Comments from the CEO

Group development

The period January to September 2024 was characterized by continued varied activity on Peab’s different markets. Operations in Civil Engineering and paving developed very well while Construction and Project Development were impacted by the still challenging market for housing and office construction. The recent interest rate cuts are a positive factor, particularly for the housing market, even though it will take time before a turnaround and investments accelerate.

Group net sales contracted by three percent during the period January-September and amounted to SEK 41,912 million. Operating profit amounted to SEK 1,508 million (1,720) and the operating margin was 3.6 percent (4.0). The comparable period included SEK 400 million resulting from a judgement in the Mall of Scandinavia arbitration. Cash flow before financing improved considerably and amounted to SEK 882 million (-2,779) which therefore reduced net debt. At the end of September 2024 the net debt/equity ratio was 0.5 (0.7).

The level of orders received during the quarter was stable after two record quarters. During the third quarter business area Construction was entrusted with building Gothenburg’s new station building, an order worth SEK 870 million. The level of orders received for the entire period increased to SEK 44,458 million (34,581). It increased above all in business area Civil Engineering but rose in Industry as well. We have won several projects in business area Civil Engineering as a result of public investments in infrastructure, water and waste water and the ongoing climate transition. The high level of orders received means we have extended our order backlog which at the end of the period amounted to SEK 47,026 million (41,669).

As previously stated operations in Construction and Civil Engineering increasingly participate in dialogues early on with customers prior to planned projects and we are therefore experiencing a greater number of preliminary agreements, so-​called phase 1 contracts. Currently the potential worth of the final construction contracts from these preliminary agreements is around SEK 14 billion over the next two years (SEK 19 billion December 31, 2023).

Business area development

Net sales have contracted in business area Construction due to the weak housing market which other kinds of projects have not been able to fully compensate for. Meanwhile demand in other building construction is good, primarily from the public sector, and contributes to stability in the business area. The operating margin in Construction remained unchanged and amounted to 1.9 percent for the period.

The robust level of orders received in business area Civil Engineering generates a high level of production and the operating margin has improved during the period to 3.1 percent (3.0). In total, the operating margin for the construction contract businesses during the period January to September was unchanged at 2.3 percent.

In business area Industry paving operations are in peak production with a significant number of contracts throughout the Nordic region. Paving operations have developed well with good profitability, particularly in Finland. Operations in prefab construction elements and rental operations have been affected by the weak housing market and activity in them was lower compared to the corresponding period 2023. The operating margin for the business area increased substantially and amounted to 5.1 percent (3.3) for the period.

In business area Project Development the level of sales in our own developed homes continues to be low but on the bright side we are selling them at an even pace and have noted continued greater interest among buyers, above all in Sweden’s major cities. The number of production start-ups continues to be low. During the quarter we started up two new housing projects, one in Finland and one in Norway, for a total of 108 own developed homes. In order for demand to recover interest rates have to come down and the number of completed newly produced homes has to drop.

Target outcome

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

The operating margin was 2.9 percent on a rolling twelve month basis, compared to the target of six percent, and has been impacted by the weak housing market. The net debt/equity ratio was 0.5 at the end of the third quarter, which is in the middle of the target interval 0.3-0.7.

Our target for serious accidents is a contracting trend. Calculated on a rolling twelve month basis serious accidents continued to contract and were 41 per September 30, 2024 (48 per December 31, 2023).

Sustainability

This fall we started up the second round of the trainee program The Construction Year for women and Peab’s trainee program 2024-2025. The initiatives are vital for securing Peab’s talent supply and increasing gender equality in the Group. Regarding safety, we carried out our annual work environment week, this year with extra focus on team work. During the quarter we launched another ECO offer, ECO-construction site, which is a concept for construction workplaces. The objective is to reduce the environmental impact of construction sites through instruments for energy, waste and water management as well as through logistics and construction machines.

Market and prospects for the future

Prospects for the Nordic construction markets are on the whole the same as they were in the previous quarter. In 2025 civil engineering markets are expected to remain stable on a high level. The housing markets are expected to make a weak recovery next year as lower interest rates take effect while other building construction will continue to be stable.

Peab’s four business areas really complement each other and enable us to take advantage of the demand in our various markets. This is particularly evident in how well Peab has developed during the year.

 

Jesper Göransson
President and CEO