Focus on quality in a strong construction market

Key ratios

With local roots close to customers business area Construction performs contract work for both external and internal customers. Construction projects include everything from new production of housing, public and commercial premises to renovations and extensions as well as construction maintenance.

Operations in business area Construction are run via some 150 local offices around the Nordic area, organized in 11 regions in Sweden, two in Norway and two in Finland. There are three specialized housing production regions in Stockholm, Gothenburg and the Öresund region. Construction maintenance operations are run in a nationwide region primarily focused on the big city areas. Other regions are responsible for all types of construction projects in their geographic area.

THE BUSINESS AREA IN 2016

The 2016 construction market in Sweden was strong and characterized by good growth. The Swedish market was primarily driven by housing production manifested in business area Construction through a large number of ongoing housing projects all over the country. Other construction, commercial and public premises increased as well. Swedish housing production is currently moving full speed ahead in major city regions and in almost every large town and this trend will probably continue in 2017.

In central Stockholm Peab is in the middle of a huge renovation construction project. The city block Björnen on Drottninggatan, Government Offices, is going to be rebuilt and extended. It is the National Property Board‘s largest construction project ever totaling 44,000 m2 BTA with around 1,000 work stations. During the year a meticulous renovation and extension of the revered Art Gallery Liljevalchs in the Royal Djurgården in Stockholm was initiated and will be completed in 2018. The architect is Gert Wingårdh. At the same time the city of Kiruna is undergoing the upheaval of being moved. Peab has been given the honor of erecting the new City Hall, Kristallen (the Crystal), from the developer LKAB. The new City Hall will be ready in 2018 and is a total of 14,400 m2.

The Norwegian market was more scattered. Cities exposed to the oil industry struggled due to the decrease in oil prices. This was compensated by growing infrastructure projects all over the country and a faster production rate in Oslo and northern Norway, particularly in housing construction. Peab’s construction operations in the Oslo region covered many different kinds of construction projects, while in Tromsø Peab had a number of housing projects during the year. For Norwegian Statsbygg Peab is building a new medical research facility at the University in Tromsø.

Finland continued to develop weakly. However, there is an unheeded need which led to an increase in construction in 2016, albeit from low levels. Peab’s Finnish operations worked on a number of housing projects in the larger cities besides Helsinki in 2016. Around the capital Peab’s main focus in 2016 was on other building construction together with renovations.

Key functions in society

Urbanization is a clear trend in all countries Peab operates in. This puts pressure on municipalities and county councils to ensure that there are schools, retirement homes, health care and commercial areas to go together with all the new housing construction. Peab’s customers have to decide whether to rebuild or construct new premises. New and more stringent environmental and energy demands may make it more expensive to renovate and rebuild in the long run and this raises the rate of construction even more.

Major orders for public premises in 2016 included reconstruction and additions to the Nälsta School in Vällingby (a contract for SEK 229 million), construction of a new sports arena and elementary school in central Malmö (a contract for SEK 293 million), expansion of Hyvinge Hospital north of Helsinki in Finland (a contract for EUR 31 million) as well as reconstruction and additions to the Morö backe School in Skellefteå (a contract for SEK 223 million).

Nationwide contract construction

In an industry going through one of its most dramatic upturns in recent times it is crucial to remain close to customers regardless of their location and size. Peab’s construction portfolio strategy has been refined throughout the years allowing us to balance the market’s growth with high quality on every level as well as good business acumen.

One of Peab’s strengths is to be able to offer local craftsmen even after the projects are up and running which makes Peab a reliable supplier, particularly for large customers. In March 2016 Peab Construction Service became the only supplier for simpler construction work for Postnord’s approximately 2,000 service centers, postal worker’s offices and terminals in Sweden. In addition, in October 2016 Peab Construction Service became the sole nationwide supplier of contract construction for Swedbank’s renovation and extension projects all over Sweden. All in all Peab Construction Service does over 50,000 large and small jobs for the public sector and private property owners every year.

Purchasing management and digitalization

In 2016 Peab intensified the work on creating our future purchasing organization. Through more management and specialization Peab will be able to make greater demands on high quality products that protect the environment, craftsmen and end users. Increased management and cross-functional collaborations that start already at the procurement stage maximize scale advantages and minimize unnecessary waste in the production phase. Digitalization will also enable constant new ways to transfer knowledge amongst all Peab’s operations.

NET SALES AND PROFIT

Net sales for 2016 amounted to SEK 24,121 million (23,845). Excluding the write-down of the project Mall of Scandinavia net sales amounted to SEK 24,645 million in the comparable year.

Operating profit for the year amounted to SEK 542 million (-225) and the operating margin was 2.2 percent (-0.9). Excluding the write-down of the project Mall of Scandinavia operating profit amounted to SEK 575 million and the operating margin to 2.3 percent in the comparable year.

ORDERS RECEIVED AND ORDER BACKLOG

Orders received increased by seven percent compared to last year and amounted to SEK 27,883 million (25,999). Orders received are well diversified in terms of products and geography although the majority consist of housing projects. Order backlog 31 December 2016 amounted to SEK 24,160 million (19,529).

Project allocation of order backlog, 31 Dec 2016

Operating profit and margin

Net sales