MOST PROFITABLE COMPANY
Sustainable profit through collaboration
With our engaged employees we ensure productivity, quality and continual improvement. Our local presence, size and mix of operations are the way to our target of becoming the most profitable company in our industry.
We take on the right projects and have the right business mix. Employees work according to quality-ensured work methods that are efficient in every aspect. Through our own resources and internal collaboration we maintain a high degree of value creation. We take advantage of our size and experience.
Operating margin
The target is measured according to segment reporting.
Target: >6%
Outcome 2023: 3.2%
Net debt/equity ratio
Net debt in relation to equity. Measured according to segment reporting.
Target: 0.3-0.7
Outcome 2023: 0.6
Dividends
The target is to surpass 50 percent of profit for the year. Measured according to segment reporting.
Target: >50%
Outcome 2023: 30%1)
1)Calculated on number of outstanding shares
Four collaborating business areas
Peab has a robust business model. With our four business areas we control a large part of the value chain which enables us to increase the level of processing within our own operations. We use our leverage in the vertical processing chain – from acquiring land to production and operation – through good internal collaboration, our own products, technical solutions and business concepts.
Geographic collaboration is essential to promoting the internal level of processing, as are discussions with existing and potential customers at an early stage. Our purchasing function and our Procurement Council are other examples of important functions that spur processing. Our profitability is also improved by our ability to deliver where there is growth, adapt our mix of operations to local conditions and take advantage of our size and experience.
Meanwhile, we have to continually strive to be more efficient in every aspect of our business. This is particularly important in the current market situation where inflation and higher interest rates have an impact on demand. We work continuously on streamlining our organization and during the year we intensified this endeavor due to developments in the economy. This includes implementing special measures for units that do not achieve the profitability targets set. Our efforts to increase digitalization is yet another component in driving our efficiency forward.
Three financial targets
Within the framework of this strategic target most profitable company we measure our business through three financial targets based on segment reporting over a normal business cycle. They are that the operating margin will exceed six percent, the net debt/equity ratio will be in the interval 0.3-0.7 and that dividends will be at least 50 percent of profit for the year.
With our four business areas we control a large part of the value chain which enables us to increase the level of processing within our own operations.
The target for the operating margin is based on the prerequisites Peab had after the acquisition in business area Industry of Nordic paving and mineral aggregates operations and the distribution of the property portfolio in the form of Annehem Fastigheter – both during 2020 – as well as the successful work in the Group over several years to stabilize and strengthen the operating margin. The target entails various benchmarks for the operating margin per business area, with higher margin demands on the capital intensive business areas Industry and Project Development.
Investing in community builders like Peab fits in well with AP3’s strategy since sustainable community development is a prerequisite for being able to achieve high, long-term financial returns.
Peter Lundkvist, owner representative for AP3
More challenging market affects outcomes
The year 2023 was marked by a split market. The dramatically diminished housing market affected Peab’s housing construction while public building construction, civil engineering and paving continued to develop well. This demonstrates the strength in our broad business model with its four business areas and local roots close to customers.
Regarding our financial targets, one of them is to have an operating margin that over time surpasses 6 percent. In 2023 the operating margin was 3.2 percent as a result of the deteriorated market situation.
Our second financial target, the net debt/equity ratio, was 0.6 at the end of the year, which is inside the target interval 0.3-0.7. We are intensely focused on cash flow and net debt, and reported significant improvements of these at the end of 2023.
Based on Peab’s third financial target of a dividend of at least 50 percent of profit for the year the Board has proposed the Annual General Meeting decide on a dividend of SEK 1.50 (4.00) per share for the financial year 2023. Calculated on the number of outstanding shares, this is equivalent to 30 percent of profit for the year according to segment reporting, which is lower than our financial target of 50 percent of profit for the year. This is considered a balanced dividend based on our order situation, earning capacity and financial position.
Peab’s business model with four business areas and local roots has served us well in good and hard times alike. Our four collaborating business areas, extensive Nordic local presence and our skilled employees make Peab less vulnerable in the current market situation. In the long run the conditions for growth in the segments and markets where we are active are good.
Operating margin
Target: >6% according to segment reporting
* Years 2015-2018 not translated according to changed accounting principles for own housing development projects. **Operating margin 4.5 percent exclusive the effect of the distribution of Annehem Fastigheter (SEK 952 million). *** Operating margin 2.5 percent exclusive the effect of Mall of Scandinavia (MSEK 400).
Net debt/equity ratio
0.3-0.7 according to segment reporting
* Years 2015-2018 not translated according to changed accounting principles for own housing development projects.
Dividend
Target: >50% of profit for the year according to segment reporting
* Years 2016-2018 not translated according to changed accounting principles. ** For 2019, no cash dividend has been paid. The value of the distribution of Annehem Fastigheter at the time of the distribution in December 2020 amounted to 97 percent of the profit for the year 2019. *** The proportion is calculated without the effect of SEK 952 million on profit due to the distribution of Annehem Fastigheter. **** Board of Directors’ proposal to the AGM.