Our mission is to offer the market high-quality, innovative energy-efficient products and system solutions through our three business areas. This work builds on the NIBE Group’s wide-ranging capabilities in product development, manufacturing and marketing.
The operating profit must be at least 10% of sales over a full business cycle in each business area.
NIBE Climate Solutions
The operating margin must be at least 10% to give operations the right stability and prepare them for both acquisitions and rapid changes in the business environment. This is one of the cornerstones to ensuring long-term positive development and continuous growth. During the past five years, the average operating margin has been 12.4%.
Operating profit in 2016 improved by 16.5% compared with the previous year and the operating margin rose from 12.8% to 12.9%. The completed acquisitions had a considerable positive impact on operating profit, while currency effects for the year were insignificant.
Because of the acquired companies’ varying levels of profitability and seasonal patterns, a full 12-month period is required before a completely accurate operating profit can be recognised. Administrative acquisition expenses amounted to SEK 60 million (SEK 10 million) during the year and costs were recognised for acquisition processes that were discontinued.
Average year-on-year growth must be 20%, half of which must be organic and half acquired.
Target achievement 2016
NIBE Climate Solutions
Half of the targeted average year-on-year growth must be organic over time. Stagnating growth is a threat to the maintenance of good, sustainable profitability. Acquired growth often balances organic growth in that it is usually lower than organic growth in good times and higher in difficult times. During the past five years, total average growth has been 13.5%.
The companies acquired in 2016 injected combined annual sales of just over SEK 4 billion into the Group, of which just under SEK 1.7 billion impacted 2016 sales. Including all the acquired companies and calculated on a rolling 12-month basis, consolidated sales are now at just over SEK 17 billion, meaning that the sales target of SEK 20 billion should be achievable by 2020.
The average annual return on equity over a business cycle must be at least 20% after standard deductions for tax.
Target achievement 2016
Good return on equity contributes to a stable ownership structure and share price, and enhances our ability to attract further capital. During the past five years, the average return on equity has been 16.3%.
The lower return on equity in 2016 is mainly due to equity being considerably higher in relation to profit after net financial items.
At year-end, equity was SEK 12.1 billion, an increase of SEK 4.7 billion on 2015. The increase is mainly due to the new share issue, which injected SEK 3 billion in equity.
The equity/assets ratio must not fall below 30%.
A good equity/assets ratio shows that the Group has a strong financial position. This is also a necessity in a Group with strong growth. During the past five years, the average equity/assets ratio has been 41.9%.
Good earnings performance in 2016, combined with the new share issue, resulted in equity increasing by 63%, while total assets increased by 40%, greatly increasing the Group’s equity/assets ratio.
A high equity/assets ratio makes it possible for NIBE to continue to expand aggressively via acquisitions.
The target is for 55% of our sales to consist of LCE classified* products by the end of 2017.
Target achievement 2016
51,5% classified products
Of our total 2016 sales, 51.5% (49%) consisted of LCE-classified products.
Our long-term goal is zero accidents, of course, even though this is difficult to achieve. The partial goal is an accident frequency of fewer than 6 accidents per million hours worked by the end of 2018.
Target achievement 2016
10 accidents per million hours worked
There was a total of 193 accidents in the Group in 2016, 36 more than the previous year. The accident rate was 10.1 (8.5) accidents per million hours worked.
Greater focus on accident reporting resulted in an improvement in companies’ reporting in 2016. The effect of the increased reporting is that the accident figures increase initially before the effects of the action taken are visible
The long-term target is for 100% of our production units to have certified management systems for ISO 9001 and 14001.
Target achievement 2016
98% ISO 9001
88% ISO 14001
The target was for 100% of our production units to have certified management systems for ISO 9001 and 14001 before the end of 2016.
In 2016, we achieved a certification level of 98% for ISO 9001 and 88% for ISO 14001. A total of 19 certificates have been issued since the beginning of 2016. Three of the seven companies that had no certificate at year-end 2016/2017 will be certified in 2017. Another three companies are new to the Group and aim to be certified by 2018. One company has had to defer its certification because of relocation.
