Comments from the CEO

Our operations have shown definite improvements in 2017. The contract business in Construction and Civil Engineering is generating stable results and Industry and Project Development report significant margin improvements. The stable market prospects, despite a cautious housing market, together with a record high order backlog, and a strong financial position create a good platform for the future.

Market conditions

The Swedish construction market continued to grow in 2017. The housing market is expected to slow in 2018 while private and public premise construction is expected to rise. The construction market in Norway developed well in 2017 while 2018 can be affected by a decline in housing construction. The construction market in Finland has accelerated in 2017, driven by growth in housing construction, and is expected to continue to grow in 2018. Market prospects for the civil engineering market in Sweden and Norway are positive.

Order situation

The level of orders received continued to be high in the fourth quarter which resulted in SEK 45.2 billion (41.4) in orders received for the entire year of 2017. The level of orders received has grown in every business area. Our own developed housing projects are well spread geographically in Sweden, Norway and Finland as well. Order backlog amounted to SEK 38.5 billion (33.6). Both the level of orders received and order backlog are record high for Peab.

Business area development

Net sales in business area Construction increased in 2017 by eleven percent with a higher operating profit. Net sales in business area Civil Engineering increased by ten percent with a somewhat improved operating profit. Business area Industry showed an increase in net sales of five percent and a better operating profit. Net sales in business area Project Development increased by 13 percent and operating profit improved. The operating margin in Housing Development continued to improve and both production starts and sales were higher compared to 2016.

Group development

Operative net sales during 2017 amounted to SEK 50,267 million (46,489), which was an increase by eight percent. Operative operating profit improved to SEK 2,425 million (2,075) and the operative operating margin improved to 4.8 percent (4.5). Profitability in Construction and Civil Engineering is on a stable level. This is a result of our decision to choose projects with a lower risk profile, greater diversification and focus on profitability over volume. Then there is the added value the contract projects generate in other sections of the Group. Cash flow before financing amounted to SEK 2,295 million (2,651). Net debt was SEK 1,216 million (1,862).

Outlook for the future

The outlook for Peab is positive with a solid order backlog, a good project mix, a well-dimensioned development rights portfolio, stable market prospects and a strong financial position. At the same time there are a number of challenges to deal with such as capacity limitations in the form of resource shortages, primarily in big city regions and increases in costs for some subcontractors.

 

In some partial markets an excess supply of homes in a higher price range has occurred which, together with tougher financing terms for homes, leads to longer sales processes. Peab develops and builds homes throughout Sweden as well as large parts of Norway and Finland. Peab mainly builds homes in the middle-priced segment and we see that there is still a big demand for new housing in this range. During the fourth quarter, which is seasonally a strong quarter, activity has been low in Stockholm while a lot has been going on in other areas of Sweden as well as in Finland.  

There is still a strong need for extensive construction in Peab’s markets, not only in housing but in all other building construction and civil engineering in Sweden, Norway and Finland.

Based on a strong development in profits, our financial position and a balanced investment need, the Board believes there is room to raise the proposed dividend to SEK 4.00 (3.60) per share.

We have a unique position through our four complementary business areas and more than 14,000 employees 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