Lagercrantz Group Annual Report 2006/2007
Annual Report 2006/2007
SWEDEN
Visitors’ address, Torsgatan 2 Tel +46 8 700 66 70 Fax +46 8 28 18 05
www.lagercrantz.com SE 5562824556
Contents
The Year That Went 1
Lagercrantz Group 2
Lagercrantz Group in Brief 3
President’s Statement 4
Vision, Business Concept, Goals and
Strategies 6
Decentralisation and Management
by Objectives 7
A Strong Corporate Culture 8
Business acumen 10
Strong Market Positions 11 Increased Value Added 12
Acquisitions 13
Division Electronics 14
Division Mechatronics 16
Division Communications 18
The Lagercrantz Share 20
FINANCIAL REPORTING
Financial Development in Brief 24
Administration Report 26
Allocation of Earnings 28 Risks and Risk Management 29
Income Statement 30
Balance Sheet 31
Changes in Shareholders’ Equity 33
Cash Flow Statement 34
Notes 35
Audit Report 55
Corporate Governance 56
Board of Directors and Auditors 58
Management 59
Annual Meeting 2007 60
Calendar 60
Addresses 61
Addresses
LAGERCRANTz GRouP AB (PuBL) Torsgatan 2
Box 3508 SE-103 69 Stockholm SWEDEN Tel +46 8 700 66 70 Fax +46 8 28 18 05 www.lagercrantz.com
Form and production: Hallvarsson & Halvarsson.
Text: Hallvarsson & Halvarsson with Lagercrantz Group.
Photo: Magnus Fond among other Translation: Ole Böök
Printing: Elanders Gummessons, 2007.
CoMMuNICATIoNS
ISG Systems AB Sporthallsvägen 10 SE-263 34 Höganäs SWEDEN Tel: + 46 42 36 21 40 Fax: + 46 42 36 21 49 www.isg.se
STV Video Data AB Anderstorpsvägen 12, 2tr SE-171 54 Solna SWEDEN Tel: + 46 8 568 441 00 Fax: + 46 8 568 441 01 www.stv.se
Nordic Alarm AB Englundavägen 11 SE-171 41 SOLNA SWEDEN Tel: + 46 8 27 27 27 Fax: + 46 8 735 52 58 www.nordicalarm.se
Heath Comm AS P.O. Box 7265 C. Sundtsgate 29 NO-5020 Bergen NORWAY Tel: + 47 55 304 600 Fax: + 47 55 304 602 www.heathcomm.no
Heath Comm AB Industrivägen 10 SE-171 48 Solna SWEDEN Tel: + 46 8 514 844 15 Fax: + 46 8 514 844 16 www.heathcomm.com/
sweden
Lagercrantz Communication AB P.O. Box 983 Kung Hans väg 3 SE-191 29 Sollentuna SWEDEN Tel: + 46 8 626 41 00 Fax: + 46 8 754 77 59 www.lagercrantz.se
Betech Data A/S Skelmarksvej 4 DK-2605 Brøndby DENMARK Tel: + 45 43 487 470 Fax: + 45 43 487 488 www.betechdata.dk MECHATRoNICS
Elfac A/S Priorsvej 23 DK-8600 Silkeborg DENMARK Tel: + 45 86 801 555 Fax: + 45 86 824 050 www.elfac.dk
Enkom oy P.O.Box 16 Nyåkersvägen 6 FI-65610 Korsholm FINLAND Tel: + 358 6 318 99 00 Fax: + 358 6 318 99 10 www.enkom.fi
Finn-Crimp oy P.O. Box 16 Nyåkersvägen 6 FI-65610 Korsholm FINLAND Tel: + 358 6 322 62 22 Fax: + 358 6 322 62 00 www.finn-crimp.fi
Kablageproduktion i Västerås AB Omformargatan 12 SE-721 37 Västerås SWEDEN Tel: + 46 21 81 51 51 Fax: + 46 21 81 51 61 www.kablageproduktion.com
ACTE Supply AB P.O. Box 13 Allén 6 A, Sundbyberg SE-601 02 Norrköping SWEDEN Tel: + 46 8 445 28 00 Fax: + 46 8 98 26 19 www.acte.se
Elpress AB P.O. Box 186 Industrivägen 15 SE-872 24 Kramfors SWEDEN Tel: + 46 612 71 71 00 Fax: + 46 612 130 20 www.elpress.se ELECTRoNICS
ACTE A/S Skelmarksvej 4 DK-2605 Brøndby DENMARK Tel: + 45 46 900 400 Fax: + 45 46 900 500 www.acte.dk ISIC A/S Edwin Rahrs Vej 54 DK-8220 Brabrand DENMARK Tel: + 45 70 207 077 Fax: + 45 70 207 976 www.isic.dk ACTE oy P.O. Box 36 Larin Kyöstin tie 4 FI-00641 Helsingfors FINLAND Tel: + 358 9 752 761 Fax: + 358 9 752 766 59 www.acte.fi ACTE AS P.O. Box 190 Vestvollveien 10 NO-2021 Skedsmokorset NORWAY
Tel: + 47 63 898 900 Fax: + 47 63 879 000 www.acte.no ACTE Sp. z o.o.
