Annual Report 2008/09
Content
About Lagercrantz
The Year in Brief 1
Lagercrantz Group in Brief 3
President’s Statement 5
Our Business
Business Concept, Vision, Goals and Strategy 6
Market 9
Division Electronics 12
Division Mechatronics 15
Division Communications 18
Acquisitions 20
The Lagercrantz Share 21
Financial reports
Several-year Overview 24
Key Financial Indicators 25
Board of Directors’ Report 2008/09 26
Proposed allocation of earnings 32
Consolidated Financial Statements 33
Parent Company Financial Statements 38
Notes 43
Audit report 64
Corporate Governance
Corporate Governance 65
Board of Directors and Auditors 69
Management 70
Other Information
Annual Meeting 71
About the Annual Report 72
Addresses 73
The Year in Brief
1 April 2008 –31 March 2009
• Net revenue for 2008/09 amounted to MSEK 2,138 (2,172). The second half of the year was marked by increasing uncertainty, financial crisis and recession, which meant lower sales for many profit centres. Units acquired during the year contributed revenue of MSEK 53.
• Forceful action taken in the latter part of the year to cut costs and reduce working capital. The most forceful measure is to reduce the number of employees. Capital tied up in inventories and trade receivables declined sharply during the second half of the year.
• The operating result amounted to MSEK 105 (131). This result was impacted by items affecting comparability of MSEK -21 (+4), mainly during the fourth quarter. Adjusted for these items, the operating margin was 5.9 percent (5.8).
• The result after financial items amounted to MSEK 94 (121) and the result after taxes amounted to MSEK 115 (117).
• Earnings per share amounted to SEK 3.05 (3.92).
• Cash flow from operating activities per share increased to SEK 6.15 (5.17).
• The return on equity was 14 percent (21) and the equity ratio was 49 percent (44) at the end of the period.
• The Board of Directors proposes a dividend of SEK 1.50 (1.50) per share.
Net revenue and operating profit
0 500 1,000 1,500 2,000 2,500
2004/05 2005/06 2006/07 2007/08¹ 2008/09¹ M SEK
0 20 40 60 80 100 120 140 M SEK
Net sales Operating profit
¹ Not including items affecting comparability.
Earnings performance by quarter
-5 0 5 10 15 20 25 30 35 40 45
2004/05 2005/06 2006/07 2007/08¹ 2008/09¹ M SEK
0 1 2 3 4 5 6 7 8 Percent
Operating profit Operating margin 2007/08¹ 2008/09¹ 2006/07
2005/06 2004/05
¹ Not including items affecting comparability.
Outcome by quarter 2008/09¹ and 2007/08¹
490 500 510 520 530 540 550 560 570
Quarter 1 Quarter 2 Quarter 3 Quarter 4
MSEK
0 5 10 15 20 25 30 35 40 45 MSEK
Net sales 2008/09 Net sales 2007/08 Operating profit 2008/09¹ Operating profit 2007/08¹
¹ Not including items affecting comparability.
Return on equity
0 5 10 15 20 25
2005/06 2006/07 2007/08 2008/09 Percent
Return on equity, %
2007/08 2008/09 2006/07
2005/06
Key financial indicators
2008/09 2007/08
Net revenue, MSEK 2,138 2,172
Operating result, MSEK 105 131
Operating margin, % 4.9 6.0
Result after financial items, MSEK 94 121
Result after taxes, MSEK 68 91
Cash flow from operating activities, MSEK 137 120
Equity ratio, % 49 44
Earnings per share, SEK¹ 3.05 3.92
Number of employees at end of period 742 763
Return on equity, % 14 21
Dividend, SEK² 1.50 1.50
¹ Calculated based on average number of shares outstanding.
² As proposed by the Board of Directors for 2008/09.
Lagercrantz Group in Brief
Lagercrantz Group is a technology-trading group in electronics, electrics, communication and adjacent areas. The Group works with value-creating sales in close proximity to its customers and has market-leading positions in several expansive niches. The business is organised in three divisions:
Electronics markets special products in industrial wireless communication and embedded electronic systems for customers’ products.
Mechatronics sells electric and electro-mechanical products and offers electric connection systems and customised production of cable harnesses.
Communications offers products, systems and services in digital image transmission/technical security and access and distributes software.
