Comments from the CEO
Peab’s positive development has continued into the third quarter. Profit rose in every business area in the period but the improvement was particularly notable in Industry and Project Development. The continued high level of orders together with a strong financial position create stable conditions for the future.
Market conditions
The Swedish construction market is expected to even off on a high level in 2017, driven by strong domestic demand and favorable conditions for the Swedish export industry. Housing construction is expected to remain strong throughout the year despite signs of slowing down in some markets. In 2018 housing construction is expected to taper off as interest rates rise and some austerity measures may be introduced. Development in the construction market in Norway is expected to be stable in 2017 with positive forecasts for the coming years. Growth is also expected to continue in Finland in 2017 and 2018, fueled by rising housing construction. Market conditions in civil engineering in Sweden and Norway are expected to continue well.
Order situation
The level of orders received continues to be high in the third quarter which led to SEK 33.2 billion (31.1) in orders received for the first nine months. The level of orders received has grown in every business area. Volumes in our own developed housing projects remain on a high level and are well spread geographically in Sweden, Norway as well as Finland. Order backlog amounted to SEK 38.4 billion (34.2).
Business area development
Net sales in business area Construction increased in January-September compared to the same period last year with higher operating profit. Net sales in business area Civil Engineering increased with an unchanged operating profit. Business area Industry showed an increase in net sales and a better operating profit and the same was true for business area Project Development. The operating margin in Housing Development continued to improve and both production starts and sales were higher than in the same period last year.
Group development
Operative net sales during the nine month period were SEK 35,473 million (32,694), which was an increase by nine percent. Operative operating profit improved to SEK 1,651 million (1,434) and the operative operating margin improved to 4.7 percent (4.4). Profitability in Construction and Civil Engineering is on a stable level. This is a result of our decision to choose projects with a lower risk profile, greater diversification and focus on profitability over volume. Then there is the added value the contract projects generate in other sections of the Group. Cash flow before financing amounted to SEK 787 million (627). Net debt was SEK 2,347 million (3,624).
Outlook for the future
The outlook is positive for Peab with a solid order backlog, a good project mix, a well-dimensioned development rights portfolio, continued positive market prospects and a strong financial position. At the same time there are a number of challenges to deal with such as capacity limitations in the form of resource shortages, primarily in big city regions, increases in costs for subcontractors and rising land prices.
Peab develops and builds homes throughout Sweden as well as in Norway and Finland. There is a big demand for new housing in most parts of the countries. In some areas there is a large supply of newly produced, more expensive homes that currently take longer to sell than previously. This is primarily in some parts of the Stockholm region. However, the sales rate for our apartments in Stockholm’s suburbs with a more normal price range is still good.
There is still a strong need for extensive construction in Peab’s markets, not only in housing but in all other building construction and civil engineering in Sweden, Norway and Finland.
Our four complementary and cooperating business areas create opportunities throughout the entire value chain in a construction project. This provides us with a unique capacity to deliver comprehensive solutions to our customers. Thanks to this business model in combination with our skilled employees and strong financial position I feel confident about Peab’s future.
We continue to work on our ambition to be the best company in the industry. We have established three target areas to achieve this:
- Most satisfied customers in the industry
- Best workplace in the industry
- Most profitable company in the industry
Jesper Göransson
CEO and President