ul Krancowa 49 PL-02-493 Warsawa POLAND
Tel: + 48 22 336 02 00 Fax: + 48 22 336 02 01 www.acte.pl SECoS GmbH Zugerstrasse 74 CH-6341 Baar SWITZERLAND Tel: + 41 41 769 3538 Fax: + 41 41 769 3539 www.secos.ch ACTE Components Ltd 2.2 Intec Business Park Wade Road, Basingstoke Hampshire, RG24 8NE, UK UNITED KINGDOM Tel: + 44 1 256 845 888 Fax: + 44 1 256 333 031 www.actecomponents.co.uk
ACTE Embedded Technology AB P.O. Box 13 Allén 6 A, Sundbyberg SE-601 02 Norrköping SWEDEN Tel: + 46 8 445 28 00 Fax: + 46 8 98 26 19 www.acteembedded.se ACTE Wireless AB P.O. Box 4115 Allén 6 A, Sundbyberg SE-171 04 Solna SWEDEN Tel: + 46 8 445 28 00 Fax: + 46 98 26 19 www.actewireless.se unitronic AG Mündelheimer Weg 9 DE-40472 Düsseldorf GERMANY Tel: + 49 211 951 10 Fax: + 49 211 951 11 11 www.unitronic.de
Lagercrantz Asia Co Ltd Room 707 & 709, 7F, Premier Centre 20 Cheung Shun Street Cheung Sha Wan, Kowloon HONG KONG
Tel: + 85 2 274 318 16 Fax: + 85 2 274 225 06 www.lagercrantz-asia.com
K & K Active oy Itälahdenkatu 22 B FI-00210 Helsingfors FINLAND
Tel: + 358 9 6855 0550 Fax: + 358 9 6855 0551 www.kandk.fi
K & K Sales oy Itälahdenkatu 22 B FI-00210 Helsingfors FINLAND
Tel: + 358 9 6855 0550 Fax: + 358 9 6855 0551 www.kandk.fi
Direktronik AB P.O. Box 234 Konsul Johnsons väg 15 SE-149 23 NYNÄSHAMN SWEDEN
Tel: + 46 8 52 400 700 Fax: + 46 8 520 181 21 www.direktronik.se
This report contains “forward-looking statements”. Such statements reflect management’s current expectations with respect to certain future events and potential financial performance. Although the Company believes that the expectations reflected in such forward looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Such statements are subject to risk and uncertainties and such future events and financial performance could differ materially from those set out in the forward looking statements as a result of, among other factors, (i) changes in economic, market and competitive conditions, (ii) success of business and operating initiatives, (iii) changes in the regulatory environment and other government actions, (iv) fluctuations in exchange rates and (v) business risk management. This report does not imply that the company has undertaken to revise these forward-looking statements, beyond what is required under the company’s registration contract with the OMx Nordic Exchange if and when circumstances arise that will lead to changes compared to the date when these statements were provided. This document is essentially a translation of the Swedish language version. In the event of any discrepancies between the translation and the original Swedish document, the latter shall be deemed correct.
The Year That Went
2006/2007 2002/2003
MSEK MSEK
2003/2004 2004/2005 2005/2006 0
500 1,000 1,500 2,000
0 20 40 60 80 100
MSEK MSEK
0 100 200 300 400 500 600
10 15 20 25 30 35
Kv 1 Kv 2 Kv 3 Kv 4
74
increase in operating incomen Net revenues increased by
23 percent to MSEK 1,974 (1,608).
n Operating income increased by 74 percent to MSEK 99 (57).
n The operating margin increased to 5.0 percent (3.5 percent).
n Income after taxes increased to MSEK 65 (39).
n The return on equity was 16 percent (10 percent).
n Earnings per share increased to SEK 2.75 (1.63).
n A dividend of SEK 1.25 is proposed (1.00).
n Four acquisitions made during 2006/07.
Events after year-end
n Direktronik AB acquired with closing in April 2007.
Net revenues and operating income
Net revenues
Quarterly data 2006/07
(compared to 2005/06)
NNet revenues Operating incomeOperating income
2006/2007 2005 / 2006
Net revenues, MSEK 1,974 1,608
Operating income, MSEK 99 57
Operating margin, % 5.0 3.5
Income after financial items, MSEK 90 55
Income after taxes, MSEK 65 39
Equity ratio, % 39 52
Earnings per share, SEK 2.75 1.63
Number of employees at end of period 751 541
Return on equity, % 16 10
Dividend, SEK* 1.25 1.00
* Proposed dividend for 2006/07.
