classified as operating leasing contracts. The main part of the leasing cost refers to rental of premises according to the operational lease contracts. The leasing contracts run without special restrictions and with an option to renew. Other operational leasing agreements are divided among a number of lesser agreements. Leasing income generated by objects that are rented to a third party is marginal. Note 39 Investment obligations In 2012, the Group signed agreements to acquire tangible fixed assets amounting to SEK 84 million (207). At the end of 2012, the Group had no commitments to invest in joint ventures. At the end of 2011, the Group had commitments of SEK 455 million. Joint venture companies have committed investments of SEK 740 million (220). Most of the investment obligations should be regulated in the coming financial year. The parent company has not signed any agreements to acquire tangible fixed assets. Note 40 Pledged assets, contingent liabilities and contingent assets Pledged assets Group Parent company For own liabilities and provisions Related to long-term liabilities to credit institutions: Real estate mortgages 854 1,894 Floating charges 3 Assets with attached liens Other 2 2 Related to current liabilities to credit institutions: Real estate mortgages Floating charges 3 Assets with attached liens Total related to own liabilities and provisions 2,478 3,017 For own contingent liabilities and guarantees Real estate mortgages 6 2 Floating charges 9 8 Assets with attached lines Restricted bank balance 0 48 Other 42 Total for own contingent liabilities and guarantees Other 0 0 Total pledged assets 2,641 3,135 Contingent liabilities Group Parent company Shared obligations as partowner in limited partnerships Guarantees and contracting guarantees for Group companies 16,303 16,069 Guarantee liabilities for the benefit of joint ventures 1, , Other guarantees and contingent liabilities 2,714 1,617 2,714 1,607 Total 4,459 2,390 20,760 18,195 Other guarantee and contingent liabilities primarily refer to obligations to tenant-owner cooperatives. 76 PEAB ANNUAL REPORT 2012

81 Note 41 Related parties Related parties The Group is subject to considerable influence by Mats Paulsson, Fredrik Paulsson, Anita Paulsson, Svante Paulsson and Sara Karlsson together with families, children and companies. Their combined votes accounted for some 65 percent of the votes in Peab AB per 31 December As a result of this significant influence on Peab, transactions with the companies below are classified as transactions with related parties. Wihlborgs Fastigheter Sara Karlsson is a member of the Board of Directors of Wihlborgs Fastigheter. Sara Karlsson is the daughter of Erik Paulsson who is Chairman of the Board of Directors of Wihlborgs Fastigheter and has a significant influence. Skistar The Skistar Group is subject to significant influence by brothers Mats and Erik Paulsson with families and companies through their ownership of the company. Erik Paulsson is Chairman of the Board of Directors and Mats Paulsson is a member of the Board of Directors of Skistar. Fabege Svante Paulsson is a member of the Board of Directors of Fabege. Svante Paulsson is the son of Erik Paulsson who is Chairman of the Board of Directors and has a significant influence. Backahill Svante Paulsson and Sara Karlsson are members of the Board of Directors of Backahill. Backahill is under considerable influence by them, together with their father Erik Paulsson. During the year Backahill founded a new company, Backahill Holding AB, which is 91% owned by Backahill. Backahill Holding made an offer for all the shares of Brinova and the acquisition was carried out in July. Peab s holding in Brinova was acquired in connection with the offer. Kranpunkten Kranpunkten is subject to significant influence by Fredrik Paulsson with family and companies through their ownership of the company. Fredrik Paulsson is also CEO of Kranpunkten. Gullbergs Fredrik Paulsson was one of the major owners of Gullbergs up to August 2012 when he sold most of his share of the company. Fredrik Paulsson is a Board member of the Scandinavian Office Group, which is now the parent company of Gullbergs. Subsidiaries In addition to the related parties noted above for the Group, the parent company has a close relationship with its subsidiaries, see note 42. Summary of transactions with related parties Group Transactions with joint ventures Sales to joint ventures Purchases from joint ventures Interest income from joint ventures 50 7 Receivables from joint ventures 1, Liabilities to joint ventures Dividends from joint ventures Transactions with associated companies Dividends from associated companies Transactions with Skistar Sales to Skistar Purchases from Skistar 1 4 Receivables from Skistar 2 8 Transactions with Wihlborgs Sales to Wihlborgs Purchases from Wihlborgs 10 9 Receivables from Wihlborgs Liabilities to Wihlborgs 2 2 Transactions with Fabege Sales to Fabege Purchases from Fabege Receivables from Fabege Liabilities to Fabege 4 3 Transactions with Backahill Sales to Backahill Purchases from Backahill 3 2 Receivables from Backahill Liabilities to Backahill 1 Dividends from Brinova Sales of shares in Brinova 518 Shareholdings in Brinova, fair value 491 Transactions with Kranpunkten Sales to Kranpunkten Purchases from Kranpunkten Receivables from Kranpunkten 5 5 Liabilities to Kranpunkten Transactions with Gullbergs Sales to Gullbergs 6 6 Purchases from Gullbergs Receivables from Gullbergs 1 1 Liabilities to Gullbergs 6 15 NOTES PEAB ANNUAL REPORT

82 NOTES Summary of transactions with related parties Parent company Transactions with subsidiaries Sales to subsidiaries Purchases to subsidiaries Receivables from subsidiaries 1,632 1,447 Liabilities to subsidiaries 7,124 4,794 Dividends from subsidiaries 38 1,150 Transactions with joint ventures Receivables from joint ventures 80 Transactions with associated companies Dividends from associated companies Transactions with Skistar Purchases from Skistar 3 Transactions with Backahill Purchases from Backahill 2 2 Dividends from Brinova Sales of shares in Brinova 518 Shareholdings in Brinova, fair value 491 Transactions with Gullbergs Purchases from Gullbergs 1 0 Executive management For information on salaries and other remuneration to the Board of Directors and the CEO and senior officers along with information on costs and obligations relating to pensions and similar benefits and agreements on retirement remuneration, see note 9. Transaction terms Transactions with related parties were priced on general market terms. Note 42 Group companies Company Corp.ID.nr Registered office Share of equity 1) 2) Book value in parent company, MSEK Peab Finans AB Båstad 100.0% 1,616 1,616 Peab Sverige AB Båstad 100.0% 3,622 3,522 Peab Sp.z.o.o Warszawa 100.0% Kompetenskraft i Solna AB Solna 100.0% Kompetansekraft AS Oslo 100.0% KB Muraren Båstad 100.0% KB Möllevarvet Båstad 100.0% Mölletofta i Klippan AB Klippan 100.0% KB Snickaren Båstad 100.0% Interoc Projekt AB Båstad 100.0% Torghuset i Värnamo AB Båstad 100.0% Peab Elevbyggen AB Alingsås 100.0% Peab Projektutveckling Väst AB Gothenburg 100.0% S:t Jörgen AB Gothenburg 100.0% Peab Trading Väst AB Gothenburg 100.0% Lambel AB Gothenburg 100.0% Smögen Exploatering AB Båstad 100.0% Peab Borås Exploatering AB Båstad 100.0% Kreaton AB Gothenburg 100.0% Peab Holding Väst AB Gothenburg 100.0% Peab Amhult AB Gothenburg 100.0% Undertak- och Fasadentreprenader Sverige AB Stockholm 100.0% Rörman Installation & Service Sverige AB Sundbyberg 100.0% Peab Bostad AB Stockholm 100.0% Haninge Park KB Sollentuna 100.0% Fastighetsbolaget Måsbodarna Tre AB Solna 100.0% Österhöjdens Garage AB Upplands- Bro 100.0% Telge Peab AB Södetälje 51.0% Vilunda Parkering AB Stockholm 100.0% Peab Trading Öst AB Stockholm 100.0% Fastighets AB Isolatorn Malmö 100.0% Perioden Fastighets AB Nyköping 100.0% Enavallens Fastighets AB Enköping 100.0% Peab Trading Solna AB Solna 100.0% KB Messingen Stockholm 100.0% Fastighets AB Spelhagen Solna 100.0% DGV i Enskede AB Stockholm 100.0% Messingen AB Stockholm 100.0% ATS Service AB Sigtuna 100.0% Huvusta Strand Holding AB Solna 100.0% Huvusta Strand AB Solna 100.0% Hanbjelken AB Stockholm 100.0% Forsen 2 i Eskilstuna AB Eskilstuna 100.0% Furuspecialen i Nyköping Fastighets AB Solna 100.0% Eldslundfastigheter Sverige AB Linköping 100.0% Råsta Arenabostäder AB Solna 100.0% Råsta Köpcenterbostäder AB Solna 100.0% Peab Hermelinen AB Stockholm 100.0% Peab Racketen AB Stockholm 100.0% Ångström & Mellgren AB Västerås 100.0% Norrvikens Fastigheter AB Stockholm 100.0% Fastighetsförvaltningsbolaget Gasellen 2 HB Stockholm 100.0% Olsson & Zarins Baltinvest AB Uppsala 100.0% Kungsfiskaren Bygg & Fastighet AB Stockholm 100.0% Kipsala Business Center Riga 100.0% KB Klagshamn Exploatering Båstad 100.0% Peab Construction Syd AB Båstad 100.0% Peab Construction i Göteborg AB Båstad 100.0% Peab Utveckling Nord AB Båstad 100.0% J Almqvist Bygg i Gnosjö AB Båstad 100.0% Peabskolan AB Båstad 100.0% 78 PEAB ANNUAL REPORT 2012

