Comments from the CEO
Peab’s net sales have grown and operating profit has improved during the first half-year of 2019. Demand continues to be good but conditions vary depending on location and product.
Net sales amounted to SEK 25,695 million (24,943) during the period. Operating profit was SEK 1,086 million (967) which meant an operating margin of 4.2 percent (3.9). Cash flow before financing was SEK -762 million (-1,094). Net debt was SEK 7,241 million compared to SEK 3,551 million at year-end. Excluding IFRS 16 leases, net debt was SEK 6,414 million. The second quarter was charged with the payment of SEK 1,239 million in dividends. More construction on properties on our own balance sheet entails eliminating a higher level of profit than in previous year and affected cash flow and net debt as well. The purpose of these investments is to garner rent or appreciation revenue, or a combination of both. The property divestiture in the partially owned company Acturum during the second quarter is a good example of the added value this kind of investment generates.
BUSINESS AREA DEVELOPMENT
Net sales in business area Construction rose as did the operating margin. Net sales in business area Civil Engineering was unchanged with slightly lower profit. Business area Industry showed higher net sales but had a slightly lower operating margin during the first half-year, still feeling the seasonal effects of greater activity in Asphalt. In addition, Rentals sustained higher costs from the establishment of complementary units aimed at increasing local presence that do not yet generate maximum income. Business area Project Development reported lower net sales but improved operating profit. Net sales in Housing Development were lower but the operating margin improved. In the second quarter there has been a normal level of production starts and a high rate of sales. Sold units in ongoing production was 65 percent compared to 63 percent at the start of 2019. The property divestitures in the partially owned company Acturum had a positive effect of SEK 170 million on operating profit in Property Development .
The level of orders received for the period was SEK 22,685 million (29,163). Orders received in the second quarter 2018 included the office project Platinum in Gothenburg worth SEK 2,100 million and the extension of the railroad system in Olskroken worth SEK 2,900 million. With a correction for these projects the level of orders received continues to be stable. Both business areas Construction and Civil Engineering showed a lower level of orders received compared to 2018. The level of orders received was higher in business area Industry which stemmed for the most part from Asphalt. The level in business area Project Development was relatively unchanged. Order backlog at the end of the period amounted to SEK 45,873 million compared to SEK 47,453 million at the end of the corresponding period last year.
MARKET AND OUTLOOK FOR THE FUTURE
Housing construction and other building construction in Sweden are expected to decrease in 2019. A stable demand for housing and a higher level of other building construction is expected in Norway in 2019. In Finland housing construction is expected to decrease and other building construction is expected to increase in 2019. The market conditions in the civil engineering market in Sweden and Norway are deemed good and growth is forecasted for the next two years.
The stable economy in the Nordic countries, low interest rates and a significant underlying need provide a good foundation for the construction market in the foreseeable future. We have a strong order backlog in 2019 and with the wide range of our business we can handle a downturn in some product areas with an upturn in others.
Peab has 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. Peab’s business model is founded on our four cooperating business areas and local presence.
On July 4th we signed an agreement with YIT to acquire their paving and mineral aggregates business. The acquisition means that Peab will develop and strengthen business area Industry in Sweden, Norway and Finland and establish the company in Denmark. The acquisition also means our offer will be more complete on our markets outside of Sweden and we can further build on our business model. The acquired business had net sales of around SEK 6 billion in 2018 and some 1,700 employees. The deal requires approval from competition authorities and we expect to implement the takeover on January 1, 2020.
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.
Peab started in 1959 which means Peab is 60 years old this year. Guided by our core values we continue our journey of contributing to positive community development on the markets where we are active.
CEO and President