Comments from the CEO

Group development

The first half of 2024 was characterized by continued varied activity on Peab’s different markets. Civil engineering, paving and other building construction developed well while the Nordic housing market continued to be weak. Group net sales contracted by seven percent during the first half-year and amounted to SEK 26,373 million. Operating profit was SEK 513 million (934) and the operating margin was 1.9 percent (3.3). The comparable period included SEK 400 million resulting from a judgement in the Mall of Scandinavia arbitration. The net debt/equity ratio improved to 0.6 (0.8) at the end of June.

The level of orders received amounted to SEK 34,323 million (23,547) during the first half-year. This is the second quarter in row with a high level of orders received, despite the weak demand on the housing market. During the quarter we received several major orders in business area Civil Engineering, among them construction of New Bodø Airport worth NOK 3.3 billion. We were also entrusted with other civil engineering projects such as expanding E20 between Götene and Mariestad as well as construction of roads and railroads in Boden. This means we extend our order backlog which amounted to a record high SEK 50,578 billion (43,638). Another civil engineering project worth mentioning is the section of E6 at Stenungsund hit by a landslide. Reparation of this stretch of road was completed and the highway opened for traffic much earlier than scheduled, a fact I’m very proud of.

As previously stated 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 second quarter of the year several projects went from phase 1 to phase 2, which means that they shifted into production and Peab has thereby received orders for that. The project in Bodø is one such example. At the same time new projects continue to flow into phase 1 but some also fall away. Currently the potential worth of the final construction contracts from these preliminary agreements is around SEK 15 billion over the next two years (SEK 19 billion December 31, 2023).

Business area development

Net sales have contracted in business area Construction due to the weak housing market but to a certain extent the continued good demand in other building construction has compensated for this, primarily from the public sector. The operating margin has been stable during the period and amounted to 1.8 percent (2.0). The robust level of orders received in business area Civil Engineering generates a high level of production and the operating margin has improved during the period to 3.1 percent (2.9). In total, the operating margin for the construction contract businesses during the first half-year amounted to 2.3 percent (2.3).

The paving season is now in full force in business area Industry. Paving operations are developing well with a significant number of contracts throughout the Nordic region, particularly in Finland. Operations in prefab construction elements and rental operations have been affected by the weak housing market and activity in them was lower compared to the first half-year 2023. The operating margin for the business area increased and amounted to 7.4 percent (6.2) in the quarter.

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 among buyers, above all in Sweden’s major cities. Demand for newly produced homes that will not be ready for occupation for quite some time continues to be low and no new housing projects were started during the second quarter (185). In order for demand to recover interest rates have to come down and prices on the secondhand market go up.

Target outcome

We are reporting the outcome for four of our nine external targets this quarter: operating margin, net debt/equity ratio, attractive employer (eNPS) and serious accidents.

The operating margin was 2.5 percent on a rolling twelve month basis, compared to the target of six percent, and has been impacted by 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.

In the spring survey the eNPS score increased by a point to 27 from the latest survey which was in the autumn of 2023. This is well over the Nordic benchmark in the segment industry and manufacturing. We are particularly pleased to note that participation was 90 percent. This shows how very engaged our employees are.

Our target for serious accidents is a contracting trend and calculated on a rolling twelve month basis the number of serious accidents was 44 per June 30, 2024 (48 per December 31, 2023). We can never accept workplace accidents and therefore continue our work for safe workplaces with unabated intensity.

Sustainability

An important step forward in our sustainability work is that Peab became the first civil engineering company to use piles produced with SSAB Zero, a material based on recycled scrap steel and produced with fossil free electricity and biogas. This reduces carbon emissions by around 80 percent compared to piles with traditionally produced steel. The piles are part of a new dock Peab is building at the Port of Skellefteå that will contribute to developing the port by enabling it to handle more and larger transportation.

At the end of the quarter we successfully issued green bonds for a total of SEK 1,500 million where SEK 900 million mature in three years and SEK 600 million mature in 4.5 years. The funds will finance green investments that contribute to Peab’s efforts to achieve our climate goals.

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. The civil engineering markets are expected to remain stable on a high level. The housing markets are expected to continue to be weak until the effect of lower interest rates is felt. 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.

Looking back on the first half of 2024 it’s apparent once again that Peab’s four business areas and local roots close to customers serve us well. We can see how this business model creates stability in our operations, which is particularly evident in the excellent level of orders received in the first half-year. In other words, we are well-equipped to face any market situation.

 

Jesper Göransson
President and CEO