83 Company Corp.ID.nr Registered office Share of equity 1) 2) Book value in parent company, MSEK Peab Byggservice Väst AB Båstad 100.0% Nybyggarna i Nerike AB Örebro 100.0% Kompligens Fastigheter AB Båstad 100.0% BKVA Fastighets AB Båstad 100.0% Geodells Byggnads AB Järfälla 100.0% Peab Fastigheter i Växjö AB Båstad 100.0% Peab Ugglarp AB Båstad 100.0% HälsingeBygg i Hudiksvall AB Hudiksvall 100.0% Värby Fastighets AB Båstad 100.0% Peab Exploatering AB Stockholm 100.0% Berg och Falk AB Ödeshög 100.0% BEFAB Schakt AB Mjölby 100.0% Peab Byggservice Nordost AB Stockholm 100.0% Peab Filmstaden AB Båstad 100.0% Henrik Persson Holding AB Alingsås 100.0% Fastighets AB Ekudden Alingsås 100.0% AB Alingsås Trähus AB Alingsås 100.0% Västgöta Mark och Entpreprenad AB Alingsås 100.0% Husgruppen i Alingsås KB Gothenburg 100.0% Lappmarken i Malmö KB Båstad 100.0% Peab Sverige AB, dansk filial Fredrikshavn 100.0% Peab Sverige AB, norsk filial Oslo 100.0% Peab Trading Nord AB Solna 100.0% Fastighetsbolaget Pollaren AB Solna 100.0% H2 Helsingborg AB Båstad 100.0% Mora-Orsa Byggtjänst AB Orsa 100.0% Byggtjänst i Offerdal AB Solna 100.0% Peab PGS AB Båstad 100.0% Hatteskär AB Båstad 100.0% Peab Boarp AB Båstad 100.0% Malmöoket AB Båstad 100.0% Malmöoket Ekonomisk Förening Båstad 100.0% Malmöoket nr 2 Ekonomisk Förening Båstad 100.0% KB Brämaregården 18: Kristianstad 100.0% Peab Infra Oy Helsingfors 100.0% Peab Anläggning AB Båstad 100.0% 348 Berg & Väg Maskin AB Salem 100.0% Skillingenäs AB Båstad 100.0% Peab Drift & Underhåll i Stockholm AB Stockholm 100.0% Stockholm Hamn entreprenad AB Stockholm 100.0% Linje & Kabelplöjning i Borlänge AB Borlänge 100.0% Olof Mobjer Entreprenad AB Båstad 100.0% West Wind AB Solna 100.0% G Nilsson Last & Planering i Ranseröd AB Båstad 100.0% AB Jämshögs Grus & Entreprenad AB Båstad 100.0% BEFAB Entreprenad Mjölby AB Linköping 100.0% Peab Drift & Underhåll i Mellansverige AB Linköping 100.0% Peab Energi AB Båstad 100.0% Åstorps Bioenergi AB Båstad 100.0% Peab Oy Helsingfors 100.0% Kehitysyhtiö Pyynikki Oy Helsingfors 100.0% Eastendin Palvelu Oy Helsingfors 100.0% Peab AS Oslo 100.0% Gydas Vei DA Oslo 100.0% Björn Bygg AS Tromsö 100.0% Peab Eiendomsutvikling AS Oslo 100.0% Heimdalsgata 4 Utv. DA Oslo 100.0% ANS Solligården Oslo 100.0% Peab Bolig Prosjekt AS Oslo 100.0% Bergkrystallen Parkering AS Oslo 100.0% Peab Næring Stømmen AS Oslo 100.0% Polarkanten AS Oslo 100.0% Registered office Share of equity 1) 2) Book value in parent company, MSEK Company Corp.ID.nr Telemark Vestfold Entreprenør AS Skien 91.0% Hus & Hyttebygg AS Skien 100.0% K.Nordang AS Stranda 90.1% Byggservice & Vedlikehold AS Oslo 100.0% Peab Invest AS Oslo 100.0% 1,332 1,332 Peab Industri AB Båstad 100.0% 2,588 2,588 Peab Industri Våxtorp AB Båstad 100.0% Peab Industri Sverige AB Ängelholm 100.0% Lambertsson Sverige AB Båstad 100.0% Lambertsson Kran AB Båstad 100.0% KB Muraren Mölndal 100.0% Krantorp KB Mölndal 100.0% ATS Kraftservice AB Båstad 100.0% Hagström i Nås AB Vansbro 100.0% HN Kraftlinjeteknik AB Vansbro 100.0% Swerock AB Helsingborg 100.0% Swerock Uppsala AB Uppsala 100.0% AB Uppsala Grus Uppsala 100.0% Rådasand AB Lidköping 100.0% Peab Transport & Maskin AB Örkelljunga 100.0% AB Roler Örebro 100.0% Ferdigbetong AS Tromsö 100.0% A-frakt AB Arvidsjaur 100.0% P Andersson Fastighet Helsingborg 100.0% i Mälardalen AB Bjurholms Lastbilcentral Ekonomisk Förening Bjurholm 100.0% Gryttby Grus och Sand AB Uppsala 100.0% P Arvidssons Entreprenad AB Helsingborg 100.0% Skandinaviska Helsingborg 100.0% Byggelement AB Lättklinkerbetong AB Alingsås 100.0% Peab Asfalt AB Båstad 100.0% Asfaltbeläggningar i Boden AB Boden 100.0% Pionjären Fastighets AB Boden 100.0% Asfalt & Väg i Strängnäs AB Strängnäs 100.0% Kvalitetsasfalt i Västerås 100.0% Mellansverige AB Peab Asfalt Norge AS Oslo 100.0% Terje Hansen AS Frogner 100.0% Peab Grundläggning Båstad 100.0% Norden AB Peab Grundläggning AB Båstad 100.0% Nordisk Fundamentering AS Oslo 100.0% Peab Bildrift Norden AB Helsingborg 100.0% Peab Bildrift Sverige AB Helsingborg 100.0% Peab Bildrift Norge AS Skedsmo 100.0% Peab Vagnpark AB Båstad 100.0% Peab Industri Norge AS Oslo 100.0% Lambertsson Norge AS Skedsmo 100.0% Kranor AS Slemmestad 100.0% Rolf Olsens vei 30/32 AS Oslo 100.0% Peab Industri Finland AB Helsingborg 100.0% Peab Industri Finland AB, Helsingfors 100.0% finsk filial Peab Industri Oy Helsingfors 100.0% Lambertsson Oy Helsingfors 100.0% Annehem Fastigheter AB Båstad 100.0% Annehem Fastigheter & Båstad 100.0% Projekt AB Fastighets AB Skeppsdockan i Malmö Ängelholm 100.0% 0 0 Fastighets AB Grisen Båstad 100.0% Valhall Flyg AB Ängelholm 100.0% Valhall Flyg KB Ängelholm 100.0% 0 0 Br Paulsson Peab AB Båstad 99.9% Stadiongatans Båstad 100.0% Lokaluthyrning AB Norrviken Exploaterings AB Båstad 100.0% Vejby Transport & Miljö AB Ängelholm 100.0% 1 1 Peab Konstruktion AB Stockholm 100.0% NOTES PEAB ANNUAL REPORT

