HL Display
annual report 2009
3 The year in brief
4 HL Display’s business model – an over view 6 statement by the Ceo
9 acquisition
10 HL Display – operations, strategies and objectives 14 HL Display’s market and sales work
19 HL Display’s offering to customers 22 product development
24 operations 27 Case stor y
28 support processes – administration 30 Corporate responsibility
34 The share
36 risk and sensitivity analysis 37 nine year summar y 37 Definitions
38 administration report
group
40 income statement for the group
40 statement of Comprehensive income for the group 41 statement of Financial position for the group 42 statement of Changes in equity for the group 42 statement of Cash Flows for the group
parent Company
43 income statements for the parent Company 44 Balance sheets for the parent Company
45 statement of Changes in equity for the parent Company 45 statement of Cash Flows for the parent Company
46 notes to the Financial statements 69 audit report
70 statement by the Chairman 71 Corporate governance report 2009 76 Board of Directors
77 senior executives 78 Histor y
79 Financial information
ConTenT
Innehåll HL Display Årsredovisning 2009
2
This annual report has been prepared in swedish and translated into english. in the event of any discrepancies between the swedish and the translation, the former shall have precedence.
THe year in BrieF
• net sales amounted to MseK 1,360 (1,536).
• profit before tax was MseK 84 (136).
• earnings per share after tax amounted to seK 1.88 (3.11).
• equity per share amounted to seK 17.81 (17.40) as of 31 December 2009.
• acquisition of ppe Ltd.
• Maintained dividend proposed, seK 1,38 per share.
The year in brief
HL Display annual report 2009 3
Key raTIos 2009 2008 2007
net sales, MseK 1,360 1,536 1,571
operating profit, MseK 86 130 161
profit before tax, MseK 84 136 155
profit after tax, MseK 58 96 108
earnings per share, seK 1.88 3.11 3.48
eBiTa margin, % 6.4 8.5 10.3
eBT margin, % 6.2 8.9 9.8
equity/assets ratio, %
*44.4 57.3 53.3
equity per share, seK
*17.81 17.40 15.26
average number of employees 906 983 968
*
Key ratios affected by the ppe acquisition.
For key ratio definitions, refer to page 37.
ImporTanT evenTs DurIng THe year
Q1 Q2 Q3 Q4
Targeted actions aimed at adapting production capacity to lower demand. a new matrix organisation was launched, resulting in increased regional and functional responsibilities, and less independent local subsidiaries. This opens up for rationalisations and shared services.
retail customers on all markets were putting their investments in the stores on hold. Brand customers continued investing.
Decision was taken to use recycled peT in the next generation of shelf dividers, optimal™+. Heavy increase in raw material prices.
signs in the market of having passed the worst period.
HL Display reached a balance between capacity and demand.
Launch of powerTrack™, a unique system for supplying power to the shelf. HL Display sees great potential when combined with ad’lite™ – HL Display’s new lighting system.
The acquisition of ppe Ltd. is announced just before Christmas.
ppe is HL Displays largest acquisition so far, with a turnover of MgBp 27. The company adds significant strengths to HL Display’s operations, particularly with regards to the brand manufacturers.
HL Display starts a regional sales company in Dubai and a regional logistics centre in Hungary.
HL Display’s business model – an overview HL Display annual report 2009 4
HL DispLay’s Business MoDeL – an overview
HL Display is europe’s leading merchandising company. with more than 50 years experience, the company specialises in displaying products in stores in a way that increases sales and makes the store-work more efficient, and at the same time providing end consumers with all the information necessary to make a purchasing decision. net sales amounted to MseK 1,360 in 2009. The HL Display share is quoted on the nasdaq oMX stockholm small Cap list.
most of the world’s leading food chains, non-food chains and brand manufacturers figure among the Company’s customers.
FooD reTaIL ahold (inkl iCa) auchan Carrefour Casino Champion intermarché Metro système u Tesco
wal-Mart (asDa) non-FooD reTaIL Baumax Decathlon Dsg retail Ltd.
intergamma Müller
BranD manuFaCTurers BaT
Colgate Danone Kraft L’oréal Masterfoods
marKeTs servICeD By own saLes CompanIes
austria Belgium Bulgaria China (Hong Kong) China (shanghai) Czech republic Finland France germany Hungary india indonesia Latvia Lithuania Malaysia netherlands norway
poland romania russia serbia singapore slovakia slovenia south Korea spain sweden switzerland Taiwan Thailand Turkey ukraine
united arab emirates united Kingdom
marKeTs servICeD By DIsTrIBuTors Canada
Denmark estonia greece iceland ireland
israel italy Kazakhstan Malta portugal united states
To the food and non-food retail sectors HL Display offers products and solutions for merchandising and In-store communication.
merchandising – products which present goods attractively and utilise store space efficiently, while allowing ease of maintenance.
In-store communication – products which ensure consumers have all the purchasing information they need and are able to find their way around the store with ease.
– approximately 90 percent of sales come from projects connected with store openings or remodelling of existing stores.
– The other 10 percent comes from replacement sales (new parts or spare parts).
– sales connected with new store openings are dominated by emerging markets, while store remodelling sales are dominated by developed
HL Display’s customers come from the food and non-food retail sectors, and from the brand manufacturers which produce the products sold in the stores.
HL Display sells products and solutions helping the food and non-food retail sectors increase sales and rationalise work in the store.
HL Display’s business activity is based on direct sales to customers.
The majority of the 46
markets are serviced
by the Company’s own
sales companies.
HL Display’s business model – an overview
HL Display annual report 2009 5
– HL Display has four factories in sweden (one co-owned), one in the uK, one in China and one in the usa (co-owned).
– at the turn of the year 2010, a state- of-the-art production facility was added in the uK through the acquisition of ppe.
– efficient logistics shall ensure that customers experience high service levels and short lead times.
– HL Display invests more in innovation, product development and design than any other company in the sector.