The target is to reduce energy consumption by 30% from 2013 to 2020 (measured as MWh/SEK million in sales).
Target achievement 2016
30% reduction in energy consumption
The target of 30% corresponds to a reduction from 14 MWh per SEK million in sales in 2013 to <10 MWh per SEK million in sales in 2020.
Consumption of energy has fallen to 10.0 (11.7) MWh per SEK million, which means that we have already achieved our target for 2020. A new target will therefore be established in 2017.
Energy audits were carried out at 5 (4) plants in 2016. We will carry out a further five energy audits in 2017.
Our goals are focused sharply on profitable growth and sustainable value creation with healthy finances. Our strategies for achieving our goals are tried and tested and based on our business principles, focusing on five areas: increased market share, cost control, frequent product launches, flexible, efficient production and sustainability throughout the added-value chain.
Growth must be both organic and via strategic acquisitions of strong brands and complementary product ranges on priority markets worldwide.
The focus on world-class solutions in sustainable energy also contributes to a better, more climate-friendly world. Our entire value chain, from vision to end customers, must be based on the principles of sustainability in our management philosophy and our values.
NIBE operates on relatively mature markets. This means that the total growth target of 20% is not expected to be achievable solely through organic growth. The annual organic growth target of 10% must therefore be combined with acquired annual growth of 10% on average.
Operations take place within the framework of energy solutions in three Business Areas – Climate Solutions, Element and Stoves.
Tried and true principles of business-driven growth in the Group are combined with structured, professional management and efficient follow-up.
Operational management is largely based on decentralisation in our three Business Areas with clear responsibility for profits in well-defined profit centres, linked to clear goals in terms of both finances and sustainability. Our management strategy is based on our business principles and values, which form the basis of our company spirit and culture. (Read more about our business principles and values on page 16.)
Each Business Area has its own operational management with profit responsibility. Each Business Area has a Business Area Board chaired by the CEO. These Business Area Boards also include external members with complementary experience within their respective areas.
In addition to responsibility for operating activities, each Business Area Board is also responsible to the NIBE Board of Directors for the strategic development of its Business Area.
Motivated, committed employees are essential to continued success. We ensure that our expertise is continually enhanced and renewed via training and personal development, plus listening leadership. Internal recruitment is an important part of our programme to fill leadership roles and other key roles, while we also recruit externally to add new expertise.
Leadership is very important in creating and retaining commitment, strengthening the organisation and maintaining our corporate culture based on diligence and job satisfaction. Our leadership development programme reinforces this culture.
Effective follow-up takes place at both Business Area and Group level by means of an efficient Group reporting system. Clear ratios are used to enable us to quickly observe, act on and follow up on non-conformities and undesired developments.
As each subsidiary has its own budget, in which fixed costs and investments are subject to prudence, there is also a good level of preparedness for action if financial developments deviate from the assumptions made.
Materials purchasing is coordinated both within each Business Area and between Business Areas if there are obvious benefits to be gained from joint purchasing. When a newly acquired company joins the NIBE Group, a purchasing partnership begins almost immediately to quickly lower both direct and indirect costs.
Efficient use of resources contributes to profitability. By managing resources and increasing recycling, we reduce our environmental impact and reduce our costs.
We purchase responsibly by evaluating our suppliers. In addition to requirements for quality and environmental performance, we also work with our suppliers according to the international principles relating to human rights, working conditions and anti-corruption set out in the Global Compact. This requires a deeper, more time-consuming analysis, but we reduce the risk of interruptions in material flow and events that may harm our reputation.
High productivity is essential to good competitiveness, and our productivity philosophy is based on the belief that everything can always be improved and that, if you can’t measure it, you can’t improve it. Methods-time measurement (MTM) data provides a sound basis for efficient production planning, accurate costings and calculations, reliable investment data and opportunities to follow up on business activities correctly. Performance-based salary systems based on accurate MTMs also help encourage optimisation of working time and promote high productivity and fair salaries.