84 NOTES Company Corp.ID.nr Registered office Share of equity 1) 2) Book value in parent company, MSEK Peab Försäkrings AB Båstad 100.0% 1, Fastighets AB Skånehus Båstad 100.0% 140 Peab Holding AB Båstad 100.0% 0 0 JaCo AB Båstad 100.0% Varvstaden AB Båstad 100.0% Fältjägaren 1 AB Östersund 100.0% Fältjägaren 3 AB Östersund 100.0% Fältjägaren 4 AB Östersund 100.0% Fältjägaren 5 AB Östersund 100.0% Fältjägaren 7 AB Östersund 100.0% Östersunds Fryshus & Fastigheter AB Östersund 100.0% Birsta Fastigheter AB Helsingborg 100.0% Peab Norden AB Båstad 100.0% 7 13 Peab Skandinavien AB Båstad 100.0% 0 0 Flygstaden Intressenter i Söderhamn AB Båstad 100.0% HDWG Finans AB Båstad 100.0% Ortum AB Helsingborg 100.0% Stockholms Kommersiella Fastighets AB Stockholm 100.0% Skånska Stenhus AB Stockholm 100.0% Flygstaden Intressenter i Grevie AB Båstad 100.0% Peab Fastighetsutveckling AB Båstad 100.0% 1 0 Peab Invest Oy Helsingfors 100.0% 91 Peab Fastighetsutveckling Sverige AB Båstad 100.0% Peab Ägaarena 1 AB Solna 100.0% Peab Ägaarena 2 AB Solna 100.0% Peab Exploateraarenastaden AB Solna 100.0% Peab Drivaarena AB Solna 100.0% Peab Högsbo AB Gothenburg 100.0% Peab Brunnshög AB Båstad 100.0% Båramo i Värnamo AB Båstad 100.0% Peab Hem AB Båstad 100.0% 1 Peab Rydebäck AB Båstad 100.0% Peab Vimmerbyvägen AB Båstad 100.0% Peab Hisingstorp AB Båstad 100.0% Peab Brämaregården AB Båstad 100.0% Peab Sofiedal AB Båstad 100.0% Peab Kastanjeparken AB Båstad 100.0% Peab Utsikten AB Båstad 100.0% Peab Porten AB Båstad 100.0% Peab Vidar AB Båstad 100.0% Isstadion i Lambohov AB Båstad 100.0% Annehem Hylliecentrum AB Båstad 100.0% Annehem Hyllie point 2 AB Båstad 100.0% Annehem Hyllie point 3 AB Båstad 100.0% Annehem Bygg & Projekt AB Båstad 100.0% Peab Bad AB Solna 100.0% Fastighets AB Bryggeriet Gothenburg 100.0% Pebri Glumslöv AB Helsingborg 100.0% Pebri Glumslöv HB Helsingborg 100.0% Åke & Clas Skoogh Holding AB Kristianstad 100.0% Peab FU Holding 1 AB Solna 100.0% Peab FU Måby AB Solna 100.0% INSPI Sweden AB Stockholm 100.0% Peab FU Sporthall AB Solna 100.0% Peab FU Bryggeriet 1 AB Solna 100.0% Peab FU Bryggeriet 2 AB Stockholm 100.0% Peab FU Holding 3 AB Solna 100.0% Peab FU Almnäs AB Solna 100.0% Peab FU Visby AB Solna 100.0% Peab FU Byggnad 124 AB Solna 100.0% Peab FU Byggnad 183 AB Solna 100.0% Peab FU Visby Exploatering AB Solna 100.0% Peab FU Karlskrona Exploatering AB Stockholm 100.0% Fartygsmekano AB Helsingborg 100.0% Company Corp.ID.nr Registered office Share of equity 1) 2) Book value in parent company, MSEK Brinova Jupiter 11 AB Helsingborg 100.0% Brinova Utveckling AB Helsingborg 100.0% Peab FU Holding 2 AB Solna 100.0% Peab Projektfastigheter AB Stockholm 100.0% TGS Fastigheter Nr 2 AB Linköping 100.0% Peab Förvaltning Nyköping AB Nyköping 100.0% Peab Park AB Båstad 100.0% 2 Kokpunkten Fastighets AB Stockholm 100.0% Ängelholms Flygplats AB Båstad 100.0% Ljungbyhed Park AB Båstad 100.0% Activus Ljungbyhed AB Båstad 100.0% Ljungbyheds Golfcenter AB Båstad 100.0% Projektfastigheter Götaland AB Båstad 100.0% Haga Expolatering AB Stockholm 100.0% Skånehus AB Båstad 100.0% PEAB FU Silhouette 1 AB Solna 100.0% PEAB FU Ångkraftverket Kontor AB Solna 100.0% Ulriksdal Utveckling AB Solna 100.0% Riksten Friluftsstad AB Stockholm 100.0% Peab FU Rifa AB Solna 100.0% Peab FU Rönnåsen AB Solna 100.0% Incasec AB Båstad 100.0% 0 0 Peab Grevie AB Båstad 100.0% 0 0 Peab Invest Yek AB Borås 100.0% Peab Konsult AB Båstad 100.0% 0 0 Peab Vejby AB Båstad 100.0% Sieglo AB Båstad 100.0% 169 Skåne Projektfastigheter AB Båstad 100.0% 1 1 Lappmarken i Malmö AB Stockholm 100.0% Hyresmaskiner Gösta Pettersson AB Båstad 100.0% Mauritz Larsson Byggnads AB Båstad 100.0% HB Muraren Gothenburg 100.0% Projektfastigheter Väst AB Båstad 100.0% Total 12,547 11,525 1) The capital participation agrees with the vote participation. 2) The share of capital in 2012 is the same as the share of capital in 2011 except in Fastighets AB Bryggeriet, which was owned 100 percent in 2012 but only 25 percent in 2011, and the companies acquired in Parent company Acquisition value brought forward 13,705 13,786 Purchases 509 Paid shareholder contribution 1, Repaid shareholder contribution 544 Sales 442 Accumulated acquisition values brought forward 15,073 13,705 Revaluations brought forward Accumulated revaluations carried forward Write-downs brought forward 2,280 2,158 Write-downs for the year Accumulated write-downs carried forward 2,626 2,280 Book value carried forward 12,547 11,525 During the year, participations in Group companies were written down by SEK 346 million (122). The write-downs refer to shares in Peab AS for a total of SEK 294 million based on impairment tests. In the calculation of the useful value of Peab AS a pre-tax weighted discount rate for Norway of 7.3 percent (7.4) has been used. Other write-downs refer to dormant companies or companies with little activity where the value of the writedowns is equivalent to equity. Annual write-downs are reported in the income statement on the Profit from shares in Group companies line. 80 PEAB ANNUAL REPORT 2012