Key financial indicators
%
4
acquisitionsduring
the year
2006/2007 2005/2006
and an additional company acquired after the financial year
2
DIvIsION
Electronics
DIvIsION
Mechatronics
DIvIsION
Communications Lagercrantz Group
Supply AB Embedded Technology AB
AS A/S
Oy
Sp. z o.o.
Components Ltd
Wireless AB
ISIC A/S
Lagercrantz Asia Co Ltd.
The division is a value-creating distributor of niche components and systems in the field of electro- nics. Sales are based on customised solutions where components are designed into customers’
products. The division focuses on two product areas: industrial wireless communication (M2M)
− where the division is the market-leading distri- butor of GSM modules in northern Europe − and embedded systems, where the division is one of the leaders in sales of industrial and marine PCs.
Norge
Sverige The division manufactures customised cable
harnesses and kindred products, primarily for customers in the electric and manufacturing industries. The division is a leading manufacturer in selected segments.
The division is also active as a dealer in electro- mechanical and passive components, connectors and electric components in Sweden and Finland.
The division is also a leading producer of electric connection systems for the Nordic market.
The division offers products and systems in the fields of digital image transmission, security, access products and software, either as a value- creating distributor or as a total supplier of solutions. The division is a market leader in sales of video conferencing solutions in Sweden and a market-leading distributor of CAD software in Denmark and Norway. The division has a strong position in camera-based surveillance systems and other products for technical security, and in the area of access products for telecom and broadband networks and data security.
(from April 2007) K&K ACTIVE OY K&K SALES OY
Lagercrantz Group is a technology- trading group in electronics, electrics, communication and adjacent areas.
The Group operates in a decentralised mode, with value-creating sales close to its customers and markets with leading positions in several expansive niches.
The business is organised in three divisions: Division Electronics is primarily involved in marketing solutions in industrial wireless communication
and embedded systems. Division Mechatronics offers electric and electro- mechanical components and production of cable harnesses and connection systems. Division Communications provides solutions in digital image transmission/technical security, design software and access products.
Lagercrantz is active in eight countries in Northern Europe and in China.
Lagercrantz Group in Brief
1.
2.
3.
Operating income by division, %
1. Electronics 23% (34) 2. Mechatronics 35% (23) 3. Communications 42% (43)
3.
2.
1.
Revenue by division, %
1. Electronics 38% (46) 2. Mechatronics 27% (21) 3. Communications 35% (33)
1.
6.
2.
3.
4.
5.
Consolidated revenues by country, %
1. Special products and systems, 57% (67)
2. Standard components, 10% (13) 3. In-house production, 30% (18) 4. Service and consulting, 3% (2)
Consolidated revenues by product category, %
1. Sweden, 39% (34) 2. Denmark, 32% (33) 3. Norway, 10% (12) 4. Finland, 8% (10) 5. Germany, 5% (5) 6. Other, 6% (6)
1.
2.
3.
4.
The business concept is to, within well defined niches, and in partnership with customers and suppliers, offer value-creating technical solutions in electronics, electrics, communication and adjacent areas.”
4
JöRGEN WIGh President & CEO
ThE YEAR ThAT WENT
The 2006/07 financial year brought continued suc- cess for the Lagercrantz Group. Operating income increased by 74 percent to msek 99, from msek 57 the year before. Including the last quarter of the year, we have now delivered eight consecutive quarters of improved earnings compared to the year before.
Earnings per share increased by 69 percent to msek 2.75 (1.63). The goal of not less than 15 percent earnings growth has thus been surpassed.
Aside form a generally improved market situation, we believe that the transformation efforts we have been pursuing in the Group for the past couple of years is one of the main reasons for the success.
ThREE STRONG DIVISIONS
Lagercrantz today has three strong divisions and a broader orientation than before. Revenues during 2006/07 were divided among the divisions as follows:
Electronics 38 percent, Mechatronics 27 percent and Communications 35 percent. This represents a big difference from a couple of year ago when the Group’s development more one-sidedly hinged on the development in division Electronics. Divisions Mechatronics and Communications have grown since then, organically and via acquisitions. We have broadened operations into areas that we find inte- resting from a growth and profitability perspective.
Examples of such new areas are electric connections
technology in division Mechatronics and technical security in division Communications.
This gives today’s Lagercrantz a clear orientation in the direction of value-creating technology trade. We have created a broader base upon which to grow and our ambition is to develop our units and divisions into market-leading players in their respective niches.
STRONGER DECENTRALISATION AND MANAGEMENT BY OBJECTIVE
Our decentralisation efforts create a growing number of managers and associates in the Group who are wil- ling and able to assume responsibility for developing their businesses with sharp focus on profitability. Our corporate culture was reinforced during the year, in part through our internal program ‘Vision & Values,’
where we explain and clarify to everybody in the Group where we are headed and what is expected of all units, managers and associates in the Group. The greater sense of responsibility this has fostered has resulted in improved performance ratios at several of the Group’s business units.