– HL Display’s innovations have a proven record of establishing new standards on the market.
To the brand manufacturers HL Display offers products and solutions for primary placement and secondary placement.
primary placement – products which allow brand manufacturers to make optimal use of their allocated shelf space in the store and tempt shop- pers to make a purchase.
secondary placement – products which allow brand manufacturers to display their goods elsewhere in the store rather than just on the shelf.
– The majority of these sales come from projects connected with launches or relaunches of brand manufacturers’ products. Brand manufacturers run these projects on a regular basis for all their products.
HL Display sells products and solutions helping brand manufacturers optimise brand- building and give their products visibility in the store, ultimately resulting in increased sales.
Most of the products sold by HL Display are manufactured in the Company’s own factories.
HL Display’s focus on innovation, product development and design is one of the Company’s main competitive
advantages.
when i wrote my Ceo report for the 2008 financial year back in January 2009, i made reference to the difficulty in predicting how the market might develop during the coming year. i also stressed the importance of being attentive to changes in the market, and quickly taking action where necessary.
in hindsight, it can be observed that these thoughts became reality almost immediately. The market developed more negatively than we expected – even in our worst-case-scenario.
we have however successfully adapted to the lower sales level during the year, which means that we retained a good profitability level. in addition, we have acted to strengthen our operations for the future, through our largest and most important acquisition to date.
Two key developments
i would like to summarise the year by highlighting two key developments. it will come as no surprise that the first point is market development. even in the early part of the year, we saw many customers applying the brakes and reducing their investments. our total net sales declined by 11 percent during 2009. excluding currency effects, the decline was 15 percent.
The second key development is the earnings trend. we have adjusted our costs to match the lower sales during the year, which is why we can report an eBiTa margin of over six percent. it is important to point out that the cost reductions have been gradual during the year, which means that it is only towards the end of the year that we have had full benefits of a reduced cost level. entering 2010 we have a trimmed-down, cost-effective operation. This will create exciting opportunities when the market picks up again.
sales development
if we take a more detailed look at sales development, we see a variation between the customer segments. Looking at our priority segments (food retail, non-food retail and brand manufacturers), we can conclude that sales to the two largest, food retail and brand manufacturers, have remained on acceptable levels during the year.
sales to brand manufacturers have risen by 5 percent, mainly because these companies continue to invest in merchandising and in-store communication. one reason is to meet competition from private labels which are being increasingly marketed by the food retail sector. we also provide these customers with a stronger offering than previously. sales to food retail, which is easily our largest customer segment, fell by 5 percent.
non-food retail has been hit harder by the recession, not least
within categories such as home electronics and Diy (do it yourself).
Consequently, our non-food retail sales have fallen, showing a 20 percent decline on the previous year’s figure.
The figures have been pulled down largely by the two secondary segments, external distributors and shop-fitting companies. Both these segments show sales declines of around 30 percent. The shop-fitting companies have suffered from low levels of new store openings and store remodellings and the external distributors generally seem more affected by the recession than our own sales companies.
all regions affected
we feel the effects of recession in all the countries where we operate, albeit to varying degrees. asia and Middle europe performed better than other regions. sales decreased by 8 and 7 percent respectively. For much of the year, sales in Middle europe were virtually unchanged from the previous year. However, towards the end of the year, sales declined somewhat, particularly in poland and austria.
in the nordic, Baltics and uK region, sales fell during the year, ending on minus 15 percent. However, towards the end of the year, the situation has improved significantly.
The countries of Central/eastern europe are some of the biggest victims of the recession. This was also reflected in our sales, which were down significantly at the beginning of the year. The situation was particularly serious in russia and ukraine. it should be said, however, that the trend reversed in the latter part of the year, with russia in particular showing strong sales growth. although the market situation is still difficult, we note an improvement. in total, sales in the region fell by 14 percent in 2009.
The southern europe region started quite well, only to experience a downward trend later. in total, sales fell by 16 percent on last year’s figures. our sales in spain have suffered badly in the latter part of the year, which is a clear reflection of the severe economic climate in spain at the moment. sales in France have also shown increasing negative growth during the year.
adapted cost level
as i said in my opening sentences, we have successfully adapted to the lower sales level. rationalisation measures have largely affected our sales companies across the world, where we have reduced our staff by approximately 90 jobs. we also made capacity adjustments in production; the workforce at our factories has been reduced by approximately 50 jobs. To some extent we have been able to do this gradually by not replacing staff that has left the company and by applying stricter control on new recruitments, thus minimising internal distractions and turbulence.
The entire organisation has aimed at improving working methods in order to achieve cost savings. Combined with the centralisation of the purchasing organisation, we have been able to reduce costs for energy, iT, travel, and our car fleet. Consequently, we are able to show a percentage reduction in operating expenses which is roughly on a par with the decline in sales.
gooD proFiTaBiLiTy DespiTe reCession
statement by the Ceo HL Display annual report 2009
6
we have successfully adopted to the lower sales level
during the year, which means that we retained a good
profitability level.
The investment level in tools and machinery has been main- tained, in particular to ensure increasing automation, which we consider essential in our efforts to achieve a sharper competitive edge. we have also upgraded our production facility in Falun with a digital printing line.
potential for sales improvement
after the measures we implemented during the year, i strongly feel that HL Display is a company with an attractive range of products, competitive production costs and reduced operating expenses. our primary objective in the short term is to increase sales. it is our opinion that this may partly change with an economic turnaround.
Many customers will have an accumulated investment need as they are postponing investments at the moment. at the same time, it
should be said that there is potential for improvement in our sales work. at present, we are implementing changes with regard to the sales process and the work of the sales companies in order to make better use of the opportunities on the market.