85 Note 43 Untaxed reserves Parent company Tax allocation reserve Accumulated additional depreciation, machinery and equipment 0 0 Total Note 44 Cash flow statement Paid interest and dividends received Group Parent company Dividends received Interest received Interest paid Adjustments for items not included in cash flow Group Parent company Profit from participation in joint ventures/associated companies Dividends received from joint ventures/associated companies Group contribution received/ given Depreciation and write-downs Unrealized exchange rate differences 7 4 Result from sale of fixed assets Result from sale of business/ subsidiary Provisions Change in fair value of financial instruments Accrued expenses and provisions 59 Dividends from subsidiaries 1,146 Total 739 1, ,638 Transactions without payments Group Aquisition of assets by financial leasing Aquisition of subsidiaries financed by loan from the seller 52 Acquisition of subsidiaries and businesses Group Acquired assets and liabilities Intangible assets Tangible assets Financial assets Deferred tax recoverables Project and development property and inventories Operating receivables Liquid funds Long-term provisions 5 Interest-bearing long-term liabilities Deferred tax liabilities Current liabilities Recognized negative goodwill 12 Purchase prices Loan from seller 52 Paid purchase price Less: Liquid funds in acquired companies Effect on liquid funds NOTES PEAB ANNUAL REPORT

86 NOTES Disposal of subsidiaries Group Sold assets and liabilities Financial assets Project and development properties and inventories 863 1,083 Operating receivables Liquid funds 2 2 Interest-bearing long-term liabilities Deferred tax liabilities 2 5 Current liabilities Sales price Less: Loan to buyer 33 Received purchase sum Less: Liquid funds in disposed companies 2 2 Effect on liquid funds Liquid funds The following components are included in liquid funds; Group Liquid funds Current holdings (equivalent to liquid funds) 10 9 Total Note 45 Events after the balance sheet day Peab is working on several major projects for Northland Resources that are connected to the iron ore mine in Kaunisvaara outside Pajala. In regards to the information published by Northland Resources on 8 February 2013 concerning the company s reconstruction, Peab announced that the company s outstanding accounts receivable from companies in the Northland Group amount to approximately SEK 160 million, of which about SEK 70 million is included in the reconstruction. No write-downs are deemed necessary. During the reconstruction period Peab will receive regular payments for work performed. Peab is keeping close contact with Northland Resources regarding their financial development. Note 46 Information on parent company Peab AB is a Swedish registered limited company domiciled in Båstad. Peab AB s shares are listed on NASDAQ OMX Stockholm. The address of the head office is Margretetorpsvägen 84, SE Förslöv. The consolidated accounts for 2012 consist of the parent company and its subsidiaries, together referred to as the Group. The Group also includes shares of holdings in joint ventures and associated companies. 82 PEAB ANNUAL REPORT 2012

87 BOARD AND CEO ASSURANCE The Annual Report has been prepared in accordance with good accounting practices in Sweden and the consolidated accounts have been prepared in accordance with International Accounting Standards, stated in the regulation of the European Parliament and the Council of Ministers (EG) no 1606/2002 of July 19, 2002, concerning the application of international accounting standards. The Annual Report and the consolidated accounts give a true and fair view of the parent company as well as of the Group s position and result. The Board of Directors report for the parent company and the Group gives a true and fair view of the parent company s and Group s business development, position and result. It also decribes the major risks and uncertainty factors facing the parent company and Group companies. Förslöv, April 3, 2013 Göran Grosskopf Chairman of the Board Mats Paulsson Vice Chairman of the Board Annette Brodin Rampe Member of the Board Karl-Axel Granlund Member of the Board Svante Paulsson Member of the Board Fredrik Paulsson Member of the Board Lars Sköld Member of the Board Anne-Marie Pålsson Member of the Board Patrik Svensson Member of the Board Kim Thomsen Member of the Board Lars Modin Member of the Board Jesper Göransson Chief Executive Officer The Annual Report and the consolidated accounts have been approved for publication by the Board of Directors and the Chief Executive Officer on April 3, The consolidated income statement and balance sheet and the parent company s income statement and balance sheet will be presented for adoption by the AGM on May 14, PEAB ANNUAL REPORT

88 AUDITORS REPORT Auditors report To the annual meeting of the shareholders of Peab AB, corp. id REPORT ON THE ANNUAL ACCOUNTS AND CONSOLIDATED ACCOUNTS We have audited the annual accounts and consolidated accounts of Peab AB for the year The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages Responsibilities of the Board of Directors and the Managing Director for the annual accounts and consolidated accounts The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these annual accounts in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company s preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Managing Director, as well as evaluating the overall presentation of the annual accounts and consolidated accounts. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2012 and of its financial performance and its cash flows for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2012 and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts. We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet for the parent company and the group. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In addition to our audit of the annual accounts and consolidated accounts, we have also audited the proposed appropriations of the company s profit or loss and the administration of the Board of Directors and the Managing Director of Peab AB for the year Responsibilities of the Board of Directors and the Managing Director The Board of Directors is responsible for the proposal for appropriations of the company s profit or loss, and the Board of Directors and the Managing Director are responsible for administration under the Companies Act. Auditor s responsibility Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company s profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden. As basis for our opinion on the Board of Directors proposed appropriations of the company s profit or loss, we examined the Board of Directors reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act. As basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Director is liable to the company. We also examined whether any member of the Board of Directors or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions. Opinions We recommend to the annual meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year. Förslöv, 3 April 2013 Alf Svensson Authorized Public Accountant Thomas Thiel Authorized Public Accountant 84 PEAB ANNUAL REPORT 2012

89 A Nordic Community Builder: Sweden s biggest infrastructure project for research Max IV Laboratory, Lund, December 2012: Peab has initiated construction of the second stage of what is currently Sweden s biggest infrastructure project for research ever, the Max IV Laboratory in Lund. A gigantic super microscope will make it possible to study different kinds of materials and their characteristics down to their most minute parts. Together with professors from Lund University and the architect firm Snøhetta Peab has developed several innovative solutions to meet the project s greatest challenge; vibrations. The microscope s synchronous light is a fourth of a strand of hair wide and needs to be kept perfectly still. The project is a model of sustainable construction in Europe. The facility, which will open in 2015, will be an important place for thousands of researchers in the Nordic region and Europe making it an essential part of a new research community. Read more about Max lv at MAX IV Lund PEAB ANNUAL REPORT