Efficient production also involves managing natural resources and inputs and reusing or recycling to reduce our environmental impact. All our production companies must have environmental certification and make continuous improvements to reduce their negative impact on the air, water and soil. At the same time, we eliminate all risks in the working environment and improve safety to prevent accidents.
Newly acquired companies have full access to all knowledge and experience in the NIBE Group. We have found that this is greatly appreciated and builds up good relations and trust between the partner companies.
Always being at the cutting edge with the most attractive product range makes product development another key to profitable growth. With a high rate of product development, based on research and new technology, we can offer products and solutions that are attractive to the market and help reduce customers’ environmental impact. We constantly challenge ourselves to find the best solutions that can contribute to a faster transition to a fossil-free society.
Exchange of knowledge and technology transfers between both existing companies in the Group and newly acquired entities create synergies that considerably reduce development time in several areas. This trust is gradually built up as the obvious advantages in materials purchasing and production become apparent.
A decentralised organisation means greater proximity to and understanding of the market. Strong business relationships are built up via professional, factual marketing based on strong brands with a high level of recognition among customers. The brand promise must also be accompanied by competitive prices, good service, good customer support and ethical business practices. Our customers must feel secure in the knowledge that our products are safe and manufactured responsibly and sustainably.
Our high-quality, innovative products, with strong brands and carefully considered marketing, are perfectly placed to increase our market share on existing markets and expand into new markets.
This means that acquired entities are quickly and naturally consolidated into the NIBE Group with their respective brands, and their new affiliation further reinforces their brands.
For a potential acquisition to be interesting, we must be able to see that it adds new technology, enables us to establish a presence in new geographical markets and/or increases our share in existing markets.
We apply the acquisition model above. The basic requirements are that a company must have:
Good entrepreneurship holds the key to opening future opportunities by constantly arousing curiosity and inspiring creativity and commitment. Permitting acquired companies to retain their identity and brands creates continuity on local markets. In many instances, keeping companies intact with the full management in the locations and environments where they were originally established not only provides the optimum conditions for them to realise their full potential, but also helps develop and invigorate the local communities in which they play such an important part.
Companies that are new to the Group must continue to enjoy a high level of independence. We want integration into the NIBE Group to be about exploiting the benefits of belonging to a much larger cluster of companies, and adopting the NIBE Group’s goals and strategies.
The analysis phase is precise but fast. Our three sectors are well defined and with our history we have the relevant ratios for comparison purposes.
In the implementation phase, there is always complete transparency about our intentions with the acquisition. We are always very clear and open about the information we provide on our management philosophy and strategy, which often facilitates the process.
In the integration phase, we aim to retain not only brands, but also skilled employees at every level. The primary synergies are found on the purchasing side and in productivity improvements to the manufacturing process.
We want to combine strong and sustainable growth with good profitability. Through this we increase value for our shareholders and create the conditions for continued good long-term development.
Our vision is to create world-class solutions in sustainable energy. We want to combine strong and sustainable growth with good profitability. Through this we increase value for our shareholders and create the conditions for continued good long-term development.
Our management philosophy is based on success factors for growth through profitability and responsibility. The basic concepts are gathered under the term Our Business Principles.
Being familiar with NIBE's Business Principles is important to all of us. This applies whatever your position in the Group.
Responsible expansion with a focus on internationalisation.
Our vision is to create world-class solutions in sustainable energy.
Our business idea is to offer the market high quality, innovative and energy efficient products and system solutions within our three different business areas.
The basis for this is the NIBE Group's broad expertise in product development, manufacturing and marketing.
Our overall goal is to combine strong and sustainable growth with good profitability and create value growth for the shareholders.
We must also be an interesting and progressive workplace for the employees and have happy and secure customers. Our operations must be characterised by transparency and responsibility.
Growth must average 20 percent per year, of which half should be organic and half through acquisitions.
Operating profit for each business area must amount to at least 10 percent of sales over a business cycle.
Return on equity must amount to at least 20 percent over a business cycle. The equity ratio in the Group must not be less than 30 percent.