Drive towards new technology
an area where we have kept our investment level high is product development. This is a deliberate policy on our part. HL Display aims to be the market leader first off the mark with innovative new solu- tions that have the potential to become the market standard – just as HL Display’s datastrip has become the natural standard in stores.
in 2009 we launched two highly important solutions – powerTrack
™and ad’Lite
™– that mark the start of the drive for new technology. powerTrack
™is a cost-effective, easy-to-install infrastructure which brings low voltage power to the shelf edge. with the new solution, the shelf edge is prepared for digital applications such as digital signage. in connection with this, we also launched ad’Lite
™, a lighting solution for this infrastructure. ad’Lite
™is more cost-effective and environmentally friendly than the fluorescent lamps normally used for this type of lighting. For us, this is an important entry into an area where we see very interesting potential.
sustainability issues attracting more interest
in recent years, we have increasingly addressed responsibility issues, in particular in order to strengthen the communication about all the measures we take with regard to economic, social and environmental sustainability. at HL Display, we have a strong tradition of addressing our environmental impacts, while also operating an economically successful business. at the end of the 1990s, our largest factories were environmentally certified under the iso 14001 environmental management system. we engage in continuous improvement work associated with these areas. some of the changes during the year include using an increased proportion of recycled materials in our new optimal
™+ system, an improved shelf divider system based on the already successful optimal range. we have also entered an agreement to run our swedish production and distribution facilities entirely on green electricity from 2010. our code of conduct serve as guidance in all contracts we sign with suppliers.
Largest acquisition in the company’s history
in recent years, we have clearly stated that our aim is to strengthen the company’s offering and market position by means of acquisitive growth. During December, ppe Ltd. was acquired, which adds significant strengths to our operations, particularly with regards to the important brand manufacturers customer segment. HL Display gains access to strong skills and extensive experience in designing and manufacturing customized merchandising solutions. Brand manufacturers have high demands with regard to customisation and short lead times from concept and prototype to finished product.
This is an excellent complement to our own production which is directed more towards cost effectiveness in long batches. we also gain access to expertise in multi-material production, in other words production of products with parts made of plastic, metal and wood, for example.
ppe has just over 280 employees and sales exceeding MseK 300. This means that the acquisition also gives us considerably stronger position in the British market. HL Display and ppe have a combined net sales of MseK 400 in the uK and will become one of the strong participants in the market. already from 2010 the acquisition is expected to contribute positively to the profit.
statement by the Ceo
HL Display annual report 2009 7
In 2009 we launched two highly important solutions –
powerTrack™ and ad’Lite™ – that mark the start of our
drive for new technology.
outlook for 2010
as i mentioned at the beginning of my report, the key developments of the year were the fall in demand caused by the economic slowdown and our success in adapting operating expenses to the new situation.
The changes have obviously put pressure on all of us who work at HL Display. i would like to take this opportunity to thank all employees who participated in, and therefore made possible, the change work we have implemented. i would also like to extend a warm welcome to all the new colleagues who have joined us from ppe.
as far as the market is concerned, it is our judgement that the situation is starting to stabilise, although not showing any major improvements. This means that we will remain alert to changes in the market climate and be ready to act in response to these.
at the same time, it is important to remember that the recession prompted us to further sharpen our processes. we know that we have efficient operations and are maintaining a good profitability level, despite considerably lower sales than in the previous year.
we also have clearly defined focus areas (see page 13) in order to
further strengthen our operations. HL Display’s financial position remains strong. we have secured a more efficient capital structure both in the short and long term. we have also taken measures to improve our cash flow. in other words, the stage is set for us to emerge from the recession as a more successful company than we were, which feels very exciting.
nacka strand, February 2010 gérard Dubuy, president and Ceo
statement by the Ceo HL Display annual report 2009
8
During December, we acquired the British company
ppe Ltd. The acquisition adds significant strengths to our
operations, particularly with regards to the important
brand manufacturers customer segment.
in recent years, it has been HL Display’s aim to strengthen its offering and market position by means of acquisitions. efforts have been constantly directed towards identifying and analysing potential acquisition candidates.
major strategic importance
The acquisition of ppe is HL Display’s largest and most important acquisition to date. it is of major strategic importance in that it provides an excellent complement to HL Display’s operations.
ppe has extensive experience and a high level of expertise in the design and manufacture of customised merchandising solutions.
The company’s business is structured in such a way as to respond to the exacting demands of brand manufacturers. a high level of creative design and short production lead times are among ppe’s main qualities.
To date, ppe has sold its products and solutions mainly to the uK market, although demand for this type of products is global. This is where HL Display will be able to deploy its well developed sales network, encompassing 46 markets worldwide, and gradually offer these products in all its other active markets. Together, ppe and HL Display will present a very attractive and competitive offering to brand manufacturers – a customer segment which HL Display considers important to future growth.
Joining forces to become a uK leader
ppe is a large and well established player in the uK market – a market which HL Display believes to have good future potential.
However, HL Display has not so far achieved the success it wanted on the uK market. with the acquisition, the combined forces of HL Display and ppe now form one of the country’s leading market players.
another important advantage is that HL Display gains access to ppe’s expertise in multi-material production – the production of displays made of different materials, such as plastic, metal and wood. This creates new opportunities for HL Display, which will be of future benefit to the customers as HL Display can now supply the major international brands with products that the company previ- ously could not offer.
good profitability and financial position
HL Display’s acquisition criteria require potential candidates to be well managed, profitable companies in a good financial position.
ppe fulfils all these requirements. The company has shown good profitability since it was established in 1971. in 2009, the eBiTa margin was 10 percent, with sales of MseK 304 (eleven months).
This means the acquisition will make a positive contribution to HL Display’s sales and results from 2010 onwards. The total acquisition price was MseK 318 (based on a gBp/seK exchange rate of 11.71) and was mainly financed by bank loans, which allows scope for future acquisitions.