90 CORPORATE GOVERNANCE Corporate governance report Governance of the Peab Group is based on the Company Act and other relevant laws, Peab s Articles of Association, the regulations for Nasdaq OMX Stockholm issuers and the Swedish Code of Corporate Governance. CORPORATE GOVERNANCE AND THE CODE The corporate governance report is not a part of the financial reports. The company s auditors read the corporate governance report and acknowledge that a corporate governance report has been drawn up and that its legally stipulated information is consistent with the annual accounts and Group accounts. THE ANNUAL GENERAL MEETING AND THE NOMINATION PROCEDURE The Annual General Meeting (AGM) was held on 15 May 2012 at Grevieparken, Grevie. It was attended by 399 shareholders, representing over 76 percent of the votes, either personally or through representatives. The procedure of preparing the nomination of members of the Board of Directors (and where appropriate the auditors) for the AGM follows the nomination procedure established at the previous AGM. At the 2012 AGM the major shareholders recommended a nomination committee consisting of the Chairman of the Board of Directors and an additional three to four members, of which two to three members should represent the major shareholders and one to two members should represent smaller shareholders. The AGM elected Malte Åkerström (reelection), Göran Grosskopf (reelection), Bengt Johansson (new election) and Magnus Swärdh (new election) to act as Peab s nomination committee with Bengt Johansson as Chairman. The nomination committee s proposals will be presented to shareholders in the notice to attend the 2013 AGM. An account of the work of the nomination committee will be available on Peab s website. THE BOARD OF DIRECTORS AND ITS WORK According to Peab s Articles of Association the Board of Directors must be made up of no fewer than five and no more than nine members in addition to the statutory employee representatives. The members of the Board of Directors are elected annually by the AGM. At the 2012 AGM the following persons were reelected as members of the Board of Directors: Göran Grosskopf Karl Axel Granlund Göran Grosskopf, Chairman of the Board Fredrik Paulsson Mats Paulsson Svante Paulsson Anne-Marie Pålsson Annette Brodin Rampe Lars Sköld Göran Grosskopf was appointed Chairman of the Board by the AGM. The following employee representatives were appointed by the employee unions at the 2012 AGM: Patrik Svensson, Kim Thomsen and Lars Modin (members), Lars Board meetings, attendance 2012 AMG elected members 30/1 14/2 2/4 15/5 15/5 1) 22/5 9/7 20/8 14/11 Göran Grosskopf Mats Paulsson Karl-Axel Granlund Fredrik Paulsson Svante Paulsson Anne-Marie Pålsson Anette Brodin Rampe Lars Sköld Employee representatives Patrik Svensson, member Kim Thomsen, member Lars Modin, member Lars Bergman, deputy Monica Mattson, deputy 1) Constitutional Board meeting Attendance 86 PEAB ANNUAL REPORT 2012

91 CORPORATE GOVERNANCE Auditors Election Information Shareholders Constitute the Annual General Meeting Election Proposals Nomination Committee Election Information Board of Directors Goals Strategies Governance mechanisms Reports Internal audit Finance committee Remuneration committee Audit committee CEO and Executive management Group functions Construction Civil Engineering Industry Property Development Bergman and Monica Mattson (deputies). The Board of Directors held nine meetings in 2012, of which five were ordinary Board meetings (including the constitutional meeting). There were four were additional Board meetings, three were held per telephone and one was held per capsulam. Members of executive management have given reports at the Board meetings. The company auditor was present at two of the ordinary Board meetings. The Board s work follows the work program adopted by the Board of Directors at the constitutional meeting. The Board evaluates its work on an annual basis. The members of the Board of Directors elected by the shareholders are compensated in accordance with decisions taken by the AGM. The majority of the AMG elected members of the Board of Directors (Göran Grosskopf, Karl-Axel Granlund, Anne- Marie Pålsson, Annette Brodin Rampe and Lars Sköld) are independent in relation to the company and executive management. They are also independent in relation to the company s major owners. Mats Paulsson, Fredrik Paulsson and Svante Paulsson are regarded as dependent in relation to the company and executive management. THE AUDIT COMMITTEE Members in 2012 Göran Grosskopf, Chairman Karl-Axel Granlund Fredrik Paulsson Mats Paulsson Svante Paulsson Anne-Marie Pålsson Annette Brodin Rampe Lars Sköld The audit committee prepares the work of the Board of Directors by ensuring the quality of company financial reports, establishing guidelines for which other services besides auditing the company may procure from the company accountant, maintaining regular contact with the company accountant regarding the scope and focus as well as their view of company risks, evaluating the auditing work and informing the nomination committee of the evaluation and assisting the nomination committee in producing proposals for auditors and remuneration for auditing work. The auditing committee met twice in All members of the committee attended, as did the company accountants. The audit committee regularly reports to the Board of Directors. THE FINANCE COMMITTEE Members in 2012 Göran Grosskopf, Chairman, Karl-Axel Granlund Mats Paulsson The finance committee handles and makes decisions on financial matters in accordance with the Finance Policy established by the Board of Directors. Executive management representatives give reports to the finance committee meetings. The finance committee met nine times during All members attended all meetings. The finance committee regularly reports to the Board of Directors. THE REMUNERATION COMMITTEE Members in 2012 Göran Grosskopf, Chairman, Karl-Axel Granlund, Mats Paulsson The remuneration committee prepares guidelines and the framework for Group executives regarding salaries and other terms of employment. The remuneration committee met once in All members of the committee participated. The remuneration committee regularly reports to the Board of Directors. REMUNERATION TO EXECUTIVE MANAGEMENT The 2012 Annual General Meeting approved the Remuneration Policy for executive management. The remuneration policy is available on Peab s website, www. peab.se. Information about salaries and other remuneration to the CEO and members of executive management can be found in note 9 in the Annual Report, page 56, and on our website. INCENTIVE PROGRAM Peab has no outstanding share or sharerelated incentive programs for the Board of Directors or the executive management. AUDITORS Under Peab s articles of association one or two auditors with an equal number of deputies are elected by the AGM. At the AGM in 2009 the following certified public accountants were elected until the AGM 2013: Accountants Alf Svensson, KPMG (reelection) Thomas Thiel, KPMG (new election) Deputy accountants Dan Kjellqvist, KPMG (reelection) David Olow, KPMG (new member) In addition to auditing, the accountants, deputy accountants and KPMG have only provided services for Peab in the form of accounting and tax advisement and certain analyses in connection with acquisitions and divestments over the last three years. GROUP MANAGEMENT The President and CEO leads the company PEAB ANNUAL REPORT