Our management philosophy is based on eight basic ideas that create the power for continued expansion through profitability. Knowledge of our management philosophy is extremely important for both new employees and acquired units in order to understand NIBE's spirit and culture within NIBE.
Overall responsibility for the application and follow up of Our Business Principles lies with the Group President and CEO who delegates the practical, daily work to each legal entity within the Group.
All managers must act in such a way that their behaviour works as a model for the application of the principles.
If you work within the Group you can find Our Business Principles, Our Values, policies, guidelines and checklists on the Group intranet, one.nibe.net. Our Business Principles is available in many languages. NIBE's annual report and sustainability report provide information on how we realise Our Business Principles in our work.
We refer external stakeholders to www.nibe.com where they can access Our Business Principles, Our Values, Code of Conduct, relevant policies, the annual report and the sustainability report.
Our Values gives guidance in how NIBE sees issues affecting sustainable development. We have separated them into eight areas that we call our Code of Conduct.
Our vision is to create world-class solutions in sustainable energy means an interaction between economics, social factors and the environment.
By following Our Values you contribute to NIBE's sustainable development and the global change to a sustainable society. I am convinced that you will make a first-class contribution wherever you are in the world.
At NIBE we treat all employees fairly, worthily and with respect.
*Special treatment may for example refer to gender, religion, age, disability, sexual orientation, nationality, political affiliation or social or ethnic origin.
At NIBE we offer good working conditions and opportunities for personal development
At NIBE we consider the environment at every stage of our value chain
*The precautionary principle means that in situations where we suspect environmental and health risks but do not have sufficient knowledge of these risks, we do not put off or ignore decisions on suitable protective measures.
At NIBE, business relationships and business methods are based on compliance with legislation and the application of good business ethics.
At NIBE we make responsible purchases and place requirements on our suppliers.
At NIBE, a product's function, quality, safety and environmental characteristics are the most important characteristics for the Group's continued development.
At NIBE we are involved in the networks and communities in which we operate.
NIBE's communication is straight forward, honest and follows applicable legislation, regulations and standards.
We have a zero tolerance approach to breaches of key areas of the Code of Conduct.
This applies, for example, to compliance with the application of human rights and issues such as bribery, corruption and competition law.
In the other areas we work systematically and purposefully with continuous improvements.
The Group President and CEO has the overall responsibility for the application of Our Values. The Group's Sustainability Council and sustainability team support these efforts.
The Group does regular follow-ups and risk assessments of how Our Values are applied. Development and performance are reported in the annual and sustainability reports. Compliance is maintained by the sustainability audits.
The management system for quality, the environment and working environment helps make Our Values becoming a reality. Such systems must therefore be in place at all units.
Daily responsibility for how Our Values are applied is delegated to the managers in the Group companies. The Code of Conduct and policy must be included in the company's internal training programs for both new employees and those already working within the companies. Managers must behave in such a way that they set an example in the application of the rules.
Our business partners are also expected to follow Our Values.
Work within the Group is based on responsibility, transparency, ethical behaviour, respect for the interests of our stakeholders, and applicable legislation.
You are expected to live up to the guidelines in Our Values.
It is also everyone's responsibility to help each other to follow Our Values
If you work within the Group you can find Our Business Principles, Our Values, policies, guidelines and checklists on the Group intranet, one.nibe.net. Our Values is available in many languages. NIBE's annual report and sustainability report provide information on how we realise Our Values in our work.
We refer external stakeholders to www.nibe.com where they can access Our Business Principles, Our Values, Code of Conduct, relevant policies, the annual report and the sustainability report.
Our management philosophy aims to deliver value for our stakeholders. NIBE adds value based on the initiatives outlined above. An understanding of the world around us and dialogue with our stakeholders helps us choose the right priorities throughout the value chain. The result is that we maximise the positive value for our stakeholders and minimise any negative impact.
Like all international companies, NIBE is affected by global trends that we must constantly monitor and evaluate. We need to seize opportunities and be aware of the risks of constant change. In turn, this affects our strategic choices. We must adapt our strategy to enable us to continue to add value in the long term.
