Investing in competence and resources for a changing market

Key ratios

Business area Civil Engineering is a leading civil engineering supplier in Sweden with operations in Norway and Finland as well. The business area builds and maintains roads, railroads, bridges and other infrastructure. Peab’s civil engineering operations are primarily directed at the local market and are organized in geographic regions and specialized product areas.

Local market works with landscaping and pipelines, foundation work and builds different kinds of facilities. Infrastructure and heavy construction builds roads, railroads, bridges, tunnels and ports. It also builds heavier facilities for industry and the public sector. Operation and maintenance provides just that for national and municipal highways and street networks as well as cares for parks and outdoor property. It also operates water and sewage supply networks. The business area cooperates extensively over regional and country borders for joint development and experiences exchanges, project management as well as considerable scale advantages in larger and more complex projects.

THE BUSINESS AREA IN 2016

In 2016 there was a large range of projects to be had on the Nordic civil engineering market and many more are expected in the coming years. The increase primarily consists of large, complex infrastructure projects in Sweden and Norway. As a consequence there is more competition from non-Nordic companies creating a price pressure. There were fewer projects in Finland and the competition for them was tough.

Production in several major projects started up in Infrastructure such as E6 in Trondheim, Norway and lowering E45 in Gothenburg. Peab also entered the final phase of project Mälarbanan.

Increasing need for infrastructure

Local market continued to do well driven by population growth and the ensuing increasing need for different kinds of infrastructure. This was particularly true in larger cities in Sweden and Norway. A higher demand for infrastructure is expected to continue in the coming years and then decrease somewhat as housing construction reaches its peak. In Finland the local market was more austere because of budget limitations in public finances.

There was temporarily less activity in some product areas, for instance wind turbine construction as a result of low energy prices, but they are expected to bounce back. Activity continued to be high in industrial construction, for example Peab won a project for the construction of new buildings at SCA’s pulp factory in Östrand in Sundsvall. Another important event in 2016 was the acquisition of Solberg Maskin A/S in Norway, a good complement on the local market in the Trondheim area.

In Operation and maintenance Peab had contracts renewed within road management in several operational areas. In municipal operation and maintenance Peab won new contracts for, among others, outdoor property management for Växjöbostäder and for maintenance in Täby municipality. Helsingborg’s municipality renewed its contract with Peab, as did Stockholm’s Harbor along with other important customers.

Peab’s employees are a crucial asset when planning, allocating resources and managing risks in projects. To be able to continue offering competitive solutions in projects with more and more complex demands Peab began intensely increasing its capacity in Peab Civil Engineering Technology in 2016. Through this Peab increases its access to technical specialists who follow a project from procurement to finished product.

Partnering / Early Contractor Involvement (ECI)

More and more customers prefer so-called partnering or ECI (Early Contractor Involvement). In December Peab was commissioned to build a new train depot in Eskilstuna. The contract amounted to SEK 399 million and was a turnkey contract with partnering. This allows Peab to be involved early on with the customer, Eskilstuna municipality. Completion is planned for autumn 2018.

Another example is Olskroken, a central junction for the railroad system in Gothenburg and western Sweden. Peab received the contract for the first phase in the Olskroken project in December 2015 and the procurement followed the ECI contract model. In phase 1 Peab will be responsible, together with the client, for planning all the details in preparation for the construction start scheduled for 2017/2018. The contract for phase 2, the construction itself, will hopefully be signed in the second part of 2017. The client is the Swedish Transport Administration and the project is planned to extend into 2024.

Peab continued to work on the logistics project during the year. The digitalization of material deliveries and transportation services in Civil Engineering enables Peab to optimize logistics, reduce administration and gain better control over finances. The next step is to further automatize environmental data for optimized measuring and follow-up of environmental impact.

NET SALES AND PROFIT

Net sales for 2016 increased by three percent and amounted to SEK 10,740 million (10,448).

Operating profit for 2016 decreased to SEK 355 million (381) and the operating margin to 3.3 percent (3.6). There are a number of infrastructure projects still in the early stages where the first year has been filled with preparatory work and therefore no net sales to speak of have been generated.

Net sales in the product area Local market grew but the operating profit contracted slightly. Net sales in Operation and maintenance increased and profit improved. Net sales decreased in Infrastructure but the margin improved.

ORDERS RECEIVED AND ORDER BACKLOG

Orders received during 2016 amounted to SEK 12,089 million (10,433), an increase by 16 percent. The increase is primarily due to Infrastructure through two major highway projects, E6 Trondheim in Norway and reconstruction of E45 outside Gothenburg, each worth around SEK 1 billion.

Order backlog on 31 December 2016 amounted to SEK 8,679 million (7,292).

Project allocation of order backlog, 31 Dec 2016

Operating profit and margin

Net sales