92 CORPORATE GOVERNANCE KUGGEN Gothenburg according to the framework established by the Board of Directors and is responsible for the administration and control of the Group. Executive management has during 2012 consisted of the CEO, the Deputy CEO responsible for Finance and treasury, the Deputy CEOs and Business Area Managers of Construction, Civil Engineering, Industry and Property Development, the HR Director and the Head of Strategy. Executive management meetings are held once a month and address issues of strategy and tactics to improve operations. Heads of Group staff teams and other officers are called to attend meetings when needed. BUSINESS AREAS Group operations are run in four business areas: Construction, Civil Engineering, Industry and Property Development. Each business area has a management team led by the BA Manager and consisting otherwise of operational managers in the business area and staff members. GROUP STAFF Group staff, which supports both executive management and operations in the business areas, strategically and in day-to-day operations, is been divided into the following teams: Finance and treasury HR Purchasing and logistics Strategy and business support Operations development Communication The staff teams work independently with defined goals and coordinate their work in dialogue with each other. BUSINESS GOVERNANCE Executive management sets overriding goals and strategies for the business in the Group s business plan. This is then broken down and worked with in the different business areas that set up their own business plans for divisions, regions and companies. Peab s organization is characterized by its clearly decentralized production focus and delegation of authority and responsibility in order to achieve efficient management and control in each business area. Control is ensured through a clear line of decision authority for every type of major decision which includes: the requirement for special approval by executive management, or an organ delegated by it, for the acquisition of development property, businesses and other major investments, predetermined levels for bidding for individual positions, centrally determined principles for board appointments and signing for the company. ETHICAL GUIDELINES Peab founded its ethical work on Peab s core values; Down-to-earth, Developing, Personal and Reliable many years ago. These core values form the basis of Peab s Ethical Guidelines established by executive management. We work continuously to spread and root Peab s Ethical Guidelines throughout the organization. THE BOARD OF DIRECTORS DESCRIPTION OF INTERNAL CONTROL AND RISK MANAGEMENT CONCERNING FINANCIAL REPORTING Peab s Board of Directors is responsible for ensuring that there are efficient procedures for the management and control of the Group regarding financial reporting. The CEO is responsible for ensuring that internal control is organized and follows the guidelines laid down by the Board of Directors. There is a clear set of rules in the Group for the delegation of responsibility and authority which follows the Group s operative structure. Financial steering and control is performed by Group Finance and treasury. The Board of Directors guidelines for internal control concerning financial reporting were laid down in the Internal 88 PEAB ANNUAL REPORT 2012

93 CORPORATE GOVERNANCE Control Policy. This policy establishes the way in which the internal control of financial reporting is organized, reviewed and assessed based on the following factors: Risk assessment Control environment Control structure Information and communication Evaluation/follow-up Executive management with the support of Group staff Finance and treasury are responsible for ensuring that all business units in the Group follow the policy. In 2012 work on strengthening the central coordination of internal control and risk management was initiated. The CEO is responsible for ensuring that financial reporting is reported to the Board of Directors at the first ordinary meeting of the Board of Directors after the end of every financial year. The Board of Directors has assessed the need for an internal auditing department and determined that the existing control structure together with the scope of the Group s operations do not motivate establishment of an internal auditing department. DEVIATIONS FROM THE CODE Peab has elected to make the following deviations from the code: Code rule 9:2 The Chairman of the Board may chair the remuneration committee. Other members elected by the AGM must be independent in relation to the company and Group management. Deviation Mats Paulsson, who is a member of the remuneration committee, is not independent in relation to the company and Group management. Explanation of the deviation The Board wishes to take advantage of the long and unique experience in matters of compensation for senior officers that founder and former CEO of Peab, Mats Paulsson, has. The majority of the members of the remuneration committee are independent in relation to the company and Group management and this is believed to guarantee the objectivity and independence of the remuneration committee. AUDITORS STATEMENT ON THE CORPORATE GOVERNANCE REPORT To the Annual General Meeting of Peab AB (publ) Company ID nr The Board of Directors and the Chief Executive Officer are responsible for the corporate governance report 2012 on pages and that it has been prepared according to the Annual Accounts Act. We have read the corporate governance report and based on this reading and our knowledge of the company and the Group we believe we have sufficient grounds for our statement. This means that our statutory review of the corporate governance report has a different focus and a much more narrow scope than compared to the focus and scope of an audit according to the International Standards on Auditing and the professional code for auditors in Sweden. In our opinion a corporate governance report has been prepared, and its legal contents agree with the annual accounts and Group accounts. Förslöv, 3 April 2013 Alf Svensson Authorized Public Accountant Thomas Thiel Authorized Public Accountant PEAB ANNUAL REPORT

94 BOARD OF DIRECTORS Board of Directors Göran Grosskopf Born Appointed Professor, LLD and Dr Econ Chairman of the Board of Peab AB, Ingka Holding BV, ColoPlus AB, Mats Paulsson s Foundation and Medicon Village AB. Member of the boards of Appo Services AG and Birgma International SA. Formerly professor of tax law and working chairman of the board of Tetra Laval Group. Holding: 460,000 B shares Karl-Axel Granlund Born Appointed MSc (economics), MSc (engineering) Principle owner and chairman of the board of Volito AB. Holding: 18,402,000 B shares Mats Paulsson Born Appointed Vice chairman of the Board of Peab AB. Member of the boards of Skistar AB, Mentor Sverige AB, Mats Paulsson s Foundation and Medicon Village AB. Formerly various positions in Peab since Holding: 9,754,910 A shares 37,255,750 B shares Svante Paulsson Born Appointed Project and Strategy Manager of Backahill AB. Member of the boards of Fabege AB, Bilia AB, Backahill AB, AB Cernelle and Rögle BK. Holding: 7,824,715 A shares 1,350,705 B shares Annette Brodin Rampe Born Appointed MSc (engineering) Senior Partner of Brunswick Group. Member of the boards of Ernströmgruppen AB, IVA s Näringslivsråd and British Swedish Camber of Commerce. Formerly various positions in E.ON Sverige AB, Exxon Chemical Inc and CEO of Senea AB. Holding: 50,000 B shares Lars Sköld Born Appointed Chairman of the Boards of Kulturgastronomen AB, Södertuna slotts drift AB and Södertuna Konferensslott AB. Holding: 15,000 B shares Fredrik Paulsson Born Appointed Member of the board and CEO of Kranpunkten i Skandinavien AB. Member of the board of Scandinavian Resort AB, Scandinavian Office Group AB, Stichting INGKA Foundation, Stichting IKEA Foundation and Stichting IMAS Foundation. Holding: 4,261,430 A shares, 6,002,154 B shares Anne-Marie Pålsson Born Appointed MA University of California, Ph.D.Economics from Lund University Vice chairman of the Board Länsförsäkringar Skåne. Member of the board of GLB AB. Holding: 3,000 B shares Patrik Svensson Born Appointed Foreman Construction Sweden Employee representative Holding: None Kim Thomsen Born Appointed Carpenter Construction Sweden Employee representative Holding: None Lars Modin Born Appointed Project Manager Construction Sweden Employee representative Holding: None Lars Bergman Born Appointed Civil Engineering worker Employee representative (deputy) Holding: None Monica Mattsson Born Appointed Credit coordinator Employee representative (deputy) Holding: None The holdings reported were those on 28 February Holdings include those of spouses, children who are minors and private company holdings. 90 PEAB ANNUAL REPORT 2012

