Comments from the CEO

Margin improvements in construction contract operations and housing development continued in the second quarter along with a stable level of orders received. The market outlook remains good which Peab’s increasingly diversified business regarding countries, products and customers is taking advantage of. 

Group development

Group net sales were SEK 26,385 million (27,156) during the first half-year 2021, which is three percent lower compared to the same period last year. Operating profit for the first half-year 2021 was SEK 751 million (872). The comparable period did not include the loss of around SEK -300 million for the first quarter from the acquisition of paving and mineral aggregates operations in business area Industry. The operating margin was SEK 2.8 percent (3.2). Cash flow before financing was SEK -205 million (-667).

Business area development

Net sales contracted by seven percent in business area Construction during the first half-year primarily related to Sweden and Finland and it is explained by a lag between orders received and production. The operating margin improved to 2.6 percent (2.4) and the growth in earnings is attributable to both Sweden and Finland. Net sales increased in business area Civil Engineering by ten percent driven by Local market and Operation and maintenance. The operating margin improved to 2.9 percent (2.7). The combined operating margin for both construction contract businesses improved to 2.7 percent (2.5) for the first half-year 2021.

Net sales in business area Industry were slightly lower than the first half-year 2020 and adjusted for acquired units net sales decreased by four percent. Net sales increased in Mineral aggregates and Concrete while they contracted in Rentals and Transportation and Machines. The operating margin was -0.8 percent (3.1). In the comparable period the result from the first quarter from the acquired operations of paving and mineral aggregates in business area Industry was not included. The acquired operations have a distinct seasonal pattern creating substantial deficits in the first quarter since the paving season does not begin until the second quarter. This year the season started up even later due to the cold winter, which also had some negative effect on profit during the second quarter.

Net sales in Project Development contracted by eight percent dropping in both Housing Development and Property Development. The operating margin increased in Housing Development to 11.9 (8.2) percent with a higher margin in all three operational countries. The operating margin was higher in Property Development as a result of capital gains from property sales and the fact that operating profit in the first half-year 2020 was negatively affected by effects connected to the Ängelholm-​Helsingborg Airport.

Start-ups of our own housing developments were 1,447 (1,021), of which 262 were converted from rental apartments. The production start-ups are well spread geographically and sales have been good in all three countries. Production of 388 homes (139) in rental apartment projects started up on our own balance sheet during the first half-year. A substantial proportion has been sold to investors and will be recognized in revenue when they are turned over.

“Margin improvements in construction contract operations and housing development continued in the second quarter along with a stable level of orders received.”

Order situation

The level of orders received continues to be strong and on par with last year. It amounted to SEK 13,094 million (13,220) during the second quarter 2021 and orders are well spread in both product segment and geographically.

Order backlog yet to be produced at the end of June 2021 was SEK 46,684 million (46,123). Of the total order backlog 54 (56) percent is expected to be produced after 2021 (2020).

Market and outlook for the future

The outlook for our markets remains stable and forecasts for started-up housing investments have improved in Sweden and Finland. Housing construction in these countries and in Norway is expected to develop sideways in 2021. Other building construction is expected to grow in Sweden and Norway and develop horizontally in Finland during 2021. Investments are expected to continue to grow in civil engineering in 2021 in Sweden and Norway but contract in Finland.

Even if we hopefully are approaching the end of the ongoing corona pandemic it still continues to permeate our daily lives and we have experienced some effects of material shortages. During the year prices for certain building materials have gone up but so far the financial consequences for Peab have been limited. Naturally we monitor developments closely and will handle the situation as it develops. We continually work to streamline our production but if the trend concerning material prices continues without stop construction costs will progressively rise.

Non-financial targets

This quarter we are reporting the eNPS (recommend Peab) value included in the Best workplace target. The value remains clearly above the Nordic benchmark for our industry, which is 10, and since the last personnel survey it has actually gone up a point from 18 to 19. Above all we see a positive development in skilled workers in Sweden as well as skilled and white-​collar workers in Norway and Finland.

In addition, the trend for serious accidents is heading in the right direction after the second quarter but has been overshadowed by the fact that an employee of one of our subcontractors had a fatal accident in our operational area E6 in Kungälv. Every accident is a failure, and every accident with this outcome is not only a huge loss for families, loved ones and colleagues but for society at large. This is why we will never stop working for safe workplaces.

Strategic investments

Our investment in business area Project Development is progressing and in today’s strong market we are investing even more in our own rental apartment developments. Together with SkiStar we have further developed operations in the jointly owned company Skiab Invest which develops, owns and manages commercial property and housing in Swedish and Norwegian mountain areas.

In business area Industry we strengthened our offer and our local presence in central Norway through the acquisition of Frøseth AS in Trøndelag. This provides us with a long-term supply of mineral aggregates in the region and broadens our range in recycling. The acquisition was finalized on July 1, 2021.

Another landmark in business area Industry was achieved in our asphalt operations. During the quarter we launched ECO-Asfalt, which is produced in a way that reduces climate impact and saves natural resources, into our operations in Denmark and Norway.

We continue to work on our locally produced community building. Our order backlog is good and we have a strong financial position. Looking beyond COVID-19 and  normalization of daily life, the future looks promising for Peab.

 

Jesper Göransson
President and CEO