NIBE operates in an industry that can accelerate the transition to lower energy consumption and a higher proportion of renewable energy. With our products and system solutions, we can contribute to a better, more climate-friendly world. This is the greatest challenge of our age.
One of the biggest challenges involved in achieving a global sustainable community is to reduce emissions of greenhouse gases and slow down the rate of climate change.
The agreement from the climate summit in Paris in 2015 to limit global warming so that it does not exceed 2 degrees is already under threat. To achieve this target, greenhouse gas emissions must be reduced by 70% by 2050 compared with the level in 2010, an annual reduction of 6.5%. Research indicates that even greater reductions in greenhouse gases are required to stop climate change. As we know, the consequences of climate change in the form of natural disasters and extreme weather conditions represent a threat to our living conditions, biodiversity and social stability.
According to UN calculations, the population of the earth will have grown from 7.3 billion in 2015 to almost 10 billion by 2050. The greatest population growth is expected in Africa and Asia. In the same period, increasing numbers of people are also expected to move to large cities, the population of which is expected to increase from 50% of the earth’s population today to 70%.
As the population grows and is concentrated in cities, the infrastructure becomes overloaded and the demand for resources, above all energy, increases. At the same time, opportunities arise for sustainable solutions as demand for energy-efficient, resource-efficient infrastructure, construction and transport also increases.
All the buildings in the world currently account for around 40% of total energy use and around one third of global emissions of greenhouse gases, most of which when the buildings are in use. As buildings are used for many years, the energy-related product choices made today are important because they can affect the environment for several decades to come.
Globalisation, population growth and urbanisation also boost demand for the transportation of goods and people. The transport sector is regarded as one of the greatest challenges as it is responsible for a significant proportion of greenhouse gas emissions and energy consumption.
Energy optimisation and a switch from fossil energy sources to renewable energy sources are needed for both buildings and the transport sector. Demand for technology that supports the switch from fossil fuels will grow and, as this technology becomes more available and the market grows, the prices will fall, contributing in turn to even greater demand.
A great deal of research and development are currently being carried out in energy optimisation and renewable energy. We believe that we are at the cutting edge of our industry. NIBE is already able to offer applications and solutions for climate-friendly energy efficiency enhancement. We consider it both an interesting challenge and a necessity to gradually change our product portfolio to fully support fossil-free technology.
Apart from major global trends, there are several factors that directly affect our business development.
One of the very strongest driving forces behind our business is the growing demand for components, products and systems that enhance energy efficiency.
Economic trends affect willingness to invest in new products and solutions that enhance energy efficiency. However, where new systems must be installed, the willingness exists to invest in energy-saving and thus cost-saving measures, even during periods of recession.
The cost of fossil-based energy generation often affects the choice of system for heating and indoor climate comfort. The low oil and gas prices which continued to prevail in 2016 are an inhibiting factor for new investments in solutions using renewable energy, primarily in regions with a high level of gas-based heating systems.
Political stability creates regional predictability. At the same time, we are affected by the geopolitical situation and growing nationalism and protectionism in many countries, which may entail restrictions to free trade.
National economic policy instruments for switching to lower energy use and increasing the proportion of renewable energy have a high impact on our markets. Sudden changes in these instruments create a volatile market with a risk of short-term decisions.
Access to capital and the cost of financing is affected by interest rates. We also see a clear trend among investors and lenders to increasingly assess companies from a sustainability perspective, and this may be directly related to their willingness to finance projects.
NIBE’s markets can generally be described as fragmented. Competition is primarily local and regional.
As our business grows into the climate control industry, we encounter large new international players and must compete with them accordingly.
The total market size in our Business Areas is significant and the total market value is currently estimated to be nearly SEK 600 billion. The biggest market is that for domestic heating/cooling and ventilation, the NIBE Climate Solutions market, worth just over SEK 500 billion, followed by the NIBE Element market, worth just over SEK 50 billion, and the NIBE Stoves market, worth just over SEK 30 billion.
NIBE has a strong market position in the Nordic region in all three of the Group’s Business Areas. Despite an ambitious growth target of sales of SEK 20 billion by 2020, we can see that there is significant potential for acquisition-driven growth on a global level.
