Comments from the CEO

With a record high order backlog Peab presents an increase in net sales and stable profit in the first quarter. The level of orders received continues to develop positively and business area Construction has attained a greater proportion of public buildings. 

Market conditions

The housing market in Sweden is expected to slow in 2018 while private and public premise construction is expected to rise. The construction market in Norway can be affected by a decline in housing construction while other building construction is expected to rise. The construction market in Finland is affected by the growth in the economy and all segments are expected to have a good growth rate in 2018. Market prospects for the civil engineering market in Sweden and Norway continue to be good.

Order situation

The level of orders received in the first quarter 2018 was SEK 12.9 billion (12.4). The orders received are well spread geographically and there is good product diversity. Some examples of larger projects are the renovation and extension of the town hall in Uppsala, a new stretch of E22 in Skåne and the Senior Housing in Alta in Northern Norway. Order backlog amounted to SEK 43.1 billion (38.1).

Business area development

The first quarter is traditionally the weakest of the season, primarily in Civil Engineering and Industry. Net sales in business areas Construction and Civil Engineering increased, however, compared to the first quarter 2017 with unchanged profit levels. Business area Industry showed slightly lower net sales and profit, the stringent winter having affected both net sales and operating profit, mainly in Asphalt and Gravel and Rock. Net sales in business area Project Development was unchanged and operating profit was lower. Net sales in Housing Development increased while the operating margin contracted in the first quarter. A broader geographic spread in ongoing housing projects led to a lower operating margin. Property Development continues to develop well and we see improved profit in our joint venture companies. The comparable figures for Property Development included capital gains from the sales of joint venture companies of SEK 75 million while no property divestitures of significance have occurred in the first quarter 2018.

As of this quarterly report we will present completed and ongoing property projects under business area Project Development. In cases where no divestiture is planned properties can remain in the Group for a considerable length of time in order to garner rent and appreciation revenue. During the first quarter Peab made the decision to gather all the offices in the Öresund region into the new Peab Center in Hyllie in Malmö, and invest around SEK 200 million in the new office building, the first of five planned in the project The Gate.

Group development

Net sales for the period amounted to SEK 11,490 million (11,105), which was an increase of three percent. Operating profit was SEK 290 million (320) which meant an operating margin of 2.5 percent (2.9). Cash flow before financing was SEK -390 million (1,788). Transactions in Arenastaden were included in the comparable figures by around SEK 835 million. Net debt was SEK 1,709 million compared to SEK 1,216 million at the end of the year.

Outlook for the future

The outlook for Peab is positive with a solid order backlog, a good project mix, a well-dimensioned development rights portfolio and a strong financial position. In some partial markets an excess supply of homes in a higher price range has occurred which, together with tougher financing terms for homes, leads to longer sales processes. Peab develops and builds homes throughout Sweden as well as large parts of Norway and Finland. Peab mainly builds homes in the middle-priced segment and we see that there is still a big need for new housing in this range. During the first quarter we experienced a low level of sales in Stockholm while we had a more normal activity in many areas of Sweden, Norway and Finland.

There is still a strong need for extensive construction in Peab’s markets, not only in housing but in all other building construction and civil engineering in Sweden, Norway and Finland. We have a unique position through our four complementary business areas and all our employees who are welded together by a strong company culture. Our business model creates opportunities throughout the entire value chain in a construction project and provides us with a good platform to deliver comprehensive solutions to our customers. From this foundation we will continue to strive towards our strategic goals to have the most satisfied customers, be the best workplace and the most profitable company in the industry.

 

Jesper Göransson
CEO and President