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. For several years up to 2016, demand was relatively weak and the price level gradually decreased. However, at the end of 2016 and in 2017, the market made a strong recovery in terms of both demand and price level.

Achieving sales growth that exceeds the market growth

BE Group’s growth is measured as delivered tonnes in the Swedish, Finnish and Baltic markets compared with the market’s growth in delivered tonnes in these markets.

Achieving a profit margin of at least 5 percent

Profit margin is defined as the underlying EBIT margin in the past 12 months.

Achieving at least 15 percent return on capital employed

Return on capital employed is defined as operating profit in the past 12 months divided by the average capital employed (equity and interest-bearing liabilities).

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 4.0 percent (5.8) in 2017 compared with 2016. BE Group had a growth of 3.1 percent (3.3) and thereby did not achieve the target for 2017. 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.

Growth greater than market

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. This corresponds to SEK 210-220 M in underlying operating result (uEBIT) at current sales. The underlying operating result, i.e. the operating result excluding the impact of inventory gains or losses and items affecting comparability, is used to put focus on how the operating activities perform and develop.

Outcome

The underlying operating margin amounted to 1.9 percent (0.9) for 2017. In the past five years, the operating margin has been low, and despite a clear improvement in 2017 compared to 2016, there is still a long way to go to achieve the target. In 2017, a number of activities were carried out that will contribute positively to the development in the future. The profit for the year was also particularly affected by weak results in two of the Group’s operations. Measures were taken during the year, including the closure of the unit in Eskilstuna, but they have not yet begun to have full effect.

Underlying operating margin >5%

Target 3: Return

As a measure of return, return on capital employed is used, defined as operating result 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 items affecting comparability, to put focus on the actual returns to the owners.

Outcome

The return on capital employed increased to 4.2 percent (1.2) during the year. The reason is mainly that the operating result has improved. The diagram also illustrates an adjusted return where items affecting comparability have been excluded. Calculated this way, return improved to 7.9 percent (4.4).

Return on capital employed >15%