Comments from the CEO

Peab reported continued growth in net sales after the first nine months of the year. We continue to handle cost increases well although they have not been fully compensated. The level of orders was relatively stable although homes were a smaller portion.

 

Group development

Group net sales increased by eight percent during the first nine months of the year and amounted to SEK 46,087 million (42,506). High material and energy costs are behind most of the increase in net sales. Operating profit for the period was SEK 1,888 million (1,852) and the operating margin was 4.1 percent (4.4). The higher costs continued to impact the operating margin during the third quarter. Cash flow before financing amounted to SEK -1,058 million (576) and the decrease mainly refers to more tied-up working capital and investments.

Business area development

Net sales in business area Construction increased by ten percent during the first nine months of the year, primarily related to Swedish and Norwegian operations. The operating margin contracted to 2.2 percent (2.7) as a result of not being able to fully compensate for cost increases in projects received before the outbreak of war in Ukraine. Net sales in business area Civil Engineering grew by four percent and the operating margin was unchanged at 3.0 percent (3.0). The combined operating margin for both construction contract businesses for the nine month period amounted to 2.5 percent (2.8).

Net sales in business area Industry, where paving operations were in full swing during the quarter, increased by 16 percent for the first nine months of the year. The operating margin was 2.9 percent (3.8). Higher costs for energy and fuel had a negative effect primarily on paving operations while the other segments of the business area reported unchanged or improved profitability.

In business area Project Development net sales increased by five percent attributable to property divestments in Property Development. Profitability is stable in the business area but the rate of home sales, particularly in Sweden, is dwindling. The operating margin in Housing Development was 10.5 percent (10.9). In Property Development property divestments and profit contributions from our partially owned companies have contributed to higher profitability.

Production-starts of our own housing developments and sales were considerably lower compared to the corresponding quarter last year. Interest rate developments in the Nordic countries have led to a more wary housing market. The dwindling rate of home sales has a negative impact on the conditions for production-starts going forward. The sales rate per September 30, 2022 was 72 percent (77) in ongoing projects.

“Over time there is a great need for our products and services on the markets we deliver to.”

Order situation

The level of orders received was relatively stable in the third quarter, amounting to SEK 13.1 billion (13.9), and is well spread geographically and in product area although the portion of orders for homes diminished. Order backlog yet to be produced at the end of the period increased and was SEK 48.8 billion (46.3). Of the total order backlog 77 percent (74) will be produced after 2022 (2021).

Three targets updated

In this quarter we present the outcome for three of our nine external targets: serious accidents, operating margin and net debt/equity ratio.

 

The serious accidents has unfortunately remained on a high level in the third quarter and there were 48 per a rolling twelve month period (48 after half the year). In order to heighten our safety culture and turn the tide we have intensified our preventive work on the work environment.

Our target is to over time have an operating margin that surpasses 6 percent and in the latest rolling 12 month period the operating margin was 4.9 percent. The net debt/equity ratio was 0.4, which is in the middle of the target interval 0.3-0.7.

Market and prospects for the future

Long-term interest rates have continued to rise and in Sweden The Riksbank raised the policy interest rate further during the quarter, by 1 point in September. Inflation has tightened its grip on the global economy and several central banks indicate further hikes in interest rates.

Our market assessments are based on Navet’s Nordic market forecasts that show Nordic market prospects in construction and civil engineering have been adjusted down slightly for 2022, mainly due to a downward adjustment in civil engineering in Sweden. The collective market prospects for 2023 are declining, decreasing in both housing and other building construction while the forecast for civil engineering is an upturn.

How the market will develop is difficult to predict with so much uncertainty about the cost of energy, input goods and interest rates. Our organization continues to handle these challenges well, although we have seen some impact on the operating margin. We continually adjust and streamline our operations to curb rising construction costs. We deal with possible prices hikes within existing contracts and in new bids we tender systematically, based on operational and contractual circumstances in order to handle each unique project and situation. This requires a close dialogue with our subcontractors, suppliers and customers.

Regarding Cementa’s permit process for Slite we are following developments closely. We continue to work on our own binder alternatives and securing the supply of cement by importing it ourselves. The continued uncertainty about long-term access to cement in Sweden can, however, make the market even more unstable.

Peab is a stable and financially strong, well consolidated company. We have a solid business model with four collaborating business areas – and thereby a broad offer – which makes us less vulnerable in the current market situation. Over time there is a great need for our products and services on the markets we deliver to. With our engaged employees and their expertise we are well-equipped for today and tomorrow.

 

Jesper Göransson
President and CEO