Lagercrantz works with a decentralised management model pursuant to which decisions are made by the subsidiaries close to customers and suppliers. This creates a large measure of engagement on the part of associates, at the same time as the good businessmanship among the employees becomes an important competitive advantage.
Lagercrantz creates value by offering advanced knowledge in technology and business in combination with products from world-leading manufacturers or proprietary products. Through Lagercrantz, the customer gets the best possible solution for performance, immediate availability and total cost. Customers are mostly industrial companies.
Lagercrantz is active in eight countries in northern Europe and in China. The Group has revenue of just over
SEK 2 billion and 700 employees. The Company’s share is listed on Nasdaq OMX Stockholm since 2001.
Operating result by division not including items affecting
comparability
Electronics 20% (27) Mechatronics 39% (36) Communications 41% (37)
Numbers in brackets refer to 2007/08.
Net revenue by division
Electronics 34% (36) M echatronics 29% (28) Communications 37% (36)
Net revenue by product category
Customised products and systems 53% (57) Standard compontens 9% (9)
Own production 34% (31) Service and consulting 4% (3)
Sale per geographic market 2008/09
Other = mainly China, Poland, Switzerland and UK.
Sweden 39% (38) Denmark 35% (33) Norway 9% (9) Finland 9 % (10) Germany 4% (5) Other 4% (5)
President’s Statement
Two six-month periods with vastly different prerequisites
The 2008/09 operating year began with continued successes for Lagercrantz Group. After six months had passed, we had added two more quarters to the string of 14 consecutive quarters with better results than in the same year-ago period. We also continued our acquisition strategy and consummated two acquisitions. We feel that these successes stem from the strategy we adopted almost four years ago. In brief, the strategy involves an organisational model with decentralisation and management by objective, a broadening of operations into new areas, a sharper focus on value added and continued acquisitions.
Those changes, in combination with a favourable market trend, explain the positive development for Lagercrantz in recent years.
The second six-month period, on the other hand, was marked by uncertainty, financial crisis and recession. The first markets to be affected were the UK and Germany, and certain parts of our operations focused on the construction sector.
Subsequently, many of our businesses have been impacted.
Market conditions have deteriorated and this has meant declining sales for many of our profit centres.
FORCEFUL ACTION
During the last four months of the year, forceful action was taken to reduce costs and working capital. Measures taken are extensive and are expected to yield positive effects in coming quarters. The focus on costs is therefore across the board, with special emphasis on personnel reduction. This means that approximately 110 employees unfortunately will have to leave the Group. There has also been sharp focus on a reduction of the amount of capital tied up in the business. During the second quarter cash flows from operating activities amounted to MSEK 112. The largest decreases in capital tied up in the business were seen in inventories and trade receivables.
THE LAGERCRANTZ MODEL IN TIMES OF DOWNTURN
In uncertain times Lagercrantz Group’s structure with about 25 niche-oriented, autonomous companies is a strength. The niche orientation means risk diversification with respect to product groups, business models, geography, segments and end customer markets. Each entity also constitutes a focused, flexible unit that works very close to its customers and suppliers. This close relationship makes for rapid response to customer needs, which is translated into business opportunities.
All employees in every business unit also know how things are
going, which means short lead times between words and action when extraordinary efforts are required. Our model also means that we have mostly variable costs that can be adjusted relatively quickly. The fact that we don’t have a large pool of assets, and at the same time focus on reducing working capital, means that we are able to make swift adjustments, making positive cash flows possible also in an economic slowdown.
THE FUTURE
Continued recession, with downward pressure on our sales volumes, is the most probable scenario for the 2009/10 operating year. No improvement in the state of the market is yet to be seen. At the same time, certain macro-economic signals, including lower interest rates, increased infrastructure investment and a more positive stock market climate nurture some hope. The market’s development is closely followed by the Group’s companies and action is taken as needed. Despite the challenges close at hand, we believe that Lagercrantz Group’s exciting orientation, a well functioning strategy and organisational model, and our strong financial position mean great opportunities when the market stabilises.
In closing, I wish to extend my heart-felt thanks to all of the Group’s highly motivated employees. These times require extraordinary efforts and that’s just what we have seen during the past year.
Stockholm, June 2009
Jörgen Wigh
President & CEO
Business Concept, Vision, Goals and Strategy
Lagercrantz is a technology trading group that creates customer benefits based on high technical and business knowledge, combined with products from world-leading manufacturers or proprietary products.
