Review of 2010 – USD version - Skanska

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Group overview
Financial and qualitative targets
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2006 2007 2008 2009 2010
”Outperform”-mål 2010: 3,7%
During 2010 the Group and a majority of its business units achieved their
“Outperform” targets. For the next five-year period, new targets have been
established for the Group and its four business streams.
Operating margin
The operating margin is an important yardstick of
performance in the Construction and Residential
Development business streams. Margins depend on
what type of business is being carried out and may also
vary between geographic markets. The “Outperform”
targets for individual markets are weighed together into
one target for an entire business stream.
Working capital
The Construction business stream has a target of
operating with negative working capital, with the
target defined as average working capital in the latest
five quarters divided by rolling twelve month revenue.
Return on capital and equity
Commercial Property Development, Residential
Development and Infrastructure Development – where
Skanska invests in project development – have targets
for return on capital employed. The target for adjusted
return on capital employed in Commercial Property
Development and Infrastructure Development includes
changes in market value but excludes currency rate effects.
Project points
An internal point system to enable measurement of
progress in long projects, even if a project is not recognized
in revenue during the year. Projects receive points
according to a defined scale depending on size and
stage of project development reached, such as for project
start-ups or other progress in the development process.
Project points are used in commercial property project
development and in infrastructure development.
Qualitative targets
In addition to financial targets, Skanska has adopted
qualitative targets, based on supporting the five zeros
vision: zero loss-making projects, zero environmental
incidents, zero work site accidents, zero ethical breaches
and zero defects. Some of these targets are based on specific
levels to be achieved in a given year, while others have absolutely
zero tolerance − for example zero ethical breaches.
Remuneration connected to targets
At Skanska many employees have some form of variable
salary elements or bonus as part of their compensation.
Total remuneration can be divided into three components:
fixed salary, variable cash remuneration and the
Group’s long-term incentive program, based on shares
(see Note 37, page 148). The allocation from the latter
two components is based on how well Skanska’s financial
targets have been met. The requirements in the Group’s
financial target plan have been broken down in such a
way that every project, district, region etc. has targets
that support Skanska’s overall ambitions.
Aside from achieving financial targets, a number of
qualitative targets must be met.
If qualitative targets are not met, any variable remuneration
based on financial targets may be reduced.
Operating margin in Construction
Rolling 12 months
%
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2006
2007
2008
2009
2010
”Outperform” target 2010: 3.7%
Outcome:
3.9%
Target:
3.7%
0
The five zeros vision
0 loss-making projects
0 work site accidents
0 environmental incidents
0 ethical breaches
0 defects
Financial ”Outperform” targets, 2010 1 Measure of earnings Target Outcome
Group Income after financial items, USD bn 0.6 0.8
Return on equity, % 16.0 20.9
Construction Operating income, USD bn 0.6 0.7
Operating margin, % 3.7 3.9 2
Working capital as a percentage of sales –11.7 –18.1
Residential Development Operating income, USD bn 0.1 0.1
Number of homes started as a percentage of homes sold 3 130 140
Percentage of completed homes on January 1, 2010 sold during the year 4 90 72
Commercial Property Development Operating income, USD bn 0.08 0.11
Return on capital employed, % 5 5.4 8.4
Leases, sq. m 150,000 100,900
Number of project points 25 30
Infrastructure Development Operating income, USD bn 0.03 0.03
Number of project points 80 93
1 For further information, see Note 37, page 148.
2 Outcome according to segment reporting.
3 Refers to Residential Development Nordic.
4 Refers to residential development in the Czech Republic and Slovakia.
5Including unrealized development gains and changes in market value.
12 Financial and qualitative targets Skanska Review of 2010 – USD version