The management of ppe will remain in place and will also take over responsibility for developing HL Display’s entire uK operations.
in addition to Harlow-based ppe with 280 employees, these con- sist of a sales company in Kirmington with 30 employees and a production facility in shipley with 20 employees.
acquisition
HL Display annual report 2009 9
on 21 December 2009, HL Display completed the acquisition of ppe Ltd, a uK manufacturer of merchandising solutions. The acquisition strengthens HL Display’s offering to the brand manufacturers segment and the Company’s uK market position.
aCquisiTion oF ppe
HL Display’s business operations are based on three business processes – sales & Marketing, product Development and operations – which work in synergy to create maximal customer value and customer satisfaction. This is the cornerstone of the group’s efforts to achieve its overall business objective, namely to be a market-leading merchandising company with high growth and good profitability, and delivering added value for shareholders.
HL DispLay – operaTions, sTraTegies anD oBJeCTives
Customer need
Human resources
administration (Finance, IT)
product Development sales & marketing
HL Display’s business operations – from customer need to delivery HL Display’s business operations are based on three primary business processes: sales & Marketing, product Development and operations. These are supplemented by group-wide support processes which include administration (Finance and iT) and Human resources.
sales & Marketing is largely made up of the work carried out at the sales companies across the globe and represents the company’s primary interface with customers. in addition to sales
that are based on the existing product range, the business process also involves taking onboard ideas for new products based on customers’ needs and preferences. These ideas are passed on to product development for further evaluation and exploitation.
in addition to new developments, product Development is also responsible for managing and further developing the existing product range. operations consists of HL Display’s entire supply chain responsible for sourcing, production and logistics.
strategies
HL Display will employ four main strategies to achieve the group’s financial targets.
1. Focus on three primary customer segments – food retail, non-food retail and brand manufacturers.
2. prioritise on design and innovation with a view to setting new standards.
product development will be customer-driven.
3. streamline and adapt the organisation to market requirements and needs.
4. strengthen the product range and market position by means of acquisitions.
HL Display – operations, strategies and objectives HL Display annual report 2009
10
Delivery to Customer
Human resources
administration (Finance, IT)
operations – production – sourcing – Logistics
Business concept HL Display’s business concept is to increase its customers’ profitability by offering the retail sector and brand manufacturers cost-efficient products and solutions for in-store communication and merchandising. The focus is on making products and solutions that can be adapted to customers’
specific needs.
Long-term financial targets
• eBiTa margin of at least 12 percent.
• annual organic growth of 5-10 percent.
HL Display – operations, strategies and objectives
HL Display annual report 2009 11
HL Display’s financial targets – prerequisites for achieving objectives
HL Display has two long-term financial targets excluding currency effects: an annual growth target (organic growth) of 5-10 percent and a profit target corresponding to an eBiTa margin of at least 12 percent. HL Display’s work on achieving the targets can be described in three separate parts which have a direct bearing on the company’s ability to achieve the profit target. These are cost of goods sold, operating expenses and sales growth (organic and acquisitive).
Cost of goods sold can be reduced by continued measures which include streamlining production and work on materials in the company’s products. elsewhere, HL Display has focused strongly on achieving an effective and appropriate organisation and employing efficient procedures to allow a reduction in operating expenses.
The measures implemented during 2009 have enabled HL Display to make major progress in streamlining its operations, with regard both to cost of goods sold and operating expenses. However, there still remains a certain measure of streamlining to be done.
The critical parameter for achieving the profit target is the creation of profitable growth. To create the conditions for achieving the growth target, HL Display introduced large-scale efforts to enhance sales work in the sales companies around the world during 2009. These initiatives involve the design and implementation of a new group-wide sales model, which will also provide working methods for maximising time spent with customers, and the formulation of follow-up methods aimed at improving the control and management of sales work.
Follow-up of results for 2009
HL Display has been strongly affected by the economic slowdown which started in late 2008 and worsened in 2009. excluding currency effects, net sales fell by 15 percent in 2009, while our long-term target for annual organic growth is 5-10 percent.
as mentioned above, HL Display has taken a number of measures to adapt operations to the current market situation.
efforts to reduce operating expenses have been particularly successful, which is largely the reason why profitability was satisfactory in 2009 despite the decline in sales. The eBiTa margin for 2009 was 6.4 percent, while HL Display’s long-term target for the eBiTa margin is 12 percent.
Key focus areas for HL Display
For several years now, HL Display has reported on the areas the company considers particularly important during the coming year.
on the next page follows a review of the previous year’s focus areas, the results achieved in each area and how the work will be developed in 2010.
outlook for 2010
it is the Board’s judgement that the market is beginning to stabilise, however still acknowledging that there is large uncertainty in predicting how the market will develop over the year ahead.
The Board’s estimate is that HL Display’s net sales and profit will increase in 2010. The estimate is based on the addition of ppe and the completed cost efficiency measures.
HL Display – operations, strategies and objectives HL Display annual report 2009
12
EBITA margin %
7.4
Goal 12% 10.3
8.5 6.6 4.9
Growth % 13
8
-2
-11 3
Operating expenses, excluding freight, in relation to net sales %
35.4
33.5
31.5 34.8
36.3
HL Display – operations, strategies and objectives
HL Display annual report 2009 13
Key FoCus areas
area Focus areas for 2009 results in 2009 Focus areas for 2010
group-wide operating expenses
although the target of operating expenses below 30 percent of sales is still a long- term target, it is unlikely to be achieved with sales growth below target. During 2009, HL Display will focus on keeping operating expenses unchanged, measured in local currencies.
operating expenses excluding freight, measured in local currency, declined by MseK 57 during the year and amounted to 36 percent of net sales.
in 2009 the group staff was reduced to 836 employees, excluding ppe.
The efforts in the area of operating expenses are well established throughout the group. Therefore it will not constitute a separate focus area in 2010.