The vision is to be a leader in value-creating technology trade with market-leading positions in several expansive niches.
Lagercrantz Group’s business concept is – within well-defined niches and in partnership with customers and suppliers – to offer value-creating technical solutions in electronics, electrics, communication and adjacent areas. Lagercrantz offers customised products, standard components, services, software and systems its technology areas. The value added created by Lagercrantz gives the Group a place as an integral part of customers’ product development and day-to-day production.
Customers are offered a high degree of competence, availability and service. For Lagercrantz Group’s suppliers, this business model means partnership with a player with effective market- ing based on extensive knowledge of the local market and strong customer relationships.
VISION
“A leader in value-creating technology trade with market- leading positions in several expansive niches” is Lagercrantz Group’s vision. The vision encompasses three basic concepts:
leading, value-creation and market-leading positions.
Leading means that, over time, the Group must live up to three basic tenets: growth, profitability and development. The first two requirements make up the Group’s financial goals.
The third requirement, development, means that we must create positive changes based on new technology or new solutions in the niches where we conduct business; we must lead the sector’s development and develop the organisation of our own business.
Value-creation means that Lagercrantz Group in its sales shall add value to the goods and services offered to the market.
By nurturing Lagercrantz Group’s collective experience, technical and business knowledge and broad contact surface, added value is created for those customers who choose to buy from Lagercrantz Group. Customers are offered development of new solution based on new products and technologies, design and adaptation to a specific need, as well as service, support and training.
Market-leading positions in several expansive niches are also a basic maxim. Historically, Lagercrantz Group has succeeded best in businesses that have had a significant role in a niche.
Lagercrantz Group typically defines a niche as a well defined market. A market-leading position means being number one or two on the strength of market shares in the niche.
That position offers excellent opportunities for sustained profitability and development by functioning as an important link between the foremost technology suppliers and the most demanding customers. Another benefit is that opportunities are created for building a strong product line adapted to a specific customer need. A strong position in a well-defined area also means that competent staff can be recruited and retained. That is an important factor for securing leadership and competence over the longer term.
GOALS
Lagercrantz Group’s financial goals are:
Earnings growth of 15 percent per year over an economic cycle, in the sense of result after net finance items.
Return on equity of not less than 25 percent.
This means that earnings will double over a five-year period.
Lagercrantz’ general goals are broken down and set before each year in connection with the drawing-up of business plans performed by each subsidiary. The requirement for profitability means that the return on working capital in a business unit must be at least 45 percent. The goals are continually followed up during the year in order to allow for quick response as needed. For the last couple of years the Group has been work- ing with clear internal benchmarking in such a way that each subsidiary can measure the outcome for one’s own unit relative to other companies in the Group. Important work has been going on within the Group to train all employees in the basic economic metrics and the key performance indicators used.
For an extended period, fourteen consecutive quarters by the
end of the second quarter of 2008/09, the Group has reported
an improved result compared to the corresponding year-ago
period. This has meant that the internal goal for earnings
growth has been exceeded. This improvement in earnings has
been achieved through consistent work to develop existing
businesses, at he same time as a number of successful acquisi-
tions have been made. The focus for this work has been to
strengthen business models, organisational development and
product line changes. Acquisitions have meant that Lagercrantz
has been able to grow into new areas, such as power generation
and technical security, and that the incidence of new products
has increased. Much like other companies, the Group was hit
during the second half of 2008/09 by the deep financial crisis that subsequently turned into a clear recession. As a result hereof the Lagercrantz Group has taken a number of steps in its business units, especially aimed at cost-cutting and capital rationalisation. The worsening market situation, in combina- tion with the costs for these measures, impacted the result and goal fulfilment during the second half of the year. The return on equity has increased steadily in recent years in lock-step with the improved result. The level of 25 percent was not achieved, however. At the end of 2008/09 the return achieved was 17 percent adjusted for items affecting comparability.