Management by objective has also been rein- forced. Lagercrantz Group’s business units draw up a business plan with clear sales, earnings and working capital goals. Annual goals are broken down by quar- ter and constitute the basis for follow-up and bonus systems.
LAGERCRANTZ ON ThE RIGhT TRACK. The year was distinguished by a strong increase in earnings. This proves that we are on the right track. We are now ready for the next step on the path staked out, with a clear ambition of reaching all of our financial goals.
President’s Statement
Our ambition is to develop our units and divisions into market-leading players in their respective niches.”
Our corporate culture was reinforced during the year, in part through our internal program
‘Vision & Values’”
My heart-felt thanks to all associates in the Group. Thanks to you we have succeeded well during the year.”
FOCuS ON MARGINS
One other reason behind our success is our sharp focus on margins. This is particularly visible in our gross margin, which strengthened during the year from 21.2 percent to 24.5 percent. This has been accomplis- hed in several ways. The Group’s over-arching objective when we are engaged in business development, or in acquisition situations, is to seek technology areas and business models that allow good margins.
Active operational measures are also taken at the business unit level. We are continually striving to increase value-creation with a greater proportion of customised products, solution sales, in-design and services. We have also conducted pure margin projects in several units in the Group. Product line changes, away from standard components with low margins is also a clear aspiration, as is developing strong market positions in distinct niches for each unit.
GROWING PACE OF ACQuISITIONS
And finally, the increased rate of acquisitions is an important reason for our success. Internally, we have clarified the acquisition process, making five acquisi- tions during the past year or so. This is a considerably higher rate than before and it is gratifying to be able to declare that all have contributed to the year’s suc- cesses. In terms of revenues, the acquisitions have contributed msek 305, adding msek 19 in income before taxes in 2006/07.
ThE FuTuRE
The successes during the past two years in Lagercrantz prove that we are on the right track. The trend is posi- tive and sights are now aimed on the Group’s second financial goal as well. In addition to earnings growth of at least 15 percent annually, the Group must aim for a return on equity of at least 25 percent. For 2006/07 this number was 16 percent, an increase from 10 per- cent the year before. In order to increase profitability we will continue in the same vein as before, with margin focus and capital efficiency improvements in existing businesses and additional acquisitions. Based on a continued stable market development, the speed of our internal transformation and the pace at which can find suitable acquisitions, will be decisive for how long time it will take for Lagercrantz Group to reach its goals.
In closing, I would like to extend my heart-felt thanks to all associates in the Group. Thanks to you we have succeeded well during the year.
June 2007, Jörgen Wigh President & CEO
6
Vision, Business Concept, Goals and Strategies
BuSINESS CONCEPT
Within well defined niches, and in partnership with customers and suppliers, Lagercrantz Group offers value-creating technical solutions in electronics, electrics, communication and adjacent areas.
The business concept is founded on Value-creating Technology trade. This usually entails developing tailor-made solutions to customers’ specific needs, based on cutting-edge technology from leading supp- liers. For suppliers, this means customer-focused, value-creating sales and market cultivation, and for the customers it means tailor-made solutions based on state-of-the-art technology. The business concept was clarified about a year ago by placing emphasis on the fact that Lagercrantz Group is a value-creating technology trading company. At the same time we broadened our scope as we identified adjacent areas to electronics and communication with good growth and profitability potential. Examples of such areas are electrical connection systems and technical security.
VISION
The leader in value-creating technology trade with market-leading positions in several expansive niches.
Our vision is to consolidate our position as a profit- able, stable growth company by continuing to build and develop a number of leading businesses in well- defined niches. Today, the company comprises around 25 units but there is nothing in our business model to prevent us from doubling or tripling that number.
Our vision is based on the following key concepts:
n Leading means that, over time, the Group and its units must live up to our three basic tenets:
Growth, Profitability and Development. The first two comprise our financial goals. The third, deve- lopment, means that we must always implement positive changes within the niches in which we operate – in the form of new technology and new solutions – and help to drive the sector forward.
n Value-creating means that we in everything we do add value to our products and services, create solu- tions and new products, design and customise for the needs of the customer, offer service, support and training.
n Market-leading positions in several expansive niches are also fundamental. Our experience tells us that we are most successful in busines- ses where we are an important player in a niche.
Opportunities for value-creating and customised solutions are great and by having a strong posi- tion in a well defined area we can attract the best suppliers, work with the strongest and most chal- lenging customers and recruit the most competent associates. We typically regard a niche as a market worth msek 200-500 and which is distinguished by technically unique products. We strive for a posi- tion as number one or two in order to qualify for a leading position.
FINANCIAL GOALS
n Earnings growth of 15 percent per year over an economic cycle, measured as income after net financial items. This means that the result must double over a five-year period.
n Return on equity of at least 25 percent.
