Together for sustainable community development

Summarizing 2022 we can conclude that Peab, despite a challenging time, can report a stable profit. We are starting out 2023 with a high order backlog and strong financial position. Above all, our broad busi­ness model with four col­lab­o­rat­ing Nordic busi­ness areas has once again demonstrated that we can handle fluctuating market conditions in different segments and geographies. Group net sales in­creased by five per­cent in 2022 and amount­ed to SEK 63 bil­lion. The high ma­te­r­i­al and en­er­gy costs that marked the year are be­hind most of the in­crease in net sales. Op­er­at­ing prof­it was SEK 2.7 bil­lion and the op­er­at­ing mar­gin was 4.3 per­cent (5.2). Dur­ing the year we have con­tin­ued to in­vest according to plan in our op­er­a­tions in business areas Industry and Project Development, which together with more tied up working capital has charged cash flow.

Wide-ranging business

Variations in projects, their size and geographic spread continues to be good in the Peab Group as does the allocation of orders between the public and private sector. All this contributes to spreading the risks in the business and creating greater stability. We have seen the impact of cost inflation in busi­ness area Con­struc­tion in all our Nordic coun­tries. For the most part it has been counteracted by higher prices to our customers and by adjustments and streamlining our operations, although we have not been able to fully compensate for it. Activity has been high in busi­ness area Civil En­gi­neer­ing, especially in the public sector but even here cost increases have had a negative effect on the op­er­at­ing mar­gin. In our industrial business high­er costs for en­er­gy and fuel had a neg­a­tive ef­fect pri­mar­i­ly on paving and min­er­al ag­gre­gates op­er­a­tions, particularly in Norway, Finland and Denmark where we did not achieve full compensation from our customers. The other seg­ments of busi­ness area Industry re­port­ed im­proved prof­itabil­i­ty in 2022. In busi­ness area Project De­vel­op­ment de­mand for hous­ing has gone down in all coun­tries, most­ly in the sec­ond half of the year, which has led to a lower rate of home sales and fewer pro­duc­tion starts. The mar­ket is cau­tious con­cern­ing any kind of home due to higher in­ter­est rates, inflation and un­cer­tain­ty about the econ­o­my, which makes it harder to make ends meet in calculations. At the same time we made long-term investments in the business area during the first half-year, among them starting a joint venture in Finland together with Slättö to develop and manage green housing properties.

Varying target outcome

The degree to which we have achieved our nine ex­ter­nal, financial and non-financial, tar­gets varies and has been af­fect­ed by the rather chal­leng­ing mar­ket cir­cum­stances. We have sur­passed our tar­gets re­gard­ing the Cus­tomer Sat­is­fac­tion Index, rec­om­mend Peab as an em­ploy­er (eNPS) and our tar­get for equal op­por­tu­ni­ty re­cruit­ment. How­ev­er, the trend for se­ri­ous ac­ci­dents has gone in the wrong di­rec­tion dur­ing the year and we have not met our tar­get of a con­tract­ing num­ber of se­ri­ous ac­ci­dents in 2022. In order to aug­ment our safe­ty cul­ture and turn the tide, we have in­ten­si­fied our ef­forts in tak­ing pre­ven­ta­tive work en­vi­ron­ment mea­sures. Car­bon diox­ide in­ten­si­ty is de­vel­op­ing in the right di­rec­tion for our two climate-​related tar­gets, al­though the re­duc­tion in input goods and pur­chased ser­vices is small­er than in our own pro­duc­tion. If we are going to achieve the difficult climate challenge we are facing everyone has to bring their A-game and work together.

When it comes to our fi­nan­cial tar­gets our first tar­get is to over time and a normal business cycle have an op­er­at­ing mar­gin that sur­pass­es 6 per­cent. In 2022 it fell from 5.2 to 4.3 per­cent due to cost in­fla­tion and the wors­en­ing mar­ket sit­u­a­tion. Our sec­ond fi­nan­cial tar­get, the net debt/eq­ui­ty ratio, was 0.5 which is in the middle of the tar­get in­ter­val 0.3-0.7. Based on Peab’s third fi­nan­cial tar­get of dis­trib­ut­ing div­i­dends of at least 50 per­cent of prof­it for the year, the Board pro­pos­es a div­i­dend of SEK 4.00 (5.00) per share for 2022. Excluding the number of shares held by Peab AB, this cor­re­sponds to 56 per­cent of prof­it for the year and means we have achieved our tar­get while main­tain­ing our fi­nan­cial flex­i­bil­i­ty. Dur­ing the year we also car­ried out a pro­gram for re­pur­chas­ing our own shares.