STRATEGIES
Lagercrantz Group shall consolidate its position as a profitable and stable growth company by continuing to develop existing businesses in the Group and by acquiring more companies with strong positions in well-defined niches. In order to achieve these goals for earnings growth and profitability, Lagercrantz Group works with six common main strategies:
Decentralisation and management by objective
A strong corporate culture
Businessmanship
Strong market positions in niches
Increased value added
Acquisitions
Decentralisation and management by objective
Lagercrantz Group has about 25 operating subsidiaries, each of which operates as an individual profit centre with its own clear business concept, its own goals and with its own strategy. Each management group develops its own business with a great deal of freedom under its own responsibility. In this way the mission-critical decisions are made close to customers and market. It is here that the knowledge about customers needs is the greatest. This also creates short decision-making paths and promotes a high degree of participation.
The subsidiaries are managed by objective, goals that are of a long-term nature and based on the Group’s three main require- ments, for growth, profitability and development. Business plans are drawn up each year for every company with quarterly goals for earnings and how much capital is tied up in the business. Plans are followed up on a regular basis and action is taken as needed.
The 2008/09 operating year brought dramatic changes in the general business situation. This meant that extensive action was taken to adapt the organisation, activities and cost levels correspondingly to the business premises at hand.
Strong corporate culture
Lagercrantz Group nurtures a strong corporate culture, which traces its origin in the way of working and the approach to business that is characteristic of a successful technology trading
company. There is rich lode of collective experience in the Group and this is systematically exploited and disseminated in the form of courses and training, but also by encouraging engagement and team play between associates in different parts of the Group.
The common value base for Lagercrantz Group’s corporate culture rests on four concepts:
Businessmanship – the ability to see opportunities, to create good relationships and to focus on earnings.
Responsibility and freedom – the ability to take control and realise own ideas that generate earnings.
Simplicity and efficiency – the ability to work in a concentrated manner and to find simple solutions, to prioritise the right things and to do them in the right way.
Willingness to change – the ability to grasp onto new things and to adapt to the market.
Businessmanship
Businessmanship is something very basic for Lagercrantz Group and distinguishes all work that is done. This concept includes contributing knowledge and acting in such a way that added value is created for the customer – by refining the products of others or by offering our own products. Business- manship means having a holistic perspective and the ability to recognise new business opportunities and future needs in the marketplace. It also means working close to your customers and to create good sustainable relationships on a long-term basis based on high ethics and honesty. Personal selling is an important component of businessmanship. Lagercrantz is a value-creating partner for buyers of technology.
Strong market positions in niches
Lagercrantz Group’s subsidiaries strive to achieve a strong market position in their niche. A niche consists of a well- defined technology area, customer segment or geographic area with a total market value that is normally in the range of MSEK 200–1,000.
This means working on a defined market with considerable possibilities of impacting business terms and conditions.
Proximity to the customers, high technical competence and a focused method of working make it possible for us to create sustainable competitive advantages, even in relation to the largest international players. For Lagercrantz Group, having a leading position means to be number one or two in each respective niche.
Increased value added
Lagercrantz Group is focused on delivering high value added to
its customers, and continually strives to raise it. With know-
ledge of a local market and specialised technical know-how,
Lagercrantz Group contributes to the added value by
customising, developing and combining products from
different suppliers in the solutions presented to the customers.
There is also customer benefit in the fact that Lagercrantz Group makes different manufacturers’ products available on the market and offers training, support and service. The degree of refinement is continually enhanced by phasing out standard components and replacing them with products that generate greater customer value. New products and services are also increasingly being offered. The development is in the direction of areas which are technically complex, or open the doors for a unique offer.
Acquisitions
Lagercrantz Group’s goal for earnings growth will be realised in part by organic growth and in part by acquisitions. The acquired companies strengthen the market position in existing areas, or make it possible to enter new, interesting markets. It is crucial that acquired companies have a well-tested business model and earnings capacity, great competency among its leaders and associates and good growth opportunities.
Expansion in the technology areas where Lagercrantz Group is already established is accomplished all over northern Europe.
For other areas, which are new to Lagercrantz Group, acquisitions will in the first instance be made in the Nordic Region. Given the state of the market prevailing in 2009, the focus will be on finding and acquiring companies primarily in the Nordic Region.
STRATEGIES STAND FIRM
The steep economic downturn towards the end of 2008 and in
the beginning of 2009 has meant that Lagercrantz Group’s
focus has shifted to ensure a stable, profitable business also in
turbulent times. Measures will be aimed at cutting costs and
reducing capital tied up in the Group. Lagercrantz Group’s
long-term efforts at creating growth, profitability and
development in the Group based on these strategies will
continue, however, and the assessment is that decentralisation
and management by objective, nurturing a strong corporate
culture, businessmanship, niche thinking, increased value
added and acquisitions are at least as important in a downturn
phase.