Internally, these financial goals are translated into fundamental requirements for each established business unit in the form of growth, profitability and development. The profitability requirement is defined as a return on working capital of 45 percent (see next page).
GROWTh STRATEGIES
In order to achieve these goals for earnings growth and profitability, Lagercrantz Group uses six strate- gies. Application of these strategies is an important reason for Lagercrantz Group’s improved results in recent years. The strategies were formulated in the course of the strategy work performed a few years ago.
n Decentralisation and Management by Objective n A strong corporate culture
n Business acumen n Strong positions in niches n Increased value added n Acquisitions
On the following pages we describe these strategies in greater detail. n
X Turnover rate, times/year Y Profit margin, % 14
12
10
8
6
4
2
0
R/RK 45%
R/RK 10%
14 12 10 8 6 4 2
Strategy – Decentrali- sation and Management by Objective
DECENTRALISATION AND MANAGEMENT BY OBJECTIVE
Decentralisation is a firmly rooted conviction within Lagercrantz Group. The Group consists of just over 25 operating subsidiaries, each comprising a profit centre with its own identity, its own goals and stra- tegies. Subsidiary management groups act as entre- preneurs, who like true enthusiasts develop business and operations under a great deal of freedom, but also with clear accountability. Business decisions are thus made close to the customer and the market, which leads to better decisions. The Group thus has purposeful, result-oriented managers and associates, who as a body constitutes is a powerful engine for the Group’s development. The driving force that this creates is more important than the possible synergies that a centralistic organisation would bring. Each unit focuses on building a strong position in its niche and Lagercrantz Group offers newly acquired units a good “harbour” for continued development.
Steering of subsidiaries is by setting goals. Long- term, they are guided by our three basic principles of earnings growth, profitability and development. In the shorter term, business plans are drawn up annual- ly by each unit, with clear quarterly goals for income and capital tied up in the business. These are followed up on an ongoing basis and action is taken to ensure that the goals are achieved. Extensive benchmark- ing among subsidiaries incites improvements and
encourages the fighting spirit. This arrangement is reinforced by a bonus program and other incentives linked to the goals.
The Group’s role in this is to assist the business units in their development and continually to develop the Group’s structure. The Group sets the requirements for income, profitability and develop- ment for the subsidiaries. Group and division man- agement provides support in goal formulation and strategies and lends a hand in more complex supplier, customer and employee issues. It is also the Group‘s responsibility to secure the right management resources. Towards the business units the Group is also responsible for financial control and for bank- ing and financing issues. Centrally in the Group we are also responsible for business development in the sense that we analyse and decide on which areas the Group should be active in. Evaluation of new and old technology areas, niches and acquisition issues are therefore naturally on the agenda.
We have seen clear proof in recent years of the virtues of decentralisation and management by objec- tive. Companies with weak profitability have been broken down into business units which has created a clear division of responsibility. This has subsequently led to increased profitability and earnings growth.
The increased decentralisation is one of the explana- tions for Lagercrantz Group’s positive development in recent years. n
Management by objective
Among the tools used to steer the subsidiaries is the internal profitability goal of 45 percent return on working capital.
(Working capital can somewhat simplified be defined as inven- tories plus accounts receivable minus accounts payable). This goal can be reached in several ways: by a high margin and/or a high capital turnover rate. The degree of focus on margin and working capital, respectively, varies depending on the subsidiar- ies’ prerequisites. In certain companies, for example, it may be motivated to maintain high inventory (which makes the working capital increase) since that makes it possible to offer prompt and secure delivery, which customers appreciate and are willing to pay for. One reason why we internally use this profitability meas- urement is that it makes visible how management of inventories, accounts receivable and accounts payable affects income via high working capital that ties up capital that must be financed.
8
A STRONG CORPORATE CuLTuRE
Lagercrantz Group grows a strong corporate culture.
The culture is the language, the common denomina- tor, of how we work and look at business. The Group possesses extensive joint experience in being traders and what has proved to be a prescription for success in the type of technology trade we are engaged in. By finding a forum for sharing this competence, and by continually strengthening and involving new associa- tes, and newly acquired business units in our culture, the efficiency of our work improves and the under- standing for what we want to achieve is enhanced.
In order to strengthen our corporate culture fur- ther we revitalised our Vision & Values programme during 2006/07. The most important aspects of our culture, our approach and our steering model, are assembled in Vision & Values. “Economics for Businessmen” is reviewed with all associates in the Group within the framework of the programme. The programme was launched during the autumn of 2006 and has been gone through business unit by business unit. The result has been clear − more and more of the collected thoughts are being applied to achieve the Group’s goals.
