Financial targets and outcomes
Earnings in BE Group shall be used to develop the business and generate returns for the owners. The Board of Directors of BE Group has therefore set three financial targets that should be achieved for earnings to be considered adequate. Over time, the goal completion can vary depending on various phases in the Company’s development and the current state of the economy. In the past five years, demand has been relatively weak and the price level has gradually decreased. It was not until 2016 that the market began to recover in terms of demand and price level.
Target 1: Growth
To measure growth in BE Group’s markets, the market statistics that the company receives for the distribution markets in Sweden and Finland are used. By comparing tonnage growth year on year in this data, the growth in the market is estimated. BE Group’s growth is measured in delivered tonnes in the Swedish, Finnish and Baltic markets. For Sweden, deliveries for the jointly owned company ArcelorMittal BE Group SSC AB are included. The target is to grow more than the market.
Outcome
The market is estimated to have grown by 5.8 percent (0.5) in 2016 compared with 2015. BE Group had a growth of 3.3 percent (6.1) and thereby did not achieve the target for 2016. Management for BE Group assesses that the focus on margin over volume that the company had during the year is the most important factor and that growth of over 3 percent is therefore satisfactory. In addition, the organizational change carried out during the year had some negative impact in 2016, but will have a positive effect in the future.
Target 2: Profit margin
Profit margin is defined as the underlying operating margin (uEBIT%) in the past 12 months. The target level is set to at least 5 percent measured over a longer period of time. At the current sales pace, this corresponds to SEK 180-190 M in underlying operating profit (uEBIT). The underlying operating profit, i.e. the operating profit excluding the impact of inventory gains or losses and non-recurring items, is used to put focus on how the operating activities perform and develop.
Outcome
The underlying operating margin amounted to 0.9 percent (0.5) for 2016. In the past five years, the operating margin has been low, and despite an improvement in 2016 over 2015, there is still a long way to go to achieve the target. In 2016, a number of activities were carried out that will contribute positively to the development in the future, including the restructuring done and the reorganization with a clearer business focus. The profit for the year was also burden by particulary poor results in two of the Group’s operations. Steps were taken during the year, but they have not yet begun to have an effect.
Target 3: Return
As a measure of return, return on capital employed is used, defined as operating profit in the past 12 months divided by the average capital employed (equity and interest-bearing liabilities). The target level is set to at least 15 percent considering the prevailing capital structure and interest rates. The measure is calculated based on recognized operating profit, i.e. including inventory gains and losses and non-recurring items, to put focus on the actual returns to the owners.
Outcome
The return on capital employed increased to 1.2 percent (-7.5) during the year. The reason is mainly that the operating profit was improved by a higher underlying profit, inventory gains and lower non-recurring items. The diagram above also illustrates an adjusted return where non-recurring items have been excluded. Calculated this way, return improved to 4.4 percent (0.7). The return is also improved by a lower capital employed, which is due to lower asset value mainly as a result of asset impairments in 2015 and the restructuring in 2016.