Market
Lagercrantz Group is a technology trading group in the areas of electronics, electrics, communication and adjacent areas. Customers are mainly industrial companies in northern Europe. Lagercrantz Group has the largest part of its sales in Denmark and Sweden. The largest end customer segments are power generation, electricity distribution and electronics.
Lagercrantz Group is a technology trading group active in northern Europe. The largest markets are Sweden and Denmark. Lagercrantz Group works exclusively with sales to other companies, so-called business-to-business. Customers are mostly industrial companies. As the service sector in the Nordic Region and northern Europe grows ever larger, Lagercrantz Group’s sales to the sector have increased.
Lagercrantz Group is made up of some 25 units that work with a clear niche focus, which means focus on a limited market, where the individual company can achieve a leading market position.
End customers for Lagercrantz Group’s products are found primarily in electrical power generation and distribution, electronics, transportation and telecommunication.
DRIVING FORCES
The major driving forces affecting Lagercrantz Group’s customers, and hence the demand for Lagercrantz Group’s products, is the constantly growing demand for energy, the ongoing globalisation of trade, the increasing flows of informa- tion and the growth of new markets, especially in Asia. These driving forces has been affected by the dramatic decline in industrial output in the end of 2008 and beginning of 2009, but even so, investments in infrastructure to meet the global demand for electricity are in a phase of long-term growth, primarily tied to the economic development in China, India and other parts of Asia. Energy distributors around the world need to build new grids and expand already existing ones in order to increase capacity. Regulations and the economic situation speak for expansion of ever more efficient energy production with minimal environmental impact.
Growing world trade and global competition make for increased productivity in manufacturing industry, so focus has been directed at such areas as purchasing functions and line processes.
The increasing volumes of information in stationary and wireless networks, is enforcing the expansion of capacity and development of new technology.
The emergence of new, large markets in Asia has led to growing expansion investments to meet the large demand thus created.
TYPES OF BUSINESS IN TECHNOLOGY TRADE
There are two main business models on the technical markets:
Direct sales from manufacturer to end user and sales via some kind of partner. Only a small number of global companies can reach out to all their end customers via their own channels.
Large companies often choose to act on their own on a few key markets, while they seek a strong local partner on other markets. For smaller manufacturing companies, partnerships with local sales companies are often the only way to reach out to their customers.
Lagercrantz Group is a technology trading company with strong ties to its customers as well as its suppliers. The location in the supply chain is motivated by the fact that Lagercrantz Group can offer technical and business knowledge, problem- solving, localisation, combinations and systems, as well as training and service. The technology trading company is the local link that makes world-leading technology available on a small market. For manufacturers it is a way out to small markets and ensures qualified counselling, service and after- market activities.
The subsidiaries within Lagercrantz are mainly operating on a well defined market. This is an important part of the overall strategy of Lagercrantz enabling the companies to build up sharp local business intelligence and long-term customer relationships.
Trading in different forms constitutes the largest part of the Group’s sales, or just below 60 percent. The trading companies are represented in divisions Electronics and Communications in particular. Trading comprises hardware (e.g. electronic components, network products, IT hardware) as well as software (e.g. CAD software) for customers in several market areas and includes sales of everything from individual components to various sub-systems for integration in the products manufactured by the customers.
Some companies in the Group work with an export
perspective. These are mostly companies with their own
products that sell on a world market, either themselves via
subsidiaries, or with the help of partners. Just over 15 percent
of the Group’s revenue is sales in this form, especially in
divisions Mechatronics and Electronics (electrical connection
systems) and Electronics (embedded PC solutions, routers).
The ambition is to increase this proportion of the Group’s revenue.
Niche production makes up just over 15 percent of con- solidated revenue and means that the companies manufacture special solutions for account of the customer. This type of selling is done mostly in division Mechatronics in conjunction with production of cable harnesses for use especially in wind power stations or static frequency changers.
Approximately 5 percent of the Group’s revenue is derived from systems integration where the companies in Lagercrantz Group undertake to deliver a complete solution, often with after-market service. This type of sales is common in division Communications in particular (integrated security systems, CCTV infrastructure, video conference solutions).
THE SUPPLY CHAIN
Lagercrantz Group works with value-adding technology trade.