Corporate responsibility
priority will continue to be given to initia- tives in the area of the environment, with an emphasis on continuous improvements.
in 2009, particular emphasis will be placed on improving production processes to sig- nificantly reduce raw material waste, and increase the proportion of recycled waste.
work during the year resulted in a reduction in production waste. 75 percent of all waste was recycled.
environmental initiatives aimed at continuous improvement remain a high priority. During 2010, HL Display will develop measurements and reporting in accordance with accepted standards.
acquisitions
HL Display plans to continue strengthening the company’s product range and market position by means of acquisitions. present market conditions are likely to increase the scope for acquisitions. with HL Display’s financial strength, the company should be in a position to make acquisitions during the coming years.
in December 2009, HL Display made its largest acquisition ever. The motivation behind the acquisition is to strengthen the product range, production capacity and competitiveness.
HL Display plans to continue to strengthen the company’s product range and market position by means of acquisitions. integration of the acquired operations in ppe will be given high priority in 2010 in order to ensure HL Display is able to quickly exploit the competitive advantages associated with the acquisition.
operations production
Continued streamlining measures are planned in production. important issues include the distribution of production capacity and how to deal with over-capacity.
The aim is for production in russia to be up and running in 2009.
Further streamlining measures were implemented. The workforce was reduced by a total of 50 jobs at the factories. a production start-up in russia has been postponed as the result of a fall in demand on the russian market.
in 2010, production efforts will focus on further development of processes concerning lean manufacturing, as well as further restructuring.
Logistics
expansion of the logistics centre for Central europe will be implemented in stages during 2009.
During the year, operations started at the new logistics centre in györ, Hungary.
The slovakian and Hungarian markets were connected during 2009.
a further four countries will be connected to the györ logistics centre in 2010. another logistics centre will be opened in eastern europe.
purchasing (new 2009)
HL Display will prioritise work in the area of purchasing in order to obtain economic benefits. a new purchasing strategy is already in place.
The success of these efforts has enabled HL Display to reduce costs for input goods in production as well as for energy and iT.
The new purchasing function is well integrated into the group’s operating activities. Therefore it will not constitute a separate focus area in 2010.
product development Innovation
efforts to promote more innovation in product development will continue and be supplemented by increased investments in 2009.
This was achieved in 2009. Launches during the year included powerTrack™ and ad’Lite™, which represented HL Display’s first step into new areas such as dig- ital technology and lighting solutions for shelves.
efforts within product development continues to be of utmost importance to HL Display and is well integrated into the group’s operating activities.
Therefore it will not constitute a separate focus area in 2010.
sales and marketing sales (new 2010)
efforts to strengthen sales – both the actual sales process and working methods and control and manage- ment – will be HL Display’s top priority in 2010.
administration (Finance and IT)
Finance (new 2010)
in 2010, efforts to establishing new processes and setting new goals for the operations within Finance will be prioritised.
MarKeT
HL Display’s operations are geographically divided into five regions – nordic, Baltic and uK; Middle europe; southern europe; Central/
eastern europe; asia & australia (the table on page 18 shows which countries come under each region).
The markets differ from region to region. There is a clear dividing line between the regions which are in western europe and can be described as developed markets, and the regions eastern europe and asia & australia, which are emerging markets.
Differences between developed markets and emerging markets one of the clearest differences between developed markets and emerging markets is the level of market consolidation. Mature markets characteristically have a high level of consolidation in the retail sector. The five largest players in each market have (with a few exceptions) a total market share of over 50 percent, and sweden is one such example. in the food sector, the three largest chains have a market share of almost 80 percent.
The situation is often the reverse in emerging markets. Markets are more fragmented, with the five largest players having a total market share of less than 50 percent – even as low as 4-5 percent, which is the case in india. For HL Display, this generally means a small number of large customers in developed markets and a large number of small customers in emerging markets.
new building versus renovation
another clear difference between developed markets and emerging markets can be seen in the projects in which HL Display is involved.
over several years, large local and international chains have expanded their operations in emerging markets. Consequently, the rate of new store openings in these markets is high, while in devel- oped markets it is considerably lower. instead, stores are renovated when retail chains implement new retail concepts or develop existing concepts, which they normally do every four to six years.
in emerging markets, HL Display’s sales are therefore made up of a higher proportion of the basic products and solutions required in new stores, while sales of larger concepts and innovations are more important in developed markets.
Brand manufacturers important
The brand manufacturers – companies which produce the branded goods sold in stores – are often quick off the mark in establishing their brands in new markets. This makes them an important customer segment both in developed and emerging markets.
The products and solutions in demand from brand manufacturers do not differ substantially between developed markets and emerging markets.
Factors affecting demand in developed markets – general economic development.
– HL Display’s development of innovative new products and solutions.
– implementation of new retail concepts/renovation projects.
– new trends in store design.
– introduction of new technology such as electronic price labels.
– Brand manufacturers’ investment in brand-strengthening campaigns in stores.
Factors affecting demand in Emerging markets – general economic development.
– new store openings.
– Market maturity, triggering demand for more sophisticated solutions.
– Brand manufacturers’ investment in brand-strengthening campaigns in stores – to establish a brand on a market, for example.
market development, Developed markets
nordic, Baltic and uK; Middle europe, southern europe The economic slowdown had an adverse effect on consumption patterns in 2009. The retail sector was hit harder in some countries than others. it can generally be observed that caution on the part of consumers prompted the retail sector to focus strongly on costs in 2009 in order to try to maintain profitability levels.
The economic slowdown affected both the food sector and non-food sector, albeit to differing extents. The food sector is normally more resistant to economic declines than the non-food sector, particularly in the area of capital-intensive goods such as computers and home electronics.
according to eurostat, the statistical office of the european union, the volume of retail trade in the eu (eu27) in December 2009 was down by 1.0 percent on the figure for the same month the previous year. However, the trend differs from country to country. in sweden, the volume of retail trade in December 2009 was just over three percent higher than the same month in 2008, while the equivalent figure for germany was -2.5 percent.
in the wake of the recession, a desire on the part of the food sector to position itself from a price perspective can also be detected. This is important in order to retain customers and
HL DispLays MarKnaD oCH FörsäLJningsarBeTe HL DispLay’s MarKeT
anD saLes worK
HL Display’s market and sales work HL Display annual report 2009
14
HL Display’s market strategy is based on a strong local presence on all important markets. 34 markets are
serviced by the company’s own sales companies. a further 12 markets are serviced by distributors.