95 EXECUTIVE MANAGEMENT AND AUDITORS Executive management Jesper Göransson CEO and acting President Acting BA Manager Construction CFO Born 1971 Employed since 1996 Holding: 412,000 B shares Niclas Winkvist Strategy and business support Born 1966 Employed since 1995 Holding: 90,000 B shares Tina Hermansson Berg Human Resources, safety and ethics Born 1969 Employed since 2012 Holding: 3,200 B shares Tore Hallersbo Deputy CEO Manager Division Norway, Finland and Special Projects in BA Construction Born 1955 Employed since 2005 Holding: None Roger Linnér BA Manager Civil Engineering Operative Manager BA Construction Born 1970 Employed since 1996 Holding: None Karl-Gunnar Karlsson BA Manager Industry Born 1956 Employed since 2003 Holding: 16,450 B shares Tomas Anderson BA Manager Property Development Born 1956 Employed since 1996 Holding: 35,100 B shares Auditors Alf Svensson Born 1949 Authorized public accountant, KPMG. Auditor in Peab AB since Thomas Thiel Born 1947 Authorized public accountant, KPMG. Auditor in Peab AB since Deputy auditors Dan Kjellqvist, Authorized public accountant, KPMG and David Olow, Authorized public accountant, KPMG. The holdings reported were those on 28 February Holdings include those of spouses, children who are minors and private company holdings. PEAB ANNUAL REPORT

96 THE PEAB SHARE A weak year on the stock market Peab s B share is listed on the NASDAQ OMX Stockholm, LargeCap. As of 31 December 2012 the total market capital of Peab was SEK 9.2 billion (10.3). TRADING IN THE PEAB SHARE As of 31 December 2012 the closing price of the Peab share was SEK 31.04, which was a 9.5 percent decrease during the year. The Swedish Stock Exchange, measured by the OMX Nordic Stockholm, increased in 2012 by 10.5 percent. In 2012, the Peab share was quoted at a maximum of SEK and a minimum of SEK and 69 million shares (111) were traded, which is equivalent to 274,000 shares per trading day (412,000). SHARES AND SHARE CAPITAL The total number of shares at the beginning of 2012 was 296,049,730 divided into 34,319,957 A shares with 10 voting rights per share and 261,729,773 B shares with 1 voting right per share. The share capital amounted to SEK 1,583.9 million. At the end of 2012 the number of A shares was 34,319,957 representing 11.6 percent (11.6) of capital and 56.7 percent (56.7) of the votes and the number of B shares was 261,729,773 representing 88.4 percent (88.4) of capital and 43.3 percent (43.3) of the votes. Information on share capital development over time is available at CONVERTIBLE PROMISSORY NOTES Convertibles 2007/2012 matured on 30 November There have been no conversions to shares and the loan has been paid in full. HOLDINGS OF OWN SHARES At the beginning of 2012 Peab s own B share holding was 1,086,984 which corresponds to 0.4 percent of the total number of shares. Peab s Annual General Meeting on 15 May 2012 resolved to authorise the Board to, during the period until the next Annual General Meeting, acquire shares so that the company would have at most 10 percent of the total shares in Peab AB. No own shares were repurchased or divested in 2012, which means that Peab s holding of own shares at the end of 2012 amounted to 1,086,984 B shares. DIVIDEND A dividend of SEK 1.60 (2.10) per share is proposed for Calculated as a percentage of the Group s reported profit after tax the proposed dividend amounts to 65 percent (66), which is in line with the dividend financial target. The direct return calculated on the proposed dividend and at the closing price on 31 December 2012 is 5.2 percent (6.1). Price trend of the Peab share 2 Januari February Peab share, total return 31 December December JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB Peab s B Share OMX Stockholm PI SX Construction & Engineering PI No. of shares traded (including after-hours trading) Source: SIX Telekurs Peab total return SIXRX Source: SIX Telekurs 92 PEAB ANNUAL REPORT 2012

97 THE PEAB SHARE List of shareholders on 28 February 2013 A shares B shares Total number of shares Proportion of capital, % Proportion of votes, % Mats Paulsson with companies 9,754,910 37,255,750 47,010, Karl-Axel Granlund with family and companies 18,402,000 18,402, Folksam 11,400,000 11,400, Anita Paulsson with family and companies 4,261,431 6,013,905 10,275, Fredrik Paulsson with family and companies 4,261,430 6,002,154 10,263, Svante Paulsson with family and companies 7,824,715 1,350,705 9,175, Sara Karlsson with family and companies 7,881, ,299 8,745, Kamprad family foundation 8,581,236 8,581, Peab s profit-share foundation 7,803,432 7,803, Länsförsäkringar Funds 5,514,810 5,514, Lannebo Fonder 5,512,029 5,512, Handelsbanken Funds 4,891,231 4,891, Danica Pension 4,276,300 4,276, Swedbank Robur Funds 3,533,099 3,533, SEB Investment Management 3,417,095 3,417, Foreign shareholders 29,905,229 29,905, Others 335, ,920, ,256, Number of outstanding shares 34,319, ,642, ,962,746 Peab AB 1,086,984 1,086, Number of registered shares 34,319, ,729, ,049, Data per share Earnings, SEK after dilution Equity, SEK after dilution Cash flow before financing, SEK after dilution Share price at year-end, SEK Share price/equity, % Dividend, SEK 1) Direct return, % 2) P/E-ratio 2) ) For 2012, Board of Directors proposal to the AGM 2) Based on closing price at year-end Allocation of shareholdings 3) Number of shares Number of shareholders Proportion of capital, % Proportion of votes, % , , , , , ) Per Earnings and dividend per share 1) SEK SEK Shares and votes per share class 3) Share class Number Number of votes Proportion of capital, % Proportion of votes, % A 34,319, B 261,729, Total 296,049, Equity per share Dividend per share Shareholder categories, proportion of capital 3) 31% 17% Shareholder categories, proportion of votes 3) 28% 8% Equity per share SEK % 35% 6% 2% 56% % Financial companies and trust funds Other Swedish legal entities Interest organizations Foregin shareholders Swedish private persons 1) For 2012, Board of Directors proposal to the AGM 3) Per PEAB ANNUAL REPORT

98 FIVE-YEAR OVERVIEW Group ) 1) 2) 2008 Income statement items Net sales 46,840 43,539 38,045 34,868 34,132 Operating profit 1,055 1,505 1,503 1,573 1,349 Pre-tax profit 813 1,195 1,513 1,619 1,014 Profit for the year ,190 1,301 1,093 Balance sheet items Fixed assets 9,786 10,850 9,657 8,982 8,192 Current assets 22,287 20,499 17,923 17,632 17,500 Total assets 32,073 31,349 27,580 26,614 25,692 Equity 7,984 7,947 7,673 7,563 6,370 Non-controlling interests Long-term liabilities 7,759 8,208 6,061 6,060 5,897 Current liabilities 16,329 15,194 13,846 12,948 13,333 Total equity and liabilities 32,073 31,349 27,580 26,614 25,692 Key ratios Operating margin, percent Profit margin, percent Return on equity, percent Capital employed 16,618 17,094 14,712 15,440 13,277 Return on capital employed, percent Equity/assets ratio, percent Net debt 6,470 6,626 5,719 4,571 4,042 Debt/equity ratio, multiple Interest coverage ratio, multiple Capital expenditures Goodwill ,446 Other intangible assets Buildings and land Machinery and equipment 847 1, ,827 Shares and participations Project and development properties Orders Orders received 38,743 37,986 34,764 30,393 32,269 Order backlog 28,056 28,378 27,063 24,487 24,233 Personnel Average number of employees 14,825 14,560 13,541 13,633 11,945 Data per share Earnings, SEK after completed subscription and conversion Cash flow, SEK ,59 after completed subscription and conversion ,20 Equity, SEK after completed subscription and conversion Share price at year-end, SEK Ordinary dividend, SEK 3) Number of shares at year-end, millions after completed subscription and conversion Average number of outstanding shares, millions after completed subscription and conversion ) From 1 January 2010 Peab applies IFRIC 15, Agreements for the Construction of Real Estate, in reporting. As a result of the new principle IAS 18, Revenue, will be applied to Peab s housing projects in Finland and Norway as well as Peab s own single homes in Sweden. Revenue from these projects will be recognized first when the home is handed over to the buyer. The comparable items for 2009 below have been recalculated according to the changed accounting principle have not been recalculated. 2) Peab Industri was distributed to the shareholders in Peab Industri was repurchased in December Peab Industri is included in the balance sheet per 31 December Peab Industri is not included in the income statment for ) For 2012, the Board of Directors proposal to the AGM. 94 PEAB ANNUAL REPORT 2012