That is why it is important for the companies in the Group to make the value-creation clearly visible to the customer. One aspect hereof is to work as close to the end customer as possible. Today just short of 40 percent of consolidated sales go directly to end customers. A little less than 35 percent of sales go via selling partners and resellers to end customers. Examples of such partners are installation companies, distributors and wholesalers. About 15 percent of consolidated sales go to contract manufacturers. Another important customer group is systems integrators, who account for just over 10 percent of the Group’s sales.
CHANGING PURCHASING PATTERNS
Important trends among Lagercrantz Group’s customers that affect conditions for the Group are shorter lead times (time-to- market), outsourcing of certain functions and moving out pro- duction. The first two of these trends can be said to constitute positive factors, while moving out constitutes a threat to Lager- crantz Group’s local sales.
Shorter time-to-market and outsourcing mean that the customers to a greater extent need to work with partners for a part of the work previously done internally. This opens oppor- tunities for a strong technology trade company in the develop- ment phase as well as later in a product’s life cycle. For the customer this means greater security since the customer can buy well-tested solutions where focus can be placed on adapta- tion to the customer’s specific needs. The customer can free up resources for marketing work and the entire supply chain is rendered more efficient.
Among the effects of the economic downturn are that manu- facturers’ inventories of components have been reduced to a minimum, thereby raising the demands for short delivery times and flexible solutions in the interface between Lagercrantz and the customers.
In general, the purchasing pattern has become choppy, with less long-term planning and growing demand for quick deliveries. The tolerance level for logistical errors has been significantly reduced. Lagercrantz Group’s business model, with key words such as proximity and flexibility, has proved to be successful in this environment and many customer relation- ships have thus been strengthened, even though the overall volumes have been reduced.
COMPETITION
Lagercrantz Group is active on niche markets and competition is different between them depending on products, volumes and geographic scope. In general, it can be said that in technology trade there is often many alternative products and players on each market. Small local suppliers who represent foreign manu- facturers dominate on the Nordic markets. They possess a high level of knowledge about their products that may be on a par with the expertise in Lagercrantz Group. Several of the global manufacturers have their own sales organisations in the Nordic Region and can offer good service and technical competence.
There are also a number of major wholesale companies with a broad product line and who distribute large volumes. Among these, specialist knowledge about individual products is not as pronounced.
CUSTOMERS AND SUPPLIERS
Lagercrantz Group’s sales are spread over a large number of markets and many customers. This means that the dependence on individual customers is relatively limited. No individual customer accounts for more than about 5 percent of con- solidated sales. Even for individual subsidiaries, the dependency on the largest customers is limited. On average, a subsidiary’s 10 largest customers account for about 65 percent of that com- pany’s sales.
A corresponding situation prevails with respect to suppliers, where Lagercrantz Group’s subsidiaries operate in a number of different technology niches. Very few supplier relationships comprise more than one company in the Group. Lagercrantz Group tries to work close to its suppliers and to develop active co-operation.
CURRENCIES
A majority of the Group’s sales and purchases are made in
currencies other than Swedish kronor. The largest transaction
currency is euro, which accounts for about 35 percent of sales
and 50 percent of purchases. The Danish krona, the exchange
rate of which is linked to euro, accounts for about 20 percent
of sales and 10 percent of purchases. The American dollar is
the third largest currency with about 10 percent of sales and
almost 20 percent of purchases. Currencies other than Swedish
kronor stand for 75 percent of sales and 85 percent of
purchases respectively.
Lagercrantz continually analyses its risk exposure in foreign currencies. Based on sales volume and volatility experienced during the 2008/09 financial year, the Group’s revenue was affected most by euro and U.S. Dollars, followed by Danish kronor measured against the Swedish krona. The biggest effect on gross profit, where weight is also given to the purchasing volume in foreign currency, came from the exchange rate for Norwegian kroner, followed by the U.S. Dollar. This is due to the big difference in purchasing volume in these currencies.
Major changes in recent years in the exchange rates, have prompted more and more customers to choose to work with the euro as transaction currency. Lagercrantz works actively in trying to minimise the risk that emanates from exchange rate fluctuations by pricing in purchasing currency and by using currency clauses. Refer also to Note 41 “Risk management.”
