Comments from the CEO
For 2022 Peab reported a stable profit in challenging times. With our high order backlog and strong financial position, combined with our broad business model, we can handle a multitude of circumstances in different segments and geographies.
Group development
Group net sales increased by five percent in 2022 and amounted to SEK 63,135 million (60,026). Continued high material and energy costs are behind most of the increase in net sales. Operating profit was SEK 2,741 million (3,098) and the operating margin, which was impacted by the higher costs, was 4.3 percent (5.2). During the year we have continued to invest in our operations which, together with more tied-up working capital, charged cash flow before financing that amounted to SEK -1,955 million (3,041).
Business area development
Net sales in business area Construction increased by seven percent in 2022, with increases in all our three countries. The operating margin contracted to 2.2 percent (2.6) and we feel the impact of cost increases in all the countries. Net sales in business area Civil Engineering grew by six percent and the increase stems from Infrastructure and Operations and maintenance. The operating margin was unchanged at 3.3 percent (3.3). The combined operating margin for both construction contract businesses amounted to 2.6 percent (2.9).
Net sales in business area Industry increased by 14 percent during the year. The operating margin was 3.5 percent (5.0). Higher costs for energy and fuel had a negative effect primarily on paving and mineral aggregates operations while the other segments of the business area reported improved profitability.
In business area Project Development net sales contracted and amounted to SEK 8,661 million (9,497), the reduction being greatest in Housing Development. Demand for housing has gone down in all countries, mostly in the second half of the year, which has led to a lower rate of home sales and fewer production starts. The market is undeniably cautious concerning any kind of home due to rising interest rates and uncertainty about the economy. The operating margin in Housing Development was 11.5 percent (11.2). The dwindling rate of home sales has a negative impact on the conditions for production-starts going forward. The sales degree per December 31, 2022 was 69 percent (76) in ongoing projects.
“With our high order backlog and strong financial position, combined with our broad business model, we can handle a multitude of circumstances in different segments and geographies.”
Order situation
The level of orders received in the last quarter of the year amounted to SEK 10,5 billion (14.4). The level of orders received in business area Industry was higher than in the comparable quarter 2021 while it was lower in business areas Construction and Project Development. Order backlog yet to be produced at the end of the period was SEK 44.4 billion (45.3), which thereby continues to be on a high level. Of the total order backlog 35 percent (34) will be produced after 2023 (2022).
Target outcome
For the second year in a row we present the status of all our nine external targets. How well we have achieved our targets varies and has been affected by the rather challenging market circumstances. We have surpassed our targets regarding the Customer Satisfaction Index, recommend Peab as an employer (eNPS) and our target for equal opportunity recruitment. However, the trend for serious accidents has gone in the wrong direction during the year and we have not met our target of a contracting number of serious accidents in 2022. In order to augment our safety culture and turn the tide, we have intensified our efforts in taking preventative work environment measures. Carbon dioxide intensity is developing in the right direction for our two climate-related targets, although the reduction in input goods and purchased services is smaller than in our own production.
When it comes to our financial targets our first target is to over time have an operating margin that surpasses 6 percent. In 2022 it fell from 5.2 to 4.3 percent due to cost inflation and the worsening market situation.
Our second financial target, the net debt/equity ratio, was 0.5 at the end of the year which is within the target interval 0.3-0.7. During the year we have continued to invest in, above all, our capital intense operations. In addition, we carried out a program for repurchasing our own shares.
Market and prospects for the future
In the past few years we have handled the pandemic, the energy crisis and cost inflation resulting from the war in Ukraine, and now we are also adjusting to higher interest rates. Market developments during the year have been weaker than most analysts had expected. Our market assessments are based on Navet’s forecasts that show Nordic market prospects in construction and civil engineering have been dropped further down for 2023, mainly due to a declining housing market. Higher interest rates and high inflation make it harder to calculations that come out ahead, and therefore fewer housing projects of all kind are starting up. Demand is expected to be more stable in other areas such as public building construction, civil engineering and investments associated with green transition.
Construction material prices in Sweden have gone up by around 14 percent in 2022 which is a historically high level. However, in the last quarter of the year a slight decline in prices was noted.
We concentrate on continuing to adjust and streamline our operations to keep step with demand on the market in different segments and geographies. We redirect and trim our organization by, among other things, examining our overhead and remedying units where profitability is too low. At the same time our financial clout provides Peab with the ability to take advantage of opportunities that can arise on the weaker market.
Regarding Cementa’s permit process for Slite, a decision was handed down by the Supreme Land and Environment Court in December giving Cementa a four year permit to continue quarrying limestone. This secures Swedish deliveries of cement during the period while the company works on an application for a longer period, around 30 years, to ensure long-lasting limestone quarrying in Sweden.
Fine work by our employees
Market conditions in 2022 have been challenging. We continue to demonstrate how our solid business model with four collaborating Nordic business areas – which creates a broad offer and customer base – makes us less vulnerable in the current market situation. I’m proud of how our employees have thus far handled this difficult market. It’s thanks to our some 16,000 employees and their efforts that we continue to stand strong. I therefore want to express a heartfelt thanks to each and every one of my colleagues who, in our rapidly changing world, day after day continue to deliver excellent projects to our customers and strengthen Peab.
Dividend proposal
Based on Peab’s third financial target of distributing dividends of over 50 percent of profit for the year, the Board proposes a dividend of SEK 4.00 (5.00) per share for the financial year 2022. This corresponds to 58 percent of profit for the year according to segment reporting and means we will achieve our financial target regarding dividends while maintaining our financial flexibility.
Jesper Göransson
President and CEO