Comments from the CEO

Peab reports continued growth in net sales and improved profit after the first half-year 2022. We continue to handle increases in costs well, although we have seen some impact on the operating margin. Despite the shaky situation in the world around us our level of orders is high.

Group development

Group net sales increased by eleven percent during the first half-year 2022 and amounted to SEK 29,402 million (26,385). Part of the increase was due to higher material and energy costs which have affected prices to customers. Operating profit for the first half-year was SEK 895 million (751) and the operating margin was 3.0 percent (2.8). We have noted some impact from the higher costs on the operating margin during the second quarter. Cash flow before financing amounted to SEK -1,863 million (-205) and the decrease refers to more tied-up working capital and investments.

Business area development

Net sales in business area Construction increased by twelve percent during the first half-year, primarily related to Swedish and Norwegian operations. Housing and public construction contributed to the increase. The operating margin contracted to 2.3 percent (2.6). Net sales in business area Civil Engineering grew by two percent and the operating margin was unchanged at 2.9 percent (2.9). The combined operating margin for both construction contract businesses for the first half-year added up to 2.5 percent (2.7).

Net sales in business area Industry, where paving operations are now in full swing, increased by 16 percent for the first half-year. The operating margin was -0.6 percent (-0.8). Higher prices for bitumen in Paving and for input goods in other product areas have in general been regulated in pricing to customers but nonetheless had a negative effect on the operating margin. Operations in business area Industry are highly seasonal where the first quarter is characterized by substantial deficits since the season begins in the second quarter.

In Project Development net sales increased by 22 percent attributable to Housing Development where a higher number of ongoing housing developments benefits net sales. The operating margin in Housing Development was 11.2 percent (11.9). In Property Development our partially owned companies continued to provide higher profit contributions.

Start-ups of our own housing developments were somewhat fewer compared to the corresponding quarter last year, in part due to a more guarded market. The high sales rate of 75 percent (76) in ongoing projects meant fewer available objects for sale, which is the primary reason for the somewhat lower sales in the quarter.

Order situation

The level of orders received continued to be high even in the second quarter, increasing to SEK 14.3 billion (13.1), and is well spread geographically and in product area. Order backlog yet to be produced at the end of the period increased and was SEK 49.9 billion (46.7). Of the total order backlog 57 percent (54) will be produced after 2022 (2021).

“We continue to handle increases in costs well, although we have seen some impact on the operating margin”

Four targets updated

In this quarter we present the outcome for four of our nine external targets: serious accidents, recommend Peab as an employer, operating margin and net debt/equity ratio.

The trend in serious accidents has unfortunately continued upward in the second quarter and there were 48 per a rolling twelve month period (28 at the end of the year). We have further intensified our preventive work on the work environment to turn the tide and continue the work on our safety culture.

 

The score for eNPS (recommend Peab) in the spring survey rose to 28 (24), which is clearly over the Nordic industry benchmark of 20.

Our target is to over time have an operating margin that surpasses 6 percent and in the latest rolling 12 month period the operating margin was 5.1 percent. The net debt/equity ratio was 0.5, which is in the middle of the target interval 0.3-0.7.

Market and prospects for the future

Uncertainty in the world around us continues and developments are marked by higher prices for energy and input goods essential to Peab. Long-term interest rates have risen and The Riksbank, Sweden’s central bank, raised the policy interest rate twice during the quarter, most recently in June by 50 points.

Our market assessments are based on Navet’s Nordic market forecasts that show Nordic market prospects in construction and civil engineering are in general unchanged for 2022. In Sweden housing investments have been adjusted down while investments in civil engineering have been adjusted up.

Peab continues to handle both the rise in prices and material shortages well, although the operating margin has been slightly diluted. We continually adjust and streamline our operations to curb rising construction costs. We deal with delivery problems and prices hikes within existing contracts and in new bids we tender systematically, based on operational and contractual circumstances in order to handle each unique project and situation. This requires a close dialogue with our subcontractors, suppliers and customers. However, towards the end of the second quarter we saw the rate of cost increases slow.

Regarding Cementa’s permit process for Slite we are following developments closely. We continue to work on our own binder alternatives and securing the supply of cement by importing it ourselves. The continued uncertainty about long-term access to cement in Sweden can, however, create a bumpy market.

We continue to handle the current market situation well and we receive all kinds of new projects all over the Nordic area. Our solid business model with four collaborating business areas – and thereby our broad offer – makes us less vulnerable. Naturally our engaged employees and their extensive expertise is vital to our strength. We are well-equipped for the current times and the future.

 

Jesper Göransson
President and CEO