Comments from the CEO
The year 2023 was marked by a divided market. The dramatically diminished housing market affected Peab’s housing construction while public building construction, civil engineering and paving continued to develop well. This demonstrates the strength in our broad business model with its four business areas and local roots close to customers.
Group development
Group net sales contracted by seven percent in 2023 and amounted to SEK 58,821 million (63,135). Operating profit amounted to SEK 1,853 million (2,741) and the operating margin was 3.2 percent (4.3). The dramatic decline in the Nordic housing market has primarily affected business areas Project Development and Construction. Civil Engineering, Paving and public construction in Construction have developed well but not enough to fully compensate the effect of the severely diminished housing construction market. In order to handle the diminished housing market construction production, housing development, rental operations and central support functions are being streamlined. This generates restructuring costs but also lower overhead going forward. In business area Construction we have written down housing projects received before the outbreak of war in Ukraine that have been affected by price hikes and are almost completed as well as a number of projects in Norway. All in all provisions, write-downs and restructuring costs amounted to SEK 525 million kronor, of which write-downs of goodwill in Norwegian construction operations amounted to SEK 125 million. After taking these measures we are well-equipped to handle both a continued weak housing market and meet a growing market.
Business area development
Net sales in business area Construction was four percent lower than last year. Lower demand for housing projects has not been fully compensated for with other projects. Activity in business area Civil Engineering has continued to be high during the year and net sales increased somewhat in 2023. The operating margin in Construction excl. Mall of Scandinavia (MoS) was 0.1 percent (2.2) and 3.3 percent (3.3) in Civil Engineering. Business area Construction is in the process of shifting operations from housing projects to other kinds of projects. In total, the operating margin for the construction contract businesses excl. MoS amounted to 1.3 percent (2.6).
Net sales in business area Industry contracted by seven percent which is primarily due to lower sales in Paving and Concrete. The operating margin improved and was 4.8 percent (3.5), mainly due to better earnings in Paving.
In business area Project Development net sales contracted by 34 percent as a result of the low level of activity on the Nordic housing market. Few sold homes and very few production-starts of our own housing developments contributed to the continued decline of operating profit in Housing Development, which had an operating margin of 3.8 percent (11.5). Property transactions contributed positively to Property Development but profit contributions from partly owned companies were lower than last year.
The total number of our own housing development start-ups during 2023 was 727 (2,336), of which 121 (1,810) were tenant-owner apartments/condominiums and 606 (526) were homes in rental apartment projects on our own balance sheet. The number of sold homes was 934 (1,709), of which 542 (1,643) were tenant-owner apartments/condominiums and 392 (66) were homes in rental apartment projects. The total number of homes in production has dropped to 3,694 (5,718) as a result of few start-ups of projects during the year. The portion of sold tenant-owner apartments/condominiums in ongoing production amounted to 68 percent (69) as of December 31, 2023.
Order situation
The level of orders received contracted in 2023 to SEK 45.1 billion (53.3). The decrease is mainly due to the weak demand for housing projects, which affects business areas Project Development and Construction. The level of orders received in Civil Engineering has increased somewhat during the year. There has been a good level of orders received during the year from the public sector. Order backlog yet to be produced at the end of the year was SEK 39.1 billion (44.4).
Arbitration decision in Peab’s favor
A decision in the case between Peab and Unibail Rodamco Westfield regarding the contract for Mall of Scandinavia in Solna was handed down in Peab’s favor on June 30, 2023. Since then Unibail Rodamco Westfield has petitioned the Swedish Court of Appeal to set aside the judgment in its entirety in a so-called protest action. During the process the judgement is suspended which means it is not enforceable, deferring the time of payment. Peab’s assessment of the previously communicated estimated effects on profit has not changed and we cannot see any grounds for a protest action.
Market and prospects for the future
Market prospects for the Nordic construction markets are trending downward in 2024 for Sweden and Finland while levels are unchanged for Norway. The housing market is expected to continue to decline while civil engineering markets are expected to be stable.
Regarding housing, hardly any new projects are starting up on the market. Considering that there is still an underlying need for housing in the Nordic region, the drastic reduction in housing construction is not a good development. It is vital to find a solution to the long-term management of supplying housing, particularly in Sweden. As far as Peab is concerned, we have a well-dimensioned development rights portfolio in attractive locations and in anticipation of market recovery we are further developing and preparing projects for the future.
Peab’s business model with four business areas and local roots has served us well in good and hard times alike. Our four collaborating business areas, extensive Nordic local presence and our skilled employees make Peab less vulnerable in the current market situation. In the long run the conditions for growth in the segments and markets where we are active are good.
Target outcome
We are reporting the outcome of all nine targets after the end of 2023. How well we have met our targets varies and is affected by the more challenging market conditions. We surpassed our target regarding the Customer Satisfaction Index, recommend Peab as an employer (eNPS) and equal opportunity recruitment in jobs close to production. We have also achieved out target concerning serious accidents in 2023 although the level is still too high. The reduction in carbon dioxide intensity is going according to plan for our 2030 targets. We are well on the road to converting the production we ourselves have control over but the greater challenge is when we are dependent on other parties for a reduction in our carbon footprint.
Regarding our financial targets, one of them is to have an operating margin that over time surpasses 6 percent. In 2023 the operating margin was 3.2 percent as a result of the deteriorated market situation. Our second financial target, the net debt/equity ratio, was 0.6 at the end of the year, which is inside the target interval 0.3-0.7. We are intensely focused on cash flow and net debt, and reported significant improvements of these in the fourth quarter 2023.
Proposed dividend
The Board proposes Peab’s Annual General Meeting decide on a dividend of SEK 1.50 per share. Calculated on the number of outstanding shares this is equivalent to 30 percent of profit for the year according to segment reporting, which is lower than our financial target of 50 percent of profit for the year. The dividend is considered a balanced dividend based on our order situation, earning capacity and financial position.
Jesper Göransson
President and CEO