99 DEFINITIONS Financial definitions Capital employed Total assets at year-end less non-interest-bearing operating liabilities and provisions. Cash flow per share Cash flow per share calculated as the total of the cash flow from current operations and cash flow from investment activities divided by the average number of outstanding shares during the year. Net debt/equity ratio Interest-bearing net debt in relation to equity. Direct return Dividend as a percentage of the share price at year-end. Earnings per share Profit for the period attributable to shareholders in parent company divided by the average number of outstanding shares during the period. Equity/assets ratio Equity as a percentage of total assets at yearend. Equity per share Equity attributable to shareholders in parent company divided by the number of outstanding shares at the end of the period. Interest coverage ratio Pre-tax profit items plus interest expenses in relation to interest expenses. Net assets (+) / Net debt (-) Interest-bearing liabilities including provisions for pensions less liquid and interest-bearing assets. Operating margin Operating profit as a percentage of net sales. Order backlog The value of the remaining income in ongoing production plus orders recieved yet to be produced. Orders received The sum of orders received during the year. P/E ratio Share price at year-end divided by earnings per share. Profit margin Pre-tax profit items plus financial expenses as a percentage of net sales. Return on capital employed Pre-tax profit items plus financial expenses as a percentage of average capital employed. Return on equity Profit for the period attributable to shareholders in parent company divided by average equity attributable to shareholders in parent company. Construction related definitions Contract amount The amount stated in the contract for contract work excluding VAT. Fixed price Contract to be carried out for a fixed price without the contractor being able to alter it, unless the client makes changes to the contract or makes supplementary orders. General contract Contract work where the contractor carries out construction and appoints and is responsible for subcontractors on the basis of documentation provided by the client. Peab Partnering A type of collaboration which is similar to Peab s Trust-based contracts. The difference is that partnering requires whole-hearted collaboration by two or more equal partners during all phases of the construction process. Partnering is suitable for customers who want to be, can and are actively involved from start to finish. Peab s Trust-based contracts A type of collaboration between Peab and the customer involving collaboration at an early stage, shared goals and decisions and complete openness in processes and systems such as finance and purchasing. To start with, the customer presents his/her requirements and then Peab comes up with a proposal. Customers are not as closely involved in the construction process in Peab s Trust-based contracts as they are in Peab Partnering. PGS PGS stands for Peab Gemensamt System (Peab s General System) and refers to standardized construction elements manufactured in Peab s own factories or by partners. PGS means industrial construction from fabrication to final mounting. Project and development property Holdings of unimproved land and decontamination property for future development, real estate with buildings for project development or improvement and thereafter sales within Peab s normal operation cycle. Project development Finding project and development properties in the market and developing these into complete projects. Total contract Contract work where the contractor, in addition to building, is also responsible for planning the project. BRF KAJPLATSEN AND BRF HAMNPIREN Färjestaden KUGGEN Gothenburg PEAB ANNUAL REPORT

100 ANNUAL GENERAL MEETING Welcome to Peab s Annual General Meeting TIME AND LOCATION The Annual General Meeting of Peab AB will be held at 3 p.m. on Tuesday 14 May 2013, Grevieparken in Grevie, Sweden. NOTIFICATION Notification of participation in the Annual General Meeting must be submitted at the latest by 2 p.m. on Tuesday 7 May Notification may be submitted by telephone to , by mail to Peab Annual General Meeting, c/o Euroclear Sweden AB, Box 7841, SE Stockholm, or via the company s website at To participate in the Annual General Meeting shareholders must be registered in the share register kept by Euroclear Sweden AB by Tuesday 7 May 2013 at the latest. Shareholders who have registered their shares in trust must have registered such shares in their own names at the latest by this date. Shareholders should request trustees to undertake such registering a few days in advance. DIVIDEND The Board of Directors proposes to the Annual General Meeting an ordinary dividend of SEK 1.60 per share for The proposed record day is Friday 17 May If the Annual General Meeting approves the proposal submitted, dividends will be distributed from Euroclear Sweden AB on wednesday 22 May Dividends as a percent of profit 1), 2) after tax % 70 Goal >50% ) According to legal reporting 2) For 2012, Board of Directors proposal ANNUAL GENERAL MEETING 2012 Grevie 96 PEAB ANNUAL REPORT 2012

101 SHARE HOLDER INFORMATION AND ADDRESSES Financial information At peab.com we continually provide current information on the company, financial results and how our share is developing. Financial reports and publications can be downloaded there as well. They can also be ordered by contacting: Peab AB, SE Förslöv, Sweden, Tel , Fax Follow Peab quarter by quarter When Peab publishes our quarterly reports we also present the financial results for the previous quarter and a description of the current situation. The link to the presentations can be found at Financial-information/. Analysts who follow Peab Company Name ABG Sundal Collier Fredric Cyon fredric.cyon@abgsc.se Carnegie Tobias Kaj tobias.kaj@carnegie.se Danske Bank Peter Trigarszky peter.trigarszky@danskebank.se DNB Simen Mortensen simen.mortensen@dnb.no Handelsbanken Albin Sandberg alsa06@handelsbanken.se Nordea Jonas Andersson jonas.l.andersson@nordea.com Shareholder information ANNUAL CALENDAR 2013 First Quarter Report 14 May Annual General Meeting 14 May Second Quarter Report 20 August Third Quarter Report 14 November Year-end Report February 2014 SHAREHOLDER CONTACT Jesper Göransson, CEO and acting President Tel , jesper.goransson@peab.se Gösta Sjöström, CIO Tel , gosta.sjostrom@peab.se SEB Enskilda Stefan Andersson stefan.andersson@enskilda.se Swedbank Niclas Höglund niclas.hoglund@swedbank.se Head office Peab AB SE Förslöv, (Margretetorpsvägen 84), Tel , Fax Peab Sverige AB Business area Construction Box Solna (Gårdsvägen 6) Sweden Tel Fax Peab Anläggning AB Business area Civil Engineering Förslöv (Margretetorpsvägen 84) Sweden Tel Fax Peab Industri AB Business area Industry Göteborg (Anders Personsgatan 2) Sweden Tel Fax Peab Fastighetsutveckling AB Business area Property Development Box Solna (Gårdsvägen 6) Sweden Tel Fax Peab AS Postboks 93 Røa NO-0701 Oslo Norway (Sørkedalsveien 150A, 0754 Oslo) Tel Fax Peab Oy Sentnerikuja 5 FIN Helsingfors Finland Tel Fax PEAB ANNUAL REPORT

102 GOTHIA TOWERS Gothenburg GOTHIA TOWERS Gothenburg Peab AB (publ) SE Förslöv Tel Fax peab.com