We have a growing international presence in industrialised markets on five continents. We are also continuing to enhance our capacity to meet demand worldwide, while increasing the diversification of operational risks.
In our opinion, we have a strong position and good opportunities to meet demand and achieve our vision – to create world-class solutions in sustainable energy.
We are making an active contribution to the transition from fossil to renewable with the focus on energy efficiency enhancement and are developing our product portfolio in line with the direction the business environment needs to take.
Our roots in Småland, Sweden, with a long tradition of high productivity, good quality and efficient cost control, mean that we have a trust-based, decentralised organisation that has great flexibility to successfully meet the varied demands and conditions of the market.
We have implemented acquisitions for a long time and have a well-established acquisition process in terms of identification, implementation and operations. As our markets are globally fragmented with many operators, we still have good potential for further acquisitions.
Our acquisition-driven growth takes place within the framework of strong, healthy finances.
In 2016, we continued to work to identify our most important sustainability areas to ensure that we continue to focus on the right things in the future.
We have included the following in the stakeholder groups whose opinions are of greatest importance to the Company and/or are affected most by the Company’s performance: shareholders, B2B customers in various sectors, end customers and installers, employees, suppliers, analysis institutes and other representatives of the financial sector and public authorities (supervisory and local).
From these, we selected a number to approach via interviews and to collect information from notes at meetings. We also studied what stakeholders ask us about to ascertain what they are interested in. With some of the groups we have an ongoing open dialogue that permits us to compile qualitative information. The method for addressing each group was determined by the number of stakeholders in the group and the time available for practical implementation.
The results of the qualitative surveys were used to create a simple questionnaire with identified sustainability aspects in six different areas: finance, products, environment, working environment, governance and society. The questionnaire was completed online by around 200 individuals.
We were not able to cover all stakeholder groups in 2016 and still have relatively limited statistical data from the quantitative surveys. We see this as an ongoing process in which the data will be improved from year to year as we gather more facts. However, it was possible to compile a sufficient quantity of data during the year to create a representative basis for our materiality analysis.
With the Group’s working group for sustainability issues, Group management carried out a materiality analysis based on the areas that are regarded as most relevant to the Group’s operational focus and geographical presence as well as international initiatives such as the Global Compact and Agenda 2030 (SDG). The assessment also included business environment requirements, global trends, standards (GRI, ISO 14001 and CDP), the Company’s expected future growth, with the concomitant risks and opportunities, and the outcome of the dialogue with stakeholders.
If we compare NIBE’s current work in the areas identified as priorities in the materiality analysis, it sits well with the choices and priorities made by NIBE to date:
We adds value based on the initiatives outlined above. An understanding of the world around us and dialogue with our stakeholders helps us choose the right priorities throughout the value chain. The result is that we maximise the positive value for our stakeholders and minimise any negative impact.
Aggressive product development with the focus on innovation for sustainable development adds value for customers, society and the environment.
Responsible purchasing subject to criteria for quality, ethical business principles and sustainability adds value for our suppliers, their employees and their subcontractors.
High productivity, efficient resource utilisation, minimum environmental impact and a good working environment add value in the form of optimum quality with minimum inputs.
Honest marketing of sustainable products and solutions lays the foundations for customer satisfaction, long-term relationships and stable earnings.
Our products add value year after year in the form of reduced energy costs, reduced climate impact and better functionality.
**FTSE LCE ™ (Financial Times Stock Exchange Low Carbon Economy) is a quantitative model that is specially designed to form the basis for investors in assessing companies’ performance in the transition to a low carbon economy. Companies must disclose the proportion of their sales that is from classified product groups, and comparisons are made over time for each sector. The index is still in the development stage.
*VOC = Volatile Organic Compounds
*NOx = Nitrogen oxides
*SOx = Sulphur oxides
NIBE – a Global Group with sales
and operations on five continents.
NIBE Industrier AB (publ)
Box 14, 285 21 Markaryd
Hannabadsvägen 5, Markaryd