Comments from the CEO
Through our four complementary and cooperating business areas Peab presents an increase in net sales and improved profit in the first quarter. The continued strong cash flow from operations during the quarter has been used to invest in the business and to further strengthen our financial position.
Market conditions
After very strong development during 2016 in building construction start-ups in Sweden construction is expected to even off on a high level in 2017, primarily as a result of capacity limitation in the market. Slightly fewer building construction start-ups are expected in Norway and Finland during 2017. Market conditions in civil engineering in Sweden and Norway are deemed good.
Order situation
The amount of orders received for the first quarter 2017 was SEK 11.1 billion (11.9). Order backlog was SEK 35.7 billion (31.6).
BUSINESS AREA DEVELOPMENT
Net sales in business area Construction increased compared to the first quarter of 2016 with a slightly higher result. The first quarter is normally seasonally weak, especially for Civil Engineering and Industry. However, net sales increased in business area Civil Engineering with an unchanged result. Net sales also increased in business area Industry but result was slightly lower. Net sales in business area Project Development increased and operating profit improved. The operating margin in Housing Development continued to improve. Capital gains from the divestiture of a joint venture company affected Property Development positively by SEK 75 million.
GROUP DEVELOPMENT
As previously communicated the transactions with Fabege regarding the sales of a number of assets in Arenastaden and Ulriksdal in Solna have been settled during the quarter. The transactions have not had any net effect on the result but are included in net sales by SEK 577 million. Operative net sales during the period were SEK 11,096 million (8,692), which was an increase by 28 percent. Operative operating profit improved to SEK 316 million (188), which entailed an operative operating margin of 2.8 percent (2.2). Cash flow continued to be strong and cash flow before financing increased to SEK 1,788 million (910), including the Arenastaden transactions of around SEK 835 million. This lowered net debt to SEK 416 million compared to SEK 1,862 million at the end of the year. The reduced net debt led to improved net interest.
OUTLOOK FOR THE FUTURE
Our business model with four complementary and cooperating business areas means we are well-equipped to take on the opportunities and challenges in the market. We have a platform with many positive factors that point in the right direction for Peab. Order backlog is in good shape with a nice mix of projects, a well-dimensioned development rights portfolio, continued positive market prospects and a financial position which is becoming successively stronger. At the same time there are a number of challenges to deal with such as capacity limitations in the form of resource shortages, primarily in big city regions, increases in costs for subcontractors and rising land prices.
We continue to work on our ambition to be the best company in the industry. We have established three target areas to achieve this:
- Most satisfied customers in the industry
- Best workplace in the industry
- Most profitable company in the industry
Jesper Göransson
CEO and President