Revenue by market segment
Power generation and electricity distribution 19% (18)
Elektronics 16% (15)
Construction 11% (13)
Telecommunication 10% (11)
Security 9% (9)
IT 9% (5)
Transportation 8% (12)
Other 18% (17)
Numbers in brackets refer to 2007/08.
Revenue by market channel
Direct to end customer 39% (35) Distributors/resellers 29% (38) Contract manufacturers 17% (16) Systems integrators 12% (6) Other 3% (5)
Revenue by business type
Trade, hardware 45% (43) Proprietary products 17% (15) Trade, software 14% (15) Nich production 14% (12) Systems integration 5% (9) Service 4% (4) Other 1% (2)
Division
Electronics
Division Electronics offers solutions based on special components from world-leading manu- facturers as well as proprietary products.
Customers are typically manufacturing companies in the fields of marine industry, medical techno- logy, automation, telecommunication and other industry with stringent demands. The division operates mainly in Denmark, Norway, Finland, Germany, Poland and China.
Most companies in division Electronics act as value-adding distributors. The customer is offered products and solutions from world-leading manufacturers with a high degree of customer adaptation, support and services. For the suppliers our businesses serve as a sales organisation that builds demand by exercising good businessmanship and a high level of tech- nical expertise. In order to further enhance the value-adding feature, the offer is complemented with products developed in- house. This is especially true in the marine business. Many of the customers pose stringent requirements, particularly when they are subject certification and regulatory control. Examples are marine navigation equipment, sensors for gas measurement and medical-technical equipment in the health care area.
MARKET
Division Electronics mainly addresses OEM customers in electronics in the Nordic Region, Germany and Poland.
Electronics is active in growth areas and seeks leading positions.
In communication Electronics is a leader in areas such as distribution of GSM modules. In embedded electronics the division commands advanced positions in a number of areas, including marine PCs.
2008/09 OPERATIONS
Revenue for Electronics fell during the year to MSEK 727 (778). Already early during the period flagging demand was seen in the markets outside the Nordic Region, especially in Germany and the UK. The decline was a result of lower propensity to invest among many companies due to the recession. As the year passed, lower demand spread to most companies in the division. Cost-cutting and capital-reducing measures were therefore introduced during the second half of the year. These measures consisted of streamlining and con- centrating operations to the larger markets. In Sweden this means that the company for wireless communication (Acte Wireless) and the company for embedded systems (Acte
Embedded) are integrated from 1 April 2009 into one company: Acte Solutions. The UK and Swiss operations are integrated into the Danish and German operations, respectively.
The operating result declined during the year to MSEK 24 (38). This result contains costs affecting comparability in an amount of MSEK 4 (0), mainly during the fourth quarter, as a result of the measures taken, personnel reductions in particular.
The operating margin not including these items affecting comparability was 3.9 percent (4.9).
STRATEGY AND BUSINESS DEVELOPMENT
Development work in the division is focused on building strong market positions in growth niches and to increase the value-added component in sales. The gross margin continued to grow during the year thanks to product line improvement and competence enhancement measures taken. The proportion of project sales of semi-finished articles and modules for small and medium-sized production series is on the rise at the expense of standard components for large production series.
The element of services and proprietary products is also growing.
One example of successful strategic development is the small acquisition made in Norway during the past year. This acquisi- tion brings the Norwegian business into a new customer seg- ment, IT solutions for digitising and computerisation of health care.
Another example is the establishment of a competence centre
in Poland for customer-specific development of products in the
communications area. This means new opportunities for
increased value added for customers in Poland as well as in
other markets.
PROSPECTS
The strategies and the business model, with distinct decentra- lisation and management by objective, have led to clear improvements in the business. In the long term division Electronics will continue to develop along the path staked out.
The economic outlook for the year ahead is fraught with significant uncertainty, however. In the short term Electronics will therefore follow the development closely and adapt its operations to the situation at hand.
Revenue by business type
Trading 70%
Proprietary products 17%
Systems integration 4%
Special production 3%
Other 6%
Key figures
Division Electronics 2008/09 2007/08 2006/07
Net revenue, MSEK 727 778 751
Operating result, MSEK 24 38 23
Operating margin, % 3.9 4.9 3.1
Operating margin shown not including items affecting comparability.
ACTE AS provides important support in clinical environments
ACTE Norway’s solution allows information to be presented for quick decisions.