HL Display’s market and sales work
HL Display annual report 2009 15
respond to competition from established low-price players such as Lidl and aldi which have been very successful. For the large food chains, a high proportion of sales still come from the home markets, despite strong geographical expansion in recent years. it has therefore been important to maintain a high level of competitiveness in these markets, and for this very reason the food retail sector saw price-cutting campaigns in 2009.
However, investment in private labels has also played a key role. The retail industry’s private labels allow product prices to be reduced without any too significant effect on margins. Today the chains often have their own brands not only in budget products but also in the medium and premium segments.
another clear and increasing market trend is for food chains to seek alternatives to the large hypermarkets situated outside towns and cities – a market which is starting to become saturated in many countries. instead, they are starting to favour smaller supermar- kets, often located close to city centres.
market development, emerging markets eastern europe; asia & australia
retailing in emerging markets was also adversely affected by the economic slowdown in 2009. This was particularly the case for many countries in eastern europe, where the economic crisis in general had a more serious impact than in western europe and asia.
The retail sector in most emerging markets has undergone a rapid metamorphosis in recent years, and this also continued in 2009. This transformation also involves more modern retailing, which is driven by international expansion by multi-national chains
and expanding national chains aiming to gain a market advantage over the international players. The relatively fragmented retail markets have made it an attractive proposition for western chains to establish themselves there. interest in these markets is also driven by large gDp increases and a rapidly growing middle class which demands new goods and global brands.
as the international chains continue their expansion in emerging markets, it can be observed that they have become more selective.
There are several examples of chains which have pulled out of certain markets to concentrate on a smaller number of more attractive countries.
The expanding retail sector has focused on india, russia and China in recent years, and these are still among the countries with the highest level of expansion activity.
although the rate of growth in the Chinese economy slowed down during the year, China’s gDp increased by 7.7 percent in the first three quarters of 2009, largely due to generous stimulus packages.
Many of the multi-national chains such as wal-Mart, Carrefour, auchan and Metro have a presence in China and also nurture ambitious expansion plans. Meanwhile, the national chains are expanding significantly by means of organic and acquisitive growth with the aim of gaining a lead over the international players.
The russian economy shrank in 2009 but many analysts expect
it to revert to growth again as early as next year. The russian retail
market is still fragmented and the five largest retail players have
a market share of less than ten percent. This creates potential
for further expansion, which is additionally supported by a rapidly
growing middle class. Just as in China, national chains such as
group managing Director
organisation and management of sales work HL Display’s sales companies are divided into five geographical regions. The regions are led by area Managers, each having full responsibility for sales and results in their own region. The area Managers report directly to HL Display’s Ceo, thereby ensuring short decision- making channels and effective follow-up and control of sales work. HL Display’s group-wide functions (horizontal axis in the figure below) act as support to the regional organisation.
HL Display’s market and sales work HL Display annual report 2009
16
X5 are expanding aggressively with a view to strengthening their market position.
The rate of retail development in india is considerably slower than in China, for example. This is mainly due to legislation limiting direct foreign investment in multi brand retailing, which includes the food sector. The large chains are established instead by means of franchise models or joint ventures with local players. as is the case in other emerging markets, the fragmented market and a growing middle class seeking more international brands are the key motivation for international chains to establish themselves in india.
marketing and Business Development
research and Development
operations (production and sCm)
Finance and IT
Human resources
HL DispLay’s saLes worK
HL Display’s sales work is based on direct sales to end customers through the Company’s sales companies across the world. a local presence in all key markets is of crucial importance to HL Display.
although many customers are large multi-national retailers, very lit- tle central coordination takes place in the purchasing of products and solutions for merchandising and in-store communication. These purchasing decisions are made by the local companies.
a higher degree of coordination is evident in the brand manu- facturers customer segment, where merchandising solutions are often purchased for a large number of countries at the same time.
Consequently, HL Display’s targeting and sales to this market have more central coordination.
new establishment in the middle east
at the end of the year, HL Display began its establishment process in the Middle east by opening a sales company in Dubai. work in the region will initially focus on the united arab emirates and saudi arabia, subsequently expanding to other countries, including egypt.
THe mosT aTTraCTIve growTH marKeTs
(based on a weighting of risk, market attractiveness, market saturation and time horizon)
1. india 2. russia 3. China
4. united arab emirates 5. saudi arabia
source: The 2009 a.T. Kearney global retail Development index™
area Manager nordic, Baltic
& uK
area Manager middle europe
area Manager southern europe
area Manager Central/eastern europe
area Manager asia &
australia
HL DIspLay’s CompeTITIon
International players (operations in ≥ 5 markets)
regional players (operations in 2-4 markets)
Local players
(operations in one market) examples of
competitors
vKF renzel (germany) Kleerex (ireland) wilson & Brown (poland)
aL-Display (germany) visioplast (France) Competitors’
strengths
– well-developed product range within their niche.
– efficient production process.
– Low prices.
– often family companies with a low cost base.
– Flexible production process for small batches.
– good contacts with customers in the region.
– very good customer contacts.
– High level of customisation.
HL Display’s competitive advantages
– Total offer that satisfies customer’s total needs.
– offers complete category solutions.
– significant investments in product development create a leading position.
– good relations with the end customer, in contrast to competitors who often work via distributors or agents.
– Total offer that satisfies customer’s total needs.
– offers complete category solutions.
– Through its global presence, HL Display can follow its major customers when they expand and become a preferred supplier.
