Comments from the CEO

Peab continued to develop positively during the third quarter and all the business areas except Project Development presented an improved operating profit. Market conditions remain good and we see an increase in orders received primarily in civil engineering and other building construction, which compensates for lower volumes in our own home development projects.

Market conditions

The housing market in Sweden is slowing down in 2018 and is expected to continue to decline in 2019. The demand for new and refurbished private and public premises is high which will most likely continue in 2019. Conditions on the Norwegian construction market are similar with an expected reduction in housing construction in 2018 and even more tangible growth in other building construction. Housing construction is expected to remain on the same level in 2019 while other building construction declines. The construction market in Finland is affected positively by the growth in the economy and all segments are expected to have a good growth rate in 2018 and 2019. Market prospects for the civil engineering market in Sweden and Norway continue to be good, primarily due to government infrastructure projects.

Order situation

The continued high level of orders received in the third quarter entailed an increase for the nine month period to SEK 40.6 billion (36.0). The rise in orders received was generated in business areas Construction and Civil Engineering. There is an increase in civil engineering projects among the orders received for the quarter, and in Construction other building construction continues to compensate for lower volumes in our own home development projects. Examples of larger projects are the construction of the new IKEA store in Kållered, the renovation and extension of the Members of Parliament building for Riksdagsförvaltningen in Stockholm as well as construction of the wind farms in Åsele and Lycksele. Order backlog was SEK 48 billion (40.2). The orders are well spread geographically and there is good product diversity.

Business areas development

Net sales and operating profit increased in business areas Construction, Civil Engineering and Industry for January-September compared to the same period in 2017. Net sales and operating profit in business area Project Development were slightly less. Net sales in Housing Development increased while the operating profit for the nine month period contracted slightly. In Property Development both our wholly owned holdings and our joint venture companies continues to develop well.

Group development

Net sales for the period January-September amounted to SEK 37,388 million (35,491), which was an increase of five percent. Operating profit was SEK 1,710 million (1,665) which meant an operating margin of 4.6 percent (4.7). Cash flow before financing was SEK -1,970 million (787), where the comparable figures included asset divestitures in Arenastaden of around SEK 835 million. Net debt was SEK 4,441 million (2,347). Cash flow and net debt have been affected by an increase in tied up working capital. The slowdown in the housing market, primarily in Stockholm, has entailed longer sales processes which has led to more working capital being tied up. The increase in volume in our own home development projects in Norway and Finland also ties up working capital.

Outlook for the future

The market situation continues to be good with a stable demand in Sweden, Norway and Finland. Thanks to the wide range of our business we can handle a downturn in some product areas with an upturn in others. The slowdown on the tenant-owned housing market has affected the third quarter as well through less activity, particularly in Stockholm.

We have 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. From this foundation 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.

 

Jesper Göransson
CEO and President