IMPORTANT ASPECTS OF VISION & VALuES ARE:
n How a company’s vision at the group and subsidiary level creates a distinct driving force for associates and as a lode star for how we act.
n Our three basic requirements (earnings growth, profitability and development) that encompass all operations in the Group, and the opportunities and responsibility our decentralised philosophy entails for the individual associates.
n The toolbox “Economics for Businessmen” that contains simple and effective models, ways of thinking and key indicators for evaluation of the strength of the enterprise, a framework for stra- tegic development, and check-lists and rules of thumb for what has been characterised as good and bad business over the years.
n Values that are at the core of how we relate to each other and how we want to work and our take of associates’ responsibilities and authority. The values are:
Business acumen is all about seeing business oppor- tunities, building and nurturing relationships in the short and long run, having earnings focus and a win- ner instinct and a willingness to work in teams. In the Lagercrantz Group about one third of the associates have a direct selling role, but all associates are regarded as sales representatives.
Responsibility and freedom. The Group is distin- guished by decentralisation, management by objec- tive and earnings focus. Managers and associates at Lagercrantz Group are thereby offered opportunities and are also expected to be rich in ideas, creative and willing to assume responsibility. At Lagercrantz Group the individual must be able to realise many own ideas for doing business, all with the added condition that it contributes to earnings. This approach builds the motivation, sense of responsibility and entrepreneurial spirit that is so crucial to the Group’s development.
Simplicity means an efficient decision-making pro- cess, working in a well thought-out and concentrated manner and to simplify problems and to concentrate on what is important. The strategic and tactical tools for analysis and follow-up used in the Group must be simple. We strive for earnings focus and a mini- mum of bureaucracy in what we do. For example, the Group does not use budgets.
Efficiency is to do the right things and do things right. It is all about working in a focused and metho- dical manner, and devoting time to activities that give high goal fulfilment.
Willingness to change on the part of managers and associates is important for success. If we are to conti- nue being competitive, high demands will be placed on us for rapid adjustment to the market and the ability to satisfy and exceed customers’ desires.
Our corporate culture is of great importance for earnings growth and profitability. It gives an organi- sation that works efficiently with the right things and with a focus on earnings. We want to be able to finance future growth by earnings in existing businesses.
Through our corporate culture we get an organisation that understands and contributes thereto. n
Strategy – A Strong Corporate Culture
In order to further strengthen the corporate culture, a project was carried out during 2006/07 to revitalise our Vision & Values pro- gramme. This was done by reviewing the most important parts of our culture, our approaches, steering models and “Economics for Businessmen” with all associates in the Group.
The programme was launched in the summer of 2006 and is then carried out business unit by business unit. During the year the President or another representative of Group management visited the subsidiaries for a full day review and discussion around Vision & Values. Only a few subsidiaries remained to be visited by year’s end.
The result was very clear − a growing number of associates use the assembled thoughts to achieve their and the Group’s goals.
The picture is from Vision & Values-review with subsidiary Acte Wireless in Sundbyberg
Vision &
Values, Acte Wireless Strategy – A Strong Corporate Culture
RESPONSIBILITY
SuBSIDIARY/BuSINESS uNIT (>700 ASSOCIATES)
n Goal fulfilment with respect to sales, earnings and capital tide up n Earnings responsibility for the subsidiary
n Operationally develop the profit centre (customers, suppliers, products, associates) n Identify new areas and complementary acquisitions
DIVISION/BuSINESS AREA
n Development/follow-up of subsidiaries n Board of Directors work in subsidiaries n Secure the right resources
n Strategy/Business development in product/ technology area n Acquisitions
n More difficult customer/supplier and associate issues
GROuP
n Owner/Stock market issues n Follow-up development/economy n Financing
n Acquisitions
n Secure the right resources
n Central procurement co-ordination (insurance, etc.)
Customers & Suppliers
Division 1 Division 2 Division 3
Group
Subsidiary/Business unit OuR WAY OF WORKING GIVES VISIBILITY ABOuT RESPONSIBILITIES IN ThE GROuP.
10
A few years ago Acte A/S in Denmark had the highest earnings of the subsidiaries in division Electronics. And still the company elected to implement major changes in its organisation. The basic tenet behind the change was to tone down the classic distributor role aimed at representing many suppliers, instead building an organisation focusing on the customers, in part by appointing key account managers. The company hired new sales competence, with experience from project and solution selling. The result was that Acte Denmark now captures market shares in the market, while maintaining margins. A good example of business acumen.
10
ENTREPRENEuRShIP
One of the most basic strategies, and also one of our values, is the business acumen that must mark everything we do.
Most of Lagercrantz Group’s businesses are trading companies in the sense that they do not have prod- ucts developed in-house. Instead we work on trying to refine our suppliers’ products. Our raison d’être lies in the value we add. Basic to this added value is the entrepreneurship of our associates, which can be described as that we should be our customers’ best purchasing organisation and our suppliers’ best sales organisation. We are not primarily technicians or economists; we are businessmen.