– HL Display’s size and financial strength.
– Major global retail companies and brand manufacturers value a supplier who can help them in several markets.
– significant investments in product development create a leading position.
– HL Display’s size and financial strength.
HL Display’s market and sales work
HL Display annual report 2009 17
Creating more effective sales
During the year, HL Display made major changes to the Company’s sales work. The changes, which are aimed at creating more resource-efficient and impactful sales work, affect everything from the sales process and work in the sales companies to follow- up of sales development. HL Display aims to use the changes to more effectively exploit market opportunities, even in the current economic climate.
Customers
HL Display has three prioritised customer segments – food, non- food and brand manufacturers. There are also some sales to the shop-fitting companies which fit out the stores.
Most of the world’s leading food chains, non-food chains and brand manufacturers figure among the Company’s customers.
HL Display’s dependence on individual key customers is low, and the 20 largest customers accounted for 27 percent of sales in 2009.
Brand manufacturers’ share of total sales during the year increased from 19 to 22 percent compared with the previous year. There are two main reasons for this. Firstly, HL Display has deliberately focused on increasing sales to this customer segment.
Many of the products launched in 2008 and 2009 have been clearly targeted towards brand manufacturers, while sales efforts in this customer segment have been intensified. secondly, brand manufacturers have maintained a virtually unchanged investment level, even in the economic slowdown.
Competitors
HL Display has to deal with an extremely fragmented competitive situation. at present none of HL Display’s competitors can match the Company’s breadth of product range and global presence. HL Display’s sales are also considerably higher than those of its competitors.
80-90 percent of competitors sell their products in one or two countries. Most of them compete with HL Display in one or two customer segments and one or two product areas.
Consequently, there are a large number of competitors.
about 150 more or less direct competitors of varying sizes can be identified.
The table above shows a summary of the competitive situation facing HL Display.
Sales per customer segment MSEK
Retail food 575 (2008: 630) Brand manufacturers 299 (2008: 287) Retail non-food 187 (2008: 223) Shop-fitters 116 (2008: 155) Distributors 69 (2008: 103) Other 114 (2008: 138)
HL Display’s market and sales work HL Display annual report 2009 18
saLes anD proFIT By area area
own sales
companies Distributors market position
Development during the year 1)
nordic, Baltic and uK net sales MseK 400 operating profit MseK 58
Finland, Latvia/
Lithuania, norway, sweden and uK.
Denmark, estonia, ireland and iceland.
HL Display is the market’s leading supplier of products and solutions for in-store communication and merchandising to both the retail sector and brand manufacturers.
The acquisition of ppe will strengthen market position significantly in the uK.
sales in the region decreased by 15 percent during the year. after a weak start of the year, the sales development has gradually improved.
middle europe net sales MseK 220 operating profit MseK 29
austria, germany, poland, serbia, slovenia and switzerland.
HL Display has a generally strong market position in Middle europe, both in the retail and brand manufacturers sectors.
in Middle europe, sales were virtually unchanged for much of the year.
Towards the end of the year, sales declined somewhat which in total meant that sales during the year decreased by 7 percent.
southern europe net sales MseK 409 operating profit MseK 39
Belgium, France, netherlands and spain.
greece, italy, Malta and portugal.
HL Display has a market leading position as supplier of products and solutions for in-store communication and merchandising to the retail sector and brand manufacturers.
sales in the region developed quite well at the beginning of the year.
During the second half of the year, the development showed a clear downward trend. sales development was especially weak in spain which, combined with a more difficult market in France, meant that sales in total decreased by 16 percent.
Central/
eastern europe net sales MseK 189 operating profit MseK 19
Bulgaria, Czech republic, Hungary, romania, russia, slovakia, Turkey and ukraine.
israel and Kazakhstan.
By having quickly established operations in many of the region’s countries, HL Display now holds a strong market position in both the retail and brand manufacturers sectors.
eastern europe is one of the regions most affected by the recession. sales were significantly down during the first half of the year. The situation however improved during the latter part of the year. in total, sales decreased by 14 percent during the year.
asia and australia net sales MseK 134 operating profit MseK 10
China (Hong Kong), China (shanghai), india, indonesia, Malaysia, singapore, south Korea, Taiwan and Thailand.
australia and new Zealand.
HL Display’s market position has strengthened considerably in recent years, partly because the company has sharpened its competitive edge by establishing local production facilities.
asia and australia, together with Middle europe, have performed better than other regions during the recession. The more difficult market situation is however clearly affecting sales in this region as well, which meant that sales fell by 8 percent during the year.
other sales net sales MseK 10
north america
Trion industries is responsible for all sales work in the us market. at present sales initiatives are exclusively targeted towards retail companies. sales in the north american market has been affected by the ongoing dispute with Trion industries and amounted to MseK 9 (16) in 2009.
middle east
a sales company was opened in Dubai, united arab emirates, late in 2009, which represents the first step in further establishment in the Middle east. operations in the Middle east are reported under other markets in 2009, but will constitute a separate segment in 2010.
1) percentage change in local currencies.
HL Display’s offering to customers
HL Display annual report 2009 19
HL Display’s products are available in two main product families – optishop
™and Brandman
™. optishop
™comprises products and solutions for the food retail and non-food retail sectors, while Brandman
™includes products and solutions for brand manufacturers.
opTisHop ™ anD BranDMan ™ –
HL DispLay’s oFFering To CusToMers
positioning of HL Display’s product range
HL Display’s four core values – innovation, quality, Competence and Customer focus – are the guiding principles of the Company’s entire business. They also play a vital part in how the Company’s products and solutions are positioned on the market.
Level of innovation – HL Display shall be the supplier developing the innovations that become industry standards. The Company’s product development initiatives are unparalleled in the industry.
Quality – HL Display’s products and solutions are characterised by high quality and functionality.
