Comments from the CEO

The first quarter 2020 must be considered unique. We entered the year with stable market prospects but when we closed the books the picture was dramatically different. The underlying profit from our business areas was stable in the quarter and Peab’s good financial position, high level of orders and a tried and true business model is the solid platform we stand on to face growing uncertainty.

Group development

Net sales in the first quarter amounted to SEK 11,638 million (11,663). Operating profit was SEK 211 million (266), which entailed an operating margin of 1.8 percent (2.3). Cash flow before financing was strong and amounted to SEK 1,597 million (1,256). Net debt decreased to SEK 4,186 million compared to 5,323 at year-end.

Business area development

The first quarter is seasonally weak, primarily in Civil Engineering and Industry. Net sales and operating profit in business area Construction contracted slightly compared to the first quarter 2019. Net sales in business area Civil Engineering also contracted slightly, primarily in Operations and maintenance but at the same time operating profit increased. Net sales in business area Industry were more or less unchanged compared to the corresponding quarter last year and operating profit was slightly lower. Acquisition costs connected to the deal with YIT continued to be a charge in the first quarter by SEK 10 million. Project Development reported lower net sales and operating profit. In Property Development operating profit was down by around SEK 20 million as a result of lower profit in operations connected to air travel and tourism due to the coronavirus pandemic. Profit in Housing Development increased. Housing sales were very strong until the end of March when we experienced an abrupt decline. We have had higher costs in Group functions for, among other things, consultants connected to development of our new digital system.

Order situation

The level of orders received in the first quarter 2020 increased and amounted to SEK 12,608 million compared to SEK 11,868 million in the corresponding period last year. The level of orders rose in business areas Construction, Civil Engineering and Project Development in the first quarter. Business area Industry reported a lower level of orders. Orders received in the first quarter 2020 are well spread in both place and product. Order backlog at the end of the period amounted to SEK 44,151 million compared to SEK 47,532 million in the corresponding period 2019.

Market and outlook for the future

The development of the coronavirus into a pandemic sent shock waves through financial markets and rapidly closed down large sections of the global economy, resulting in a high degree of uncertainty about future developments.

The construction business is characterized by long lead times between orders received and completed projects. Up to this point in time the coronavirus has had relatively little effect on Peab and most of production has continued without disruptions, in part due to a large proportion of internal deliveries but also to a high degree thanks to our competent personnel focused on solving problems. Long-term effects are, however, difficult to assess.

The market forecasts that have been updated in conjuncture with publishing this quarterly report indicate a downturn in building construction investments, primarily regarding housing and commercial premises. However, public premises are expected to be more stable and civil engineering investments are expected to increase in 2020.

Looking ahead we are convinced that demand for Peab’s products will be good on all our markets. This is also underpinned by continued low interest rates. In addition, the construction industry can play a big role in kick-starting the economies in the countries where we have operations to lessen the effects of the corona pandemic.

 

 

We continue to develop Peab

The Board decided to postpone the decision about both the ordinary dividend and the distribution of the shares in the real estate company Annehem Fastigheter. The Board intends to regularly evaluate the dividend capacity and it is both the Board’s and executive management’s opinion that the distribution and listing of Annehem Fastigheter is, as soon as market conditions allow, best for shareholders in Peab. This is why the work to build the company, appoint management and a board and adopt a business concept and strategies has continued undeterred in order to be ready for distribution when the time is right. The creation of Annehem Fastigheter means that our larger ongoing projects in Property Development are intended for sales to Annehem Fastigheter and will thereby be included in the planned extra distribution.

In the beginning of April we had the pleasure of welcoming 1,700 new employees to Peab when we took over the paving and mineral aggregates operations we acquired from YIT. Through the acquisition we continue to develop Peab as the local company with the big group resources. Through our four business areas that collaborate locally, a large portion of our own input goods and our own employees, we have good control over the construction process and this make us less vulnerable in troubled times.

During the second quarter we will implement the coordination of support functions in our operations in order to achieve lower overhead, higher efficiency and greater flexibility. We are also building up structures to be able to furlough and train our employees. These measures will generate higher costs this year. At the same time we enhance our ability to handle different scenarios regarding current market developments and strengthen our long range competitiveness.

Peab is a major employer with many employees and many people at our workplaces. As a big employer we care about our employees but naturally we also care about our customers, subcontractors, suppliers and other partners. For Peab it is important from a societal perspective that we do everything we can to maintain calm, thwart the spread of the coronavirus and keep our operations going.

Peab has a strong financial position and the deferred dividend decisions provide us with even more power and preparedness. We have a tried and true business model and a very competent organization. In other words, we are well-equipped for the future.

 

Jesper Göransson
CEO and President