Comments from the CEO

Peab’s net sales have grown and operating profit has improved during the first three quarters of 2019. We continue to work on our strategic focal points through investments in operations. We are successively increasing our holdings in development projects and completed properties in Project Development. In Industry we are preparing for the takeover of YIT’s operations in mineral aggregates and paving, which is expected to be implemented at the beginning of 2020.

GROUP DEVELOPMENT

Net sales amounted to SEK 38,696 million (37,388) during the period. Operating profit was SEK 1,813 million (1,710) which meant an operating margin of 4.7 percent (4.6). Cash flow before financing was SEK -1,103 million (-1,970). Net debt was SEK 7,942 million compared to SEK 3,551 million at year-end. Excluding IFRS 16 leases, net debt was SEK 7,169 million. More construction on property on our own balance sheet and via joint ventures entails an increase in eliminations of internal profit and affects cash flow and net debt as well. These properties can remain in the Group for a longer period of time to garner rent or appreciation revenue, or a combination of both. Some of the larger properties that are part of ongoing projects are an office building in Helsinki which was completed in the first quarter and office buildings in Solna and Malmö that will be completed during the fourth quarter this year respectively the first quarter 2020. We are underpinning our strategic investments with a high equity/assets ratio amounting to 29.6 percent, well over our goal of 25 percent.

BUSINESS AREA DEVELOPMENT

Net sales in business area Construction rose as did the operating margin. Net sales in business area Civil Engineering was unchanged with lower profit. Business area Industry showed higher net sales while the operating profit was unchanged. Acquisition costs concerning the mineral aggregates and paving operations in YIT charged the business area during the third quarter with SEK 40 million. Project Development reported lower net sales but operating profit improved. Net sales in Housing Development were slightly lower but operating profit and the operating margin improved. The property divestitures in the partially owned company Acturum had a positive effect of SEK 170 million on operating profit in Property Development in the second quarter.

ORDER SITUATION

The level of orders received for the period was SEK 32,034 million (40,636). Orders received in the comparable period included the office project Platinan in Gothenburg worth SEK 2,100 million and the extension of the railroad system Olskroken in Gothenburg worth SEK 2,900 million, both with long production times. Considering the high level of orders at the end of 2018 that contained several major projects, orders received during the period have been more along the lines of mid-sized or smaller projects. The level of orders received was higher in business area Industry which stemmed for the most part from Asphalt. The level of orders in business area Project Development was relatively unchanged. Order backlog at the end of the period amounted to SEK 43,821 million compared to SEK 48,036 million at the end of the corresponding period last year. Order backlog for this and the coming fiscal years is on the same level as in previous year at the corresponding point in time.

MARKET AND OUTLOOK FOR THE FUTURE

The total market is expected to remain on the same level in 2020 as in 2019 but with different conditions depending on the place and product.

The signs of a downturn in the economy have emerged more clearly in the third quarter in Sweden. Forecasts indicate that housing construction will decrease this year and next. Private premises are also expected to be affected negatively. This can be countered to a certain extent by greater public investments in premises. In Finland housing construction is expected to remain unchanged in 2019 and then decline in 2020. This will be countered to a certain degree by other building construction which is expected to grow during the corresponding period. The Norwegian economy is strong and supports a stable demand in the coming years. The market conditions in the civil engineering market in Sweden and Norway are considered good and growth is forecast for this and next year.

Low interest rates and a significant underlying need provide a good platform for the construction market over time.

 

Peab has a unique position through our four complementary business areas and all our employees who are firmly 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. Peab’s business model is founded on our four collaborating business areas and local presence.

On July 4th Peab announced that we had signed an agreement with YIT to acquire their paving and mineral aggregates business. The acquisition means that Peab will develop and strengthen business area Industry in Sweden, Norway and Finland and establish the company in Denmark. The acquisition also means our offer will be more complete on our markets outside of Sweden and we can further build on our business model. The acquired business had net sales of around SEK 6 billion in 2018 and 1,700 employees. The deal requires approval from competition authorities and we expect to implement the takeover during the first quarter 2020.

We continue to develop Peab in order to achieve our strategic goals to have the most satisfied customers, be the best workplace and the most profitable company in the industry.

Peab started in 1959 which means Peab is 60 years old this year. Guided by our core values we continue our journey of contributing to positive community development on the markets where we are active.

 

Jesper Göransson
CEO and President