Competence – HL Display has built up a wealth of expertise of in-store communication and of displaying products in shops.
HL Display is a natural partner of retail companies and brand manufacturers who are fitting out shops or developing new concepts for their shops or brands.
Customer focus – The Company’s product development takes place
in close cooperation with customers to guarantee new products and
solutions which best satisfy their particular business needs.
opTisHop ™
The food and non-food sectors demand solutions which increase sales in the store and improve efficiency. This in turn brings cost savings as it allows a reduction in the number of store employees – and HL Display currently has the market’s widest range of products and solutions which do just that. These include solutions both for merchandising and in-store communication.
merchandising
Merchandising is essentially about presenting merchandise to the consumer in such a way as to stimulate a purchase. But there are other aspects which are also important to the stores. a well organised merchandising solution makes optimal use of shelf space, resulting in a more efficiently functioning store. one clear example is HL Display’s divider system with an automatic feed system. products automatically advance to the shelf front in correct order, giving an attractive, full-face display. This also means time spent on shelf management and re-merchandising is kept to a minimum.
In-store communication
in-store communication consists essentially of two main missions.
Firstly, ensuring the store has well laid out overall information to allow customers to quickly and easily find the products they are looking for. secondly, ensuring customers have all the necessary information to make a purchasing decision right where the product is. This means providing basic price information, as well as more detailed information such as product campaigns and discount vouchers or environmental labelling.
Making the most out of your selling space
HL Display’s offering to customers HL Display annual report 2009
20
BranDMan ™
Brand manufacturers demand solutions which optimise brand- building and give their products visibility in the store, ultimately resulting in increased sales. HL Display responds to these needs by providing solutions for product placement on the shelf and Campaign placement. The acquisition of ppe has enabled HL Display to strengthen its range of products and solutions for brand manufacturers, in particular by providing new solutions for floor display and a higher degree of customisation in general.
product placement on the shelf
HL Display offers solutions which allow brand manufacturers to
make best possible use of their allocated shelf space in the store and create an attractive product presentation to tempt a purchase.
This is combined with various accessories which give customers relevant product information or special solutions to support brand manufacturers’ new product launches.
Campaign placement
Campaign placement comprises solutions allowing brand manu- facturers to display their goods elsewhere in the store, rather than just on the shelf. These include floor stands that can be placed at the check-outs or solutions for cross merchandising, which means closely-associated products (such as pasta and pasta sauce) are displayed together in order to generate extra sales.
Bring your brand to life
HL Display’s offering to customers
HL Display annual report 2009 21
HL Display has three ways of expanding its range of products and solutions offered to customers. not surprisingly, the Company’s own product development is the most important of these, and HL Display invests more than any other sector in this area. The other two ways of expanding the product range are partnerships with other producers of unique products and through acquisitions.
Investments in new areas
over the last two years, HL Display has invested in product development in new areas; one reason being to harness the potential of digital technology. powerTrack
™, a flexible infrastructure which brings low voltage power to shelves, was launched during the year. power supply has proved an obstacle to gaining full benefit from new applications such as digital signage, where battery operation is often insufficient. with powerTrack
™, power supply problems are resolved, thereby opening the door to a large number of new applications which require power. During the year, HL Display also launched an initial application for its new infrastructure, ad’Lite
™, which is a new solution providing shelves with ambience lighting to enhance the product display.
Customer-driven product development
The Company’s own development takes place in close proximity to customers. This ensures the developed products correspond perfectly with customers’ needs and preferences.
ideas for new products are often generated in collaboration between customer, sales company and product manager. These might include ideas for resolving specific problems or improving the product display. The products managers are also responsible for the project throughout the development phase. The product development group also includes constructors and designers, as well as factory or production managers, to ensure a prompt start to production once the product has been perfected. overall responsibility for development strategy and decisions on which projects will be undertaken rests with the market council, which includes members of group management.
effective development process
HL Display works according to a structured five-stage development process (see figure on next page). around 30 development projects of varying sizes are normally in progress at one given time. The development process has been constantly refined since the beginning of 2007, cutting the development phase for projects by an average of 6 months between 2006 and 2009. The development phase for small and medium-sized projects is currently three months, while for large concepts it is between six and nine months.
environmental consideration in the development phase For some years now, environmental screening has been incorporated into the concept phase of development projects.
For HL Display, this largely involves maximising transport efficiency in the finished product, which means it must have optimised packaging and be as light as possible. it also involves materials and use of recycled materials.
product development is one of HL Display’s key success factors, and the Company sets itself ambitious goals in this area. HL Display is committed to being the market leader which produces solutions with the potential to become an established standard in the retail sector, just as the Company’s datastrip established a standard on how price information was displayed on the shelf.
proDuCT DeveLopMenT
product development HL Display annual report 2009
22
with powerTrack
™, power supply problems are resolved,
thereby opening the door to a large number of new
applications which require power.
paTenT anD DesIgn proTeCTIon 2009 – 78 (74) registered patents.
– 20 (21) pending patent applications.
– 4 (4) new patent applications in 2009.
– 80 (78) registered protected designs.
– Total cost of patents and design protection was MseK 2 (2).
seLeCTIon oF new proDuCTs 2009
– powerTrack™ – cost-effective, easy-to-install infrastructure bringing low voltage power to the shelf edge.
– ad’Lite™ – mood lighting for shelves.
– optimal™+ – a new generation shelf divider systems, partly manufactured using recycled material.
product development
HL Display annual report 2009 23
Concept engineering Tooling Industrialisation market launch
– product specification – Market analysis – project approval
– Drawings and technical specifications – Design review – Tenders for
tooling invited – investment is
approved
– Tool order – Tooling design
approved – Final acceptance
of tooling
– Tooling validated – product samples produced – production
parameters validated
– Launch material – Full scale
launch
HL DIspLay’s proDuCT DeveLopmenT proCess
operations HL Display annual report 2009 24