Entrepreneurship involves working close to cus- tomers and suppliers, seeing business opportunities and thereby creating added value. This business acumen, together with our technical competence and our long-term approach, builds trust with our customers. The customer relationship often has the character of a partnership, and allows Lagercrantz to come in at an early stage in the customer’s develop-
ment process. Being there early in the process has distinct advantages. It is an effective way of building a relationship and laying the foundation for future sales. It also offers opportunities to give advice about how Lagercrantz Group’s products and services can create added value for the customer.
The incidence of business acumen is significant in the Group’s manufacturing units as well. Aside from being an efficient sales organisation, an important aspect of the business acumen here is to be proficient purchasers of materials, skilled production planners and to have an effective after-market organisation.
The technical and business competence is continu- ally strengthened by competence development. By developing businessmen we create growth and profit- ability for the Group.
Employment with one of Lagercrantz Group’s subsidiaries is marked by freedom, responsibility and development opportunities. Read more about this on our website: www.lagercrantz.com.
Average number of employees in the Group Of which men
Sweden 377 75%
Denmark 190 47%
Norway 41 68%
Finland 74 43%
united Kingdom 11 64%
Germany 22 64%
Poland 19 58%
Other 7 57%
TOTAL 741 63%
Strategy – Business acumen
Business acumen, Acte A/S
Examples of Lagercrantz Group’s strong positions in niches STRONG MARKET POSITIONS IN NIChES Our fourth common Group strategy is our ambition to get our subsidiaries to build strong market posi- tions in niches. Niche focus is a part of our business concept and by acting in niches:
n We are in a sub-market that we can impact.
n We have competitive advantages towards the really large players thanks to customer proximity and customer adaptation.
A niche is often corresponding to a market, about msek 200-500 in worth, and can be a technically well defined area (technology niche), a specific customer segment (customer niche) and/or a geographical area.
For Lagercrantz Group to have a leading market position means that we want to be number one or two in each respective niche.
Thereby:
n We are always a player to count with, and we can impact the business terms.
n Customers are easily identifiable and can be cost- effectively cultivated.
n We get appreciation from our customers since we are able to offer a solution that satisfies their need, which creates opportunities for a long-term part- nership.
n We become attractive to our associates since we get to work with the most advanced technology to meet our customers’ stringent demands.
n We can attract the best suppliers since we give them access to the market, the right customers and high competence.
Overall, this opens the way for profitability and growth since experience shows that profitability is better on a long-term basis in those units which have strong market positions. The importance of strong market positions in niches is clearly documented in the business plans developed for each of the subsidia- ries, where we give special emphasis to the importance of carefully defining the segments and markets within which we intend to build a strong position.
Lagercrantz Group today has strong market positions in a number of niches. A few examples of such areas are set forth in the table below. n
Strategy – Strong Market Positions
AREA MARKET POSITION
ELECTRONICS Embedded systems Leading distributor in marine and industrial PCs.
Industrial wireless communication Market-leading distributor of GSM modules in the Nordic Region and Poland.
MEChATRONICS Cable harnesses Market-leading manufacturer of customised cable harnesses within chosen segments.
Electrical connection systems Market-leading manufacturer for the electrical grid and the electrical operator market in the Nordic Region.
COMMuNICATIONS Video conferencing Market-leading solution seller of remote meeting solutions in Sweden.
CCTV/Technical security Leading systems integrator in infrastructure CCTV and in technical security solutions for high security objects.
CAD/CAM Sole distributor in Denmark and Norway of the world-leading solution for design software.
12
12
STV
12
INCREASED VALuE ADDED
Our fifth common Group strategy is that Lagercrantz Group’s subsidiaries shall be aimed at delivering high value added to its customers. We do this by adding local market knowledge to our suppliers’ products, as well as technical competence, customer adaptation, in-design and assembled solutions consisting of products from several suppliers. In addition, or local presence means that we can offer training, support and service more efficiently than the suppliers alone.
Our local presence also make our suppliers’ products more accessible. The frequency of wrong purchases and returns decreases, since we know the purchasing organisation of our customers and are able to better identify the right product for the customer’s needs.
The trend towards higher value added has grown stronger in recent years, in part because that is in line with our ambition of operating in a niche-focused rather than volume-focused mode since that allows for higher margins, in part because we see a growing need among our customers to reduce lead times by outsourcing production or buying finished or semi- finished products. Customers’ ambition to reduce lead times means that they increasingly want to buy quality-assured solutions rather than doing their own development work. As a value-creating distributor this means that Lagercrantz Group can re-use suc- cessful solutions for more customers. The Lagercrantz
Group does, however, conduct certain development in-house, but only if there is a distinct customer ben- efit. Our ambition to increase value added is also seen in the acquisitions we have made of companies with a large element of value-creation, such as in the form of proprietary products, or because the company is a systems integrator.
