Comments from the CEO

We ended the year with continued profitable growth, a strong cash flow and a high level of orders received. Our work on improving operating margins continues to bear fruit in both the construction contract businesses and housing developments. When we for the first time present the outcome of all our nine external targets it’s clear that they have been broadly met.

Group development

Group net sales increased by five percent during 2021 and amounted to SEK 60,026 million (57,417). Operating profit was SEK 3,098 million (3,541). The comparable period included the effect of the distribution of Annehem Fastigheter of SEK 952 million. The operating margin was 5.2 percent (6.2) and if we exclude the effect of the distribution the margin was 4.5 percent in 2020. Cash flow before financing continued to develop well and contributed to a reduction in net debt.

Business area development

Net sales in 2021 in business area Construction were unchanged and amounted to SEK 26,980 million (26,989). The operating margin improved to 2.6 percent (2.5) as a result of higher earnings in Sweden and Finland. Net sales increased in business area Civil Engineering by more than ten percent driven by product areas Local market and Operation and maintenance. The operating margin improved to 3.3 percent (3.0). The combined operating margin for both construction contract businesses continued to improve and amounted to 2.9 percent (2.6) for 2021.

Net sales in Business area Industry amounted to SEK 18,787 million (18,720) in 2021 and the operating margin was 5.0 percent (5.9). The lower operating margin is primarily due to the fact that the loss of around SEK -300 million from the first quarter from 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.

Project Development developed well during the year and net sales increased by 27 percent to SEK 9,497 million (7,500). The increase mainly refers to Housing Development that has started production in more and more homes. The operating margin in Housing Development improved to 11.2 percent (9.6) with a higher margin in all three countries. Start-ups of our own housing developments amounted to 3,020 units (2,291), of which 426 (228) 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 the year we also started up production of 676 homes (502) in rental apartment projects on our own balance sheet. A substantial proportion of them have been sold and will be recognized in revenue when they are turned over. In Property Development a number of real estate transactions during the year have contributed to operating profit.

Order situation

The level of orders received continued to be strong even during the year’s final quarter. For the entire year 2021 it increased in all the business areas and amounted to SEK 55,848 million (49,735), a growth of twelve percent. The range of orders continues to be well spread in both product segment and geographically, although housing makes up a larger proportion. Order backlog yet to be produced at the end of 2021 was SEK 45,318 million (42,709). Of the total order backlog 34 percent (32) will be produced after 2022 (2021).

“In this report we are presenting the status of all our nine external targets for the first time, and we are pleased to say that they have been broadly met.”

First year with updated targets

Because Peab is today a Nordic community builder with considerable local presence and four collaborating business areas, executive management and the Board adopted nine external financial and non-financial targets at the beginning of 2021. In this report we are presenting the status of all our nine external targets for the first time, and we are pleased to say that they have been broadly met. For instance, we have surpassed our targets regarding Satisfied Customer Index, recommend Peab as an employer (eNPS) and equal opportunity in recruitment. Likewise we have a contracting trend in serious accidents and regarding our two climate-related targets, carbon dioxide intensity is developing in the right direction although the reduction for input goods and purchased services is less than in our own production. Regarding our three financial targets, development of the operating margin is headed in the right direction.

Our target is an operating margin that over time surpasses 6 percent and during the year we have gone from 4.5 percent to 5.2 percent. As a result of a strong cash flow net debt/equity ratio at the end of year was 0.2 which is lower than the target interval 0.3-0.7. This despite the fact that we continue to invest in above all business areas Industry and Project Development. For example, at the end of the year we made a billion krona investment when we acquired part of a property on Lilla Essingen in Stockholm with development rights for more than 40,000 m² gross area.

Market and prospects for the future

The outlook for Nordic markets continues to be good in general, although there are some regional differences. Both housing investments and other building construction in Sweden is expected to remain on the same high level. Housing investments in Norway are expected to turn upward in 2022 while the forecast for other building construction now indicates a downturn. The prospects in Finland point to a slight decline in both housing investments and other building construction after the rise in 2021. Regarding investments in civil engineering the forecast indicates a downturn in Sweden, sideways movement in Finland and a definite upturn in Norway.

Uncertainty about material and energy prices, and with them rising inflation, continues. So far we have been able to handle the rise in prices in our operations well. We continually work to adjust and streamline our operations to do what we can to curb the rising construction costs. Another uncertain factor that still can create a bumpy market is the persevering uncertainty about long-term access to cement. In addition to following developments regarding Cementa’s permit process for Slite, we are first and foremost working on our own binder alternatives and securing the supply of cement by importing it ourselves.

Vital work by employees

The fine profit we deliver and how well we meet our targets is naturally thanks to our some 15,000 engaged employees. Therefore I want to take this opportunity to express a heartfelt thanks to each and every one of my colleagues that day-by-day do their best to deliver quality to our customers, build communities and improve everyday life where people live it, and do this despite the stress and strain caused by the pandemic during the year.

Dividend proposal

Based on Peab’s stable profitability, strong financial position and high level of orders received the Board proposes a dividend of SEK 5.00 (4.50) per share for the financial year 2021. This corresponds to 59 percent of profit for the year according to segment reporting, which means we will even achieve our third financial target of dividends of over 50 percent of profit for the year.

 

 

Jesper Göransson
President and CEO