Comments from the CEO

Group development

The beginning of 2025 was characterized by continued varied activity on Peab’s different markets while, because of the winter weather, there is seasonally less activity in the first quarter. This is particularly true for business area Industry which is marked by considerable deficits since the paving season does not begin until the second quarter. Group net sales contracted marginally during the quarter and amounted to SEK 10,925 million (11,141) and operating profit was SEK -278 million (-106). Capital gains of SEK 220 million resulting from the sales of Peab’s shares in the joint venture Tornet Bostadsproduktion were included in the first quarter last year. Net debt amounted to SEK 8.3 billion (9.1) and the net debt/equity ratio was 0.5 (0.6). During the quarter net debt has been affected by a dividend of SEK 1,100 million received from Fastighets AB Centur which was offset against an interest-bearing liability that was generated in connection with the acquisition of property from Fastighets AB Centur during the fourth quarter 2024.

The level of orders received continued to be high during the quarter and amounted to SEK 16.6 billion (17.9). The level of orders received rose in business areas Construction, Industry and Project Development while it fell in business area Civil Engineering which had a very high level in the comparable period. Business area Construction continued to have a high portion of projects from the public sector with a great deal of variation and geographical spread. The level of orders in business area Industry was good in paving. In Project Development we production-started more tenant-owner/condominium projects than in the corresponding quarter last year. The high level of orders received means our order backlog at the end of the quarter amounted to nearly SEK 52 billion.

So-​called phase 1 contracts which are preliminary agreements in business areas Construction and Civil Engineering that can lead to construction contracts have generated a potential value of final construction contracts of around SEK 16 billion over the next two years (SEK 13 billion per December 31, 2024). Most of the new contracts from the quarter are in business area Construction.

Business area development

Net sales contracted in business area Construction due to lower activity in new production of homes which other kinds of projects have not been able to fully compensate for. At the same time the operating margin improved in the first quarter to 2.1 percent (1.7). Activity continued to be high in business area Civil Engineering and the operating margin improved to 3.1 percent (2.2). In total, the operating margin for the construction contract businesses was 2.5 percent (1.9).

Net sales and profit contracted in business area Industry due to less activity in product areas construction system and rentals that are also affected by the weak housing market. For paving, where the first quarter entails preparing for the coming season, operating profit was on par with the first quarter 2024. Some of the Norwegian paving and mineral aggregates operations are undergoing review due to a period of low earnings.

Net sales in business area Project Development decreased, attributable to Housing Development. Operating profit amounted to SEK 83 million (246) where capital gains from the sales of property and shares in joint ventures in Property Development contributed by SEK 47 million. The level of sales in our own developed homes continued to be low but we have sold them at an even pace. Production started on a total of 523 (137) own developed homes during the quarter. Of these, 336 (137) were tenant-​owner apartments/condominiums, of which 40 were converted from homes on our own balance sheet. Two of the housing projects are located in Stockholm, one on Kvarnholmen in Nacka and one in Råsunda in Solna. This demonstrates that it is possible to start tenant-​owner housing projects in unique locations. The trend that sales opportunities increase as the project approaches completion continues and for this reason we are further developing the strategy of starting projects on our own balance sheet to then convert them into tenant-owner apartments.

 

 

This entails more tied-​up capital and deferred effects on profits compared with our traditional method of advance sales before production starts of our own development projects. One project we started on our own balance sheet during the quarter is in Partille Port, an area we have developed for several years and where we are now producing a further 116 homes. The intention is to convert these to tenant-owner apartments later on.

Target outcome

After the first quarter 2025 we are reporting the outcome for three of our nine external targets: operating margin, net debt/equity ratio and serious accidents. The operating margin was 4.4 percent calculated on a rolling twelve month basis compared to 4.7 percent for the full year 2024. The target is six percent. The net debt/equity ratio was 0.5 (0.6) at the end of the month of March, which is inside the target interval 0.3-0.7.

Happily the clearly contracting trend in serious accidents has continued. Calculated on a rolling 12-month basis per March 31, 2025, these amounted to 28 (33 per December 31, 2024). We will continue to work with unabated intensity to keep the contracting trend going.

Market and prospects for the future

The geopolitical unpredictability contributes to a more cautious market and investment uncertainty. At the same time in some aspects Peab’s business can benefit from the volatile world around us such as increase in funding for security and defense related projects.

Prospects for the Nordic construction markets are on the whole the same as they were in the previous quarter. The housing markets are expected to improve during 2025 as lower interest rates take effect, possibly at a slower pace than previously expected. Premise construction development points to a continued positive market, although somewhat more diversified between segments. Forecasts for the civil engineering market in 2025 show good growth there.

Peab’s four business areas complement each other well and enable us to take advantage of the demand in our various product segments and the geographic markets. This is an advantage in any economy.

 

Jesper Göransson
President and CEO