The higher degree of value added means that we are phasing out standard components with low margins and aim towards businesses that permit higher margins. In general, we look for areas that are technically more complex, or where we can profile ourselves via a unique offer, for example a high level of after-market support. Such change requires high technical competence among our associates and deep understanding of the customer’s needs. Further train- ing and new hiring are therefore important elements for some of the companies. The Group’s products and services are also increasingly directed to end custom- ers and not via middlemen, which requires a different type of sales process in certain companies.
High value for the customer also means that we can charge a good price. This manifests itself as a higher gross margin in the Group. Adding value thus contributes to good profitability. To create value for the customers is also a prerequisite for long-term organic growth. n
Strategy – Increased Value Added
higher value added in STV
Lagercrantz Group’s subsidiary STV is an example of a company that has gradually sought out higher value added.
STV was established in 1972 and was one of the pioneer companies in sales of video equipment, such as cameras, editing equipment and monitors for professional use. During the 1990s the company was involved in the transition from analogue to dig- ital technology. One of the consequences of this technology shift was lower margins on certain products.
Already in 1988 STV started an initiative in video-conferencing as a development project. As the market changed, STV gradually built up a very strong position in this niche and is now the market leader in Sweden in integrated communications solutions for remote meetings. Today STV concentrates exclusively on video- conferencing and has sales of approximately MSEK 100.
Added value is created in several ways, among them a help desk, installation and training, and via the in-house-developed service SmartMeeting for telephone, video and web meetings.
Acquisitions during the year
K&K SALES OY K&K ACTIVE OY ACQuISITIONS
The final, but absolutely not the least important stra- tegy is acquisitions. Our goal of earnings growth of 15 percent will be achieved in part by organic growth, and in part by acquisitions. Four acquisitions were made during the financial year, together making important contributions to the year’s positive result.
The goal is to make three to five acquisitions per year.
Acquisitions can strengthen the market position in existing areas, or be made to enter new, interesting markets or technology areas. In both cases it is very important that the acquired company has a well- tested business model, solid earnings capacity and good growth opportunities. When we explore new technology areas, acquisitions will primarily be made in the Nordic Region. When we expand in existing technology areas, the geographic area for acquisitions is extended to northern Europe. Acquisitions must contribute to our ambition of increased added value with more knowledge sales, in-house solutions and products. In terms of technology, priority is given to electronics, communication and adjacent areas. The main responsibility for acquisitions rests centrally in the Group. In addition thereto the subsidiaries have a responsibility to pass on information about interest- ing companies to the division heads, who together with the subsidiaries perform a first screening. Those responsible for the business get support from special- ists during the acquisition process. For valuation of acquisition candidates Lagercrantz Group uses a combination of different valuation techniques. The
valuation process varies depending on the company’s estimated growth and profitability. In many cases solutions with additional purchase money are used.
This is particularly true when the company’s future development is highly dependent on retention of the former owners in management and their willingness to contribute to the company’s development. The acquisition candidates we seek are often family owned, with entrepreneurs who want to continue the company’s development. It is then important that the seller feels that the company ends up in the right environment and will have continued development opportunities.
In several respects Lagercrantz Group offers an envi- ronment that is attractive to many entrepreneurs:
n A stable and financially strong group.
n A decentralised organisation with great freedom.
n A strong corporate culture which, correctly trans- ferred to the acquired company, can facilitate the next step in the development.
n Co-operation with world-leading companies in interesting technology areas.
n Support for development of personal leadership and entrepreneurship.
n Continued development of the company based on current organisation and with existing brand.
In order to ensure that acquisitions can be consum- mated with the right orientation, high quality and on the right terms and conditions, a structured acquisi- tion process is used that consists of five phases. Read more about it on our website,
www.lagercrantz.com.
Strategy – Acquisitions
Successful acquisitions during 2006/07 During 2006/07 Lagercrantz Group acquired four companies: Elpress, K&K Active, K&K Sales and Nordic Alarm. A fifth company, Direktronik, was acquired with the closing taking place in 2007/08. The total impact of the acquisitions on Lagercrantz Group’s 2006/07 revenues was approximately MSEK 305 and on consolidated income before taxes the effect was MSEK 19 after acquisition costs, which is equivalent to approximately SEK 0.60 per share after standard taxes. All acquisitions made a positive contribution to Lagercrantz Group’s earnings per share during 2006/07.
0 1,974
0 90
Revenues
2006/07 Income after financial items
2006/07
305 19
1,669 71
MSEK MSEK
14
38
38%
The division is a value-creating distributor of niche components and systems in electronics. Sales are based on custom- ised solutions where components are designed into the customers’ products.
The division is focused on two product areas: industrial wireless communication (M2M) − where the division, is a market- leading distributor of GSM modules in northern Europe − and embedded systems where the division, is one of the leaders in sales of industrial and marine PC’s.
Division Electronics share of operating income
2006/07
23%
Division Electronics
Division Electronics share of revenues
2006/07
2006/07 2005/06
Net revenues, MSEK 751 745
Operating income, MSEK 23 22
Operating margin, % 3.1 3.0