Clear sustainability priorities

The non-financial targets are an expression of our sense of responsibility and therefore also define our sustainability priorities. As a leading Nordic community builder we have a big impact – and thereby a big responsibility. This responsibility means that in our own operations we strive to choose the most sustainable way forward as well as drive sustainable development in our industry, and our targets are aimed at this. We should be climate neutral by 2045 and we have set up two targets concerning carbon dioxide intensity for 2030 along the way. The matter of materials is key here and our own ECO-​products are vital to achieving this target. We should also take advantage of all the competence in society and ensure that our capable employees can work in safe and developing environments. We have therefore set targets regarding equal opportunity recruitment and workplace accidents. In 2023 we will launch an internship for young women that want to try out working for us as community builders. It’s one of our activities to promote gender equality in our industry.

While we managed the uncertainties in the world around us we contributed in many ways to improving everyday life where people live it.

We also strive to make our industry safe and sound, working for both healthy competition and governance at every level, in particular throughout the supply chain. We actively work for our industry to be open, play fair and have humane working conditions. Our specifications should be clear, particularly concerning climate matters, and we should collaborate with other actors in our industry. Working together and sharing solutions leads to finding the most long-lasting, sustainable ways forward.

Our work is founded on the UN Global Compact that we continue to support and the 17 global goals for sustainable development along with Peab’s Code of Conduct, core values, business concept, mission and the strategic targets. Business plans are important and guide employees in realizing our sustainability aspects and integrating them into their roles and daily operations. On top of that we have continued with educational programs in the areas of ethics, the environment, purchasing, the work environment and equal treatment.

Collaboration

In the past few years we have han­dled the effects of the pan­dem­ic, the war in Ukraine with the re­sult­ing en­er­gy cri­sis and cost in­fla­tion, and now we are also ad­just­ing to high­er in­ter­est rates. During 2022 we also faced the risk of losing our supply of cement but in De­cem­ber Ce­men­ta received a four year per­mit to con­tin­ue quar­ry­ing lime­stone. Now the com­pa­ny is working on an ap­pli­ca­tion for a longer pe­ri­od, around 30 years, to en­sure long-​lasting lime­stone quar­ry­ing in Swe­den.

Mar­ket conditions were challenging in 2022 and the market de­vel­opment was weak­er than most an­a­lysts had ex­pect­ed. Mar­ket prospects in con­struc­tion and civil en­gi­neer­ing in the Nordic region have been notched down fur­ther for 2023, main­ly due to a de­clin­ing hous­ing mar­ket. However, de­mand is ex­pect­ed to be more sta­ble in pub­lic build­ing con­struc­tion, civil en­gi­neer­ing and in­vest­ments as­so­ci­at­ed with green tran­si­tion.

Naturally we have been affected by this development but we remain stable. This is completely thanks to our solid business model and our 15,000 engaged employees who, in their local markets all over the Nordic region, handle the difficult market situation well and make local community building possible. The collaboration between our four business models with local resources in the form of our own input goods like our ECO-products, our own employees and local subcontractors definitely reduces our vulnerability. I there­fore want to ex­press a heart­felt thanks to each and every one of my col­leagues who day after day con­tin­ue to de­liv­er quality to our cus­tomers and thereby strength­en Peab and society. Thank you so much!

This is also how we handle the current market and external challenges. We con­tin­ue to stream­line and ad­just our op­er­a­tions to meet the de­mand on the mar­ket in dif­fer­ent seg­ments and ge­o­gra­phies. We redi­rect and trim our or­ga­ni­za­tion to be strong for the future. At the same time our fi­nan­cial clout pro­vides Peab with the abil­i­ty to take ad­van­tage of op­por­tu­ni­ties that can arise on the weak­er mar­ket. We know that over time the long-term driving forces in the world work in Peab’s favor and there is still a great need for our products and services.

I am confident about the future, Peab’s way forward in our role as a local community builder and our ability in collaboration with others to build tomorrow’s sustainable communities.