Comments from the CEO

Net sales in Peab grew by over three percent in 2019 to SEK 54 billion and adjusted for costs for acquisitions as well as eliminations, profitability has been strengthened. The proposed extra distribution demonstrates Peab’s capacity to, through our four collaborating business areas, generate substantial results for our shareholders. At the same time it creates the foundation for even more value creation in two separate companies in the future. Based on stable market prospects we are moving ahead in 2020 by finalizing the YIT operations acquisition, which is expected to be completed during the first half-year.

GROUP DEVELOPMENT

Net sales in 2019 amounted to SEK 54,008 million (52,233), which was an increase of three percent. Operating profit was SEK 2,568 million (2,573) which entailed an operating margin of 4.8 percent (4.9). Cash flow before financing was SEK -551 million (-1,021). Net debt was SEK 7,507 million (3,551). Excluding IFRS 16, Leases net debt was SEK 6,743 million. More construction on property on our own balance sheet and via joint ventures has entailed an increase in eliminations of internal profit and affected cash flow and net debt. Business area Industry has also invested in machines and equipments. In addition, more working capital has been tied up due to in part to a greater number of ongoing housing projects in Finland and Norway. We have continued to underpin our strategic investments with a high equity/assets ratio amounting to 31.7 percent, well over our goal of 25 percent.

BUSINESS AREA DEVELOPMENT

In 2019 net sales in business area Construction rose by four percent with a higher operating profit and unchanged operating margin. Net sales in business area Civil Engineering dropped by three percent with a lower operating profit and operating margin. Net sales in business area Industry were unchanged with a slightly lower operating profit and operating margin. Acquisition costs for the mineral aggregates and paving operations in YIT during the third quarter along with purchasing the remaining shares in Smidmek in the fourth quarter charged the business area with SEK 40 million respectively SEK 47 million. Net sales in Project Development were unchanged with an improved operating profit. Net sales in Housing Development were slightly lower but operating profit improved for the year on the whole. The property divestitures in the partially owned company Acturum had a positive effect of SEK 170 million on operating profit in Property Development.

ORDER SITUATION

The level of orders received in 2019 amounted to SEK 44.1 billion (51.1). The reduction in orders received stems from business areas Construction, Civil Engineering and Project Development while the order level in Industry went up. Considering the high level of orders at the end of 2018 that contained several major projects, orders received during the year have been more along the lines of mid-sized or smaller projects. Order backlog at the end of the year amounted to SEK 42.5 billion (45.8) and is well spread in place and product.

MARKET AND OUTLOOK FOR THE FUTURE

In general, economic development in the Nordic region has slowed down during the year but nonetheless continued low interest rates and a significant underlying need provide a good platform for the construction market over time. In Sweden forecasts indicate that housing construction will continue to decrease in 2020 and then level out in 2021. Investments in private premises will most likely be affected negatively while greater investments in public premises are expected. In Finland housing construction is expected to decline in 2020 and 2021. Other building construction should remain on the same level while the market for home renovations looks better. In Norway housing construction declined in 2019. It is expected to level out in 2020 and then grow again in 2021. The market conditions in the civil engineering market in Sweden and Norway are considered good and growth is forecast for the year.

 

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 2019 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 or second quarter of 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 turned 60 years old in 2019. Guided by our core values we continue our journey of contributing to positive community development on the markets where we are active.

Proposed dividend

Based on the Group’s stable profitability and financial situation as well as our order level and investment needs, the Board proposes a dividend of SEK 4.20 (4.20) per share. In addition, Peab’s Board has today decided to present the Annual General Meeting with a proposal to execute an extra distribution of a real estate company holding a portfolio of fully developed investment property and operations property through a so-called Lex Asea dividend. The distribution creates the basis for a focused listed company that can continue to develop properties in the Nordic growth regions while Peab as a Group can continuously develop through its well-established and successful business model.

 

Jesper Göransson
CEO and President