Comments from the CEO

Group development

The beginning of 2024 was characterized by continued varied activity on Peab’s different markets. Civil engineering and other building construction developed well while the Nordic housing market continued to be weak. Group net sales contracted by twelve percent during the first quarter and amounted to SEK 11,141 million. Operating profit was SEK -106 million (-156). The first quarter is always clearly affected by the season, particularly in business area Industry, since the paving season does not begin until the second quarter. This means that the beginning of the year is characterized by substantial deficits which affect cash flow and net debt. The net debt/equity ratio was 0.6 (0.5) at the end of March.

The level of orders received amounted to SEK 17,889 million during the first quarter compared to SEK 11,042 in the corresponding quarter last year. This is the strongest quarter ever in the history of Peab, and despite the weak demand on the housing market. During the quarter we received some major orders in business area Civil Engineering but we were also entrusted with a wide variety of other projects. This is undeniable proof of the strength of Peab’s business model and also means we will now extend our order backlog.

Operations in Construction and Civil Engineering increasingly participate in dialogues early on with customers prior to planned projects and we are therefore experiencing a greater number of preliminary agreements, so-​called phase 1 contracts. Through the preliminary agreements Peab is contracted to arrive at, together with the customer, an optimal product with the right quality and also deal with risks and uncertainties. During the first quarter several projects went from phase 1 to phase 2 and therefore Peab received larger orders. At the same time new projects continue to flow into phase 1. Currently the potential worth of the final construction contracts from these preliminary agreements is around SEK 20 billion over the next two years (SEK 19 billion December 31, 2023).

Business area development

There is a greater element of other building construction in business area Construction. Business area Civil Engineering continues to have a high level of production and orders received. In total, the operating margin for the construction contract businesses during the quarter amounted to 1.9 percent (2.1).

In business area Industry paving has been affected by a long winter and the first quarter was filled with preparations for the coming season. During the quarter we received a number of paving orders throughout the Nordic region, particularly in Finland. Both prefab and rental operations have been affected by the weak housing market and activity in them was lower compared to the first quarter 2023.

In business area Project Development the level of sales of our own developed homes continues to be low but on the bright side we are selling them at an even pace and have noted greater interest after the start of the year, above all in Sweden. During the quarter we started up three housing projects; one in Sweden, one in Norway and one in Finland.

During the quarter we completed a strategic investment in which Peab acquired, for future development, all the shares in Sicklaön Bygg Invest AB that owns development rights in Kvarnholmen in Nacka. At the same time we divested our entire ownership in Tornet Bostadsproduktion that owns property in the management stage. The total effect on profit was SEK 220 million.

Target outcome

We are reporting the outcome for three of our nine external targets this quarter: operating margin, net debt/equity ratio and serious accidents. The operating margin was 3.3 percent on a rolling twelve month basis compared to the target of six percent, which is a reflection of the weak housing market. The net debt/equity ratio was 0.6 at the end of the quarter, which is inside the target interval 0.3-0.7.

Our target for serious accidents is a contracting trend and calculated on a rolling twelve month basis the number of serious accidents was 43 per March 31, 2024 (48 per December 31, 2023).

Sustainability

One important development in sustainability related progress during the quarter is that our ECO-Betong (ECO-Concrete) will be the standard concrete in all our Swedish construction contracts going forward. With ECO-Betong carbon emissions are reduced by at least ten percent compared to traditional concrete. We see a rapidly growing demand for our ECO-products which is very positive for Peab’s ongoing transition work towards carbon neutrality.

Market and prospects for the future

Prospects for the Nordic construction markets are on the whole the same as they were in our submarkets the previous quarter although we see a slight improvement in Norway already in 2024 where the forecast for private premises has become more positive. The housing markets are expected to continue to decline while civil engineering markets are expected to be stable.

Declining inflation and expectations of lower interest rates improve the conditions for housing production starts, although recovery will take time. We are following inflation and interest rate developments with great interest. Peab has a well-dimensioned development rights portfolio in attractive locations in the Nordic region and in anticipation of market recovery we are further developing and preparing projects for the future.

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, which the excellent level of orders received during the quarter demonstrates. We are well-equipped to handle both a continued weak housing market and meet an upswing in the market.

 

Jesper Göransson
President and CEO