Well positioned for hot construction and civil engineering markets

Key ratios

Business area Industry is a complete supplier of all the products and services needed in order to carry out a construction and civil engineering project sustainably and cost efficiently. This is achieved by offering industrial construction, possessing strategically placed quarries, asphalt plants and concrete factories as well as by renting out construction equipment and cranes.

Business area Industry is run in seven product areas: Asphalt, Concrete, Gravel and Rock, Transportation and Machines, Foundation Work, Rentals and Construction System (Industrial construction). All of them work on the Nordic construction and civil engineering markets.

THE BUSINESS AREA IN 2016

Business area Industry has operations in Sweden, Norway and Finland. The year started somewhat hesitantly in Sweden and business did not pick up speed until the summer but then accelerated in the second half of the year. Extensive housing construction in Sweden, together with the launch of a number of civil engineering projects, contributed to a positive development for many of the business area operations in 2016. Lower investments in the mining industry led to a decline in the business area’s operations in northern Sweden, while operations in southern Sweden were on a high, stable level throughout the year. The Norwegian market had a relatively good year delivering large volumes of ready-mixed concrete in northern Norway. Crane operations, which rent and sell cranes, developed very positively. The market was weaker in Finland, although there were positive tendencies in the second half of the year. Crane operations in Finland, however, did well throughout 2016 and Concrete recovered somewhat during the second half. A new cement import terminal was completed in Hanko Harbor in 2016, further strengthening Peab’s competitive capacity on the Finnish market.

Launching ECO-Asfalt

Peab’s Asphalt plants delivered massive volumes, partly because of contracts with Swedavia and the Swedish Traffic Administration. As part of the collaboration with Swedavia Peab Asphalt did pavement work at all of Swedavia’s airports in Sweden and took on major projects at Landvetter, Arlanda and Bromma during the year. As a part of Peab Asphalt’s launch of Eco-Asfalt the converted asphalt plant Veberöd was inaugurated outside Lund. The conversion consisted of switching from fossil fuel to carbon dioxide neutral, non-fossil fuel. All told Peab Asphalt converted eight asphalt plants in 2016, among them the ones in Stockholm and Kållered. The remaining stationary plants will be converted no later than 2020.

New concrete plants and quarries

Concrete operations developed positively in 2016. More activity in northern Norway, particularly in Tromsø, meant higher volumes and improved profitability. Product area Concrete produced and delivered very good volumes in many places in Sweden as well. Several new concrete factories were established in 2016 and concrete operations were acquired in Borås. Gravel and Rock delivered greater volumes with efficient production. Swerock strengthened its position on the market by establishing new quarries. This is part of the strategy to acquire more quarries in the product area Gravel and Rock, enhancing Peab’s presence on the local market. In 2016 Swerock acquired gravel and rock operations in Torup in southwest Sweden as well as in Kållered outside of Gothenburg.

Broader environmental responsibility in Transportation and Machines

Recycling is a relatively new unit in product area Transportation and Machines and with it business area Industry takes greater responsibility for the environment. This is partly achieved through taking care of soil masses as well as by sorting and recycling demolition material and partly through establishing facilities close to construction and civil engineering projects which reduces CO₂ emissions by cutting down on transportation. Recycling also paves the way for new business opportunities in other segments. Developing Recycling enables Peab to offer comprehensive solutions for construction and civil engineering projects.

After the changes made in Transportation and Machines the product area developed positively in 2016. Phasing out unprofitable operations and developing profitable ones has given Transportation and Machines a good platform for the future.

Pile factories produced big volumes

Foundation Work developed positively on the Swedish market, especially during the second half of the year. The pile factories churned at full steam and over 400,000 pile meters were produced in 2016. However, development on the Norwegian market was weaker than expected.

Good market for Rentals and Construction System

In product area Rentals orders for traffic signs increased and Lambertsson Sweden set up new units in several areas. In order to reduce emissions with a negative environmental impact Lambertsson Sweden made considerable investments in electrical construction equipment. For instance, Rentals offer electrical compaction equipment, excavators and wheel loaders. Glacell in Rentals, specialized in solar cells for public and commercial players, had a number of projects in 2016. One of the largest solar cell installations ever made in a residential area was completed in Lund. ATS Kraftservice grew, particularly in the transformer segment. Lambertsson Kran developed positively during 2016 in both tower cranes and elevators as well as in mobile cranes, mostly due to the hot Swedish construction market.

Construction System was in high demand, successively amassing an order backlog during the year. Construction System finished the expansion of its factory in Ucklum at the end of the year. The factory is now in full swing and it will increase the production of prefabricated concrete elements to meet the demand created by housing construction.

NET SALES AND PROFIT

Net sales for 2016 increased by 13 percent and amounted to SEK 12,161 million (10,800) with increases in most of the product areas. After adjustments for acquired and divested units net sales increased by 12 percent compared to last year. Operating profit for 2016 increased to SEK 753 million (648) and the operating margin was 6.2 percent (6.0). Sales volumes and profit increased in Concrete, Gravel and Rock, Asphalt as well as Rentals during the year.

Capital employed in Industry at the end of the year amounted to SEK 5,416 million (4,885). The increase is largely due to investments in machinery as well as the acquisition of operations in the gravel and rock operations in Kållered. The acquisition, which was carried out during the third quarter, strengthens Peab’s position in gravel and rock in the Gothenburg region. Net sales in the business were SEK 110 million during the fiscal year of 2015.

STRONG BRANDS

To a certain extent Peab has built its industrial operations on the acquisition of a large number of different companies with strong, local brands that complement the Peab brand, for example: Lambertsson, Swerock, Cliffton, Skandinaviska Byggelement, Glacell, ATS Kraftservice, Lättklinkerbetong, MBR, Virtanen, Kranor, Ferdigbetong.

Operating profit and margin

Net sales