Comments from the CEO

Profitable growth and a high level of orders sums up this year’s third quarter. Operating margins continue to improve in both the construction contract businesses and housing development, which is the result of several years of committed work. Despite the uncertainty around material and energy prices the market outlook remains good. Peab’s diversified business regarding countries, products and customers continues to be a strength for us. 

Group development

Group net sales were SEK 42,506 million (41,993) during the first nine months of the year. Operating profit during the period was SEK 1,852 million (1,716). The comparable period did not include the loss of around SEK -300 million for the first quarter from the acquisition of paving and mineral aggregates operations in business area Industry. The operating margin was 4.4 percent (4.1). Cash flow before financing was SEK 576 million (1,016).

Business area development

Net sales contracted by four percent in business area Construction during the first nine months but during the third quarter net sales increased by three percent. The operating margin improved to 2.7 percent (2.4) and the growth in earnings is attributable to both Sweden and Finland. Net sales increased in business area Civil Engineering by nine percent driven by Local market and Operation and maintenance. The operating margin improved to 3.0 percent (2.8). The combined operating margin for both construction contract businesses continued to improve and amounted to 2.8 percent (2.5) during the period. This development is a result of our committed work on choosing the right projects, continuous improvement and minimizing risks.

Business area Industry had a strong third quarter after two previous quarters that were negatively affected by a late start in the season due to a cold winter. Net sales increased in Mineral aggregates, Concrete and Construction System in January – September while they contracted in Rentals and Transportation and Machines. Operating profit in business area Industry was lower during the period compared to last year. This is primarily due to the fact that the loss from the first quarter of the acquired paving and mineral aggregates operations, which were taken over on April 1, 2020 when the season began, was not included in the comparable period. Integration of the acquired operations continues according to plan and the underlying profit is developing well. The operating margin for the period January – September was 3.8 percent (5.1).

Project Development also developed well and net sales increased by twelve percent. The increase refers to Housing Development in Sweden and Finland where the growing number of production-starts in housing construction has had a positive effect. Operating profit improved during the period. The operating margin increased in Housing Development to 10.9 percent (8.4) with a higher margin in all three countries. Operating profit was higher in Property Development which is largely explained by result of capital gains from property sales. Our partially owned companies continue to develop well.

Start-ups of our own housing developments were 2,125 units (1,612), of which 337 (187) were converted from rental apartments. The production start-ups are well spread geographically and sales have continued to be good in all three countries. During January – September production of 388 homes (199) in rental apartment projects started up on our own balance sheet. A substantial proportion has been sold to investors and will be recognized in revenue when they are turned over.

“Profitable growth and a high level of orders sums up this year’s third quarter. Operating margins continue to improve in both the construction contract businesses and housing development.”

Order situation

The level of orders received continues to be strong. In the third quarter 2021 it amounted to SEK 13,865 million (11,718) and the range of orders continues to be well spread in both product segment and geographically. Order backlog yet to be produced at the end of September 2021 was SEK 46,280 million (44,722). Of the total order backlog 74 percent (76) will be produced after 2021 (2020).

Market and outlook for the future

The outlook for our markets is expected to remain stable. Forecasts for started-up housing investments have improved in Sweden and Finland since the previous report and are pointing up. Housing construction in Norway is expected to remain the same in 2021. Other building construction is expected to grow in all three of our operational countries during 2021.

In 2022 the overall trend indicates continued growth in housing construction while development in other building construction is expected to be more cautious. Investments in civil engineering are expected to continue to grow during 2021 in Sweden and Norway but will contract in Finland. The forecast is slightly less optimistic for Sweden and Finland in 2022 but Norway is expected to see serious growth.

Uncertainty about material and energy prices continues. So far we have been able to handle the rise in prices well within our business and therefore the financial consequences for Peab have been limited. Naturally we monitor developments closely and will handle the situation as it develops. We continually work to streamline our production but have to calculate with progressively rising construction costs if the trend concerning material and energy prices continues. Another uncertain factor that would have an impact on Peab, as well as the entire construction and civil engineering industry and the country, is if access to cement from Cementa’s quarry in Slite is shut off. We are closely monitoring this situation as well but more importantly we are working on our own binder alternatives and securing the supply of cement by importing it ourselves.

Work on ensuring a safe work environment

The number of serious accidents over a rolling twelve month period at our workplaces amounted to 30 per September 30, 2021 (30 per June 30, 2021). In the third quarter the number of workplace accidents with more than four days absence, excluding the day of injury (LTI4), the number amounted to 36 (43 second quarter 2021) and the LTIF4 frequency rate remained at 6.6 (6.6 second quarter 2021).

Work on ensuring a safe work environment is always a priority and we continue our systematic work on the work environment to reduce the number of serious accidents. During the period one of our activities was holding Peab’s annual work environment week. The theme this year was lift and load ergonomics.

Strategic investments

During the quarter Peab successfully issued green bonds for a total value of SEK 1.5 billion, of which SEK 1.0 billion mature in three years and SEK 500 million mature in five years. The purpose of the issue is to contribute to Peab’s work on climate neutrality and resource efficiency. These funds will finance investments primarily in energy efficient buildings, ECO products and a more environmentally adapted production, green transportation and water and waste management. A number of vital measures are being taken in these areas throughout our operations.

As of September 1, 2021 HGT AS is part of Peab’s business since we acquired 90 percent of the shares in the company, which is an general contractor in the civil engineering industry and domiciled in Bergen. This acquisition strengthens Peab’s business in civil engineering in Norway.

Peab’s strength lies in our local business model with four business areas in collaboration which we call locally produced community building. With profitable growth and a convincing order backlog we are well equipped to move forward with the work of building our Nordic communities.

 

Jesper Göransson
President and CEO