Increased use of IT systems in health care is in our future and can be vital to life and health.
ACTE possesses deep specialist knowledge of how modern IT can be adapted to and installed in
clinical environments to suit the users. Information on which decisions within seconds are based must be correct and available at the right place in an often complex situation.
Helse Midt-Norge is responsible for hospitals and health care in the three central counties in Norway. HEMIT is a regional IT unit within Helse Midt-Norge charged with management of the central servers, common software and infrastructure. Some 20,000 of Norway’s most demanding IT users must have 24/7 access to 600 servers via 12,000 PCs. Some 3,500 PCs are normally used for work where speed, precision and reliability can be the difference between life and death.
The development is in the direction of ever smaller units with total mobility. Intel has launched the ”Mobile Clinical Assistant”
concept – a hand-held PC that makes vital information about the patient available regardless of location. For the Norwegian market, ACTE has launched a solution based on a PC made by Motion Computing and which is based on Intel’s MCA technology.
For more information:
ACTE AS: www.acte.no
Helse Midt-Norge: www.hemit.no
Intel Mobile Clinical Assistant: www.intel.com/healthcare/ps/mca/
Electronics’ business model – value adding distribution
Division Electronics’ subsidiaries under the name of Acte in the Nordic Region and Poland, and Unitronic in Germany, operate as value-adding distributors. The business model is described in simplified form in the above illustration. The companies operate focused with a small number of suppliers’ products in niches, seek out and operate close to customers in the product development phase, customise and offer many different types of added value, such as support and service. Deliveries are effected to the customer or to appointed contract manufacturer.
Several other distributors in the market are global players with a very broad product line, the focus of whom will be to maintain inventory of and to provide logistics for more standard-type components.
Division
Mechatronics
Mechatronics offers systems and products to customers in manufacturing industry, power generation and electricity distribution with high requirements for quality, proximity and support.
Mechatronics conducts business in Denmark, Finland, Sweden, Germany and China.
The offer of division Mechatronics comprises production of customised cable harnesses and adjacent products and services, production and marketing of electrical connection systems, and dealing in mechanical and electro-mechanical products and electronic products. The products manufactured by the division’s companies are characterised by high quality, reliability and extended user life. Trade in Mechatronics comprises proprietary products and complementary products from leading manufacturers. The main focus for the companies in the division is on proximity to its customers in order to be able to offer customer-unique products, provide the best possible technical advice and to offer short delivery times and high availability.
MARKET
Division Mechatronics’ offer is aimed at two main customer categories. Dominating is Nordic manufacturing industry, especially in power generation, trains and railway, heavy vehicles and machinery, and in telecommunication. The second category is electrical grid owners and electric power distribution. The division holds a market leader position within electrical connection systems on the utility market in the Nordic countries and is an important supplier of cable for several large manufacturers.
2008/09 OPERATIONS
Mechatronics recorded higher revenue in 2008/09 than in the year before. Net revenue increased to MSEK 628 (604).
Growth was seen during the first three quarters of the year.
Demand declined during the third quarter and this was further accentuated during the fourth quarter. The division was particularly impacted towards the end of the year by the lower rate of capital spending among end customers. Gradually lower demand followed as the effect spread in the production chain,
in part through inventory reductions among the division’s customers. As a consequence of lower revenue during the latter part of the year, the division’s capacity utilisation was affected, leading to lower profit. At the end of the year measures were taken to reduce overcapacity in the division’s producing units, in part by personnel reductions and by delaying capacity investments. Additional action includes measures to reduce working capital, especially in the form of inventory and trade receivables.
The operating result amounted to MSEK 49 (50). This result contains costs affecting comparability in an amount of MSEK 4 (0), mainly during the fourth quarter, as a con- sequence of action taken. The operating margin, not including these items affecting comparability, was 8.4 percent (8.3) for 2008/09.
STRATEGIES AND BUSINESS DEVELOPMENT
During the year Mechatronics worked on strengthening, improving and streamlining the production apparatus.
Mechatronics’ shall assume responsibility for quality, manage- ment, control and material supply together with its customers.
Mechatronics’ offer has been complemented with a view to developing the business in the direction of larger undertakings in the prioritised niches. With more complex deliveries consist- ing of several products assembled in accordance with the requirements of the customer, full justice will be done to Mechatronics’ technical expertise and wide range of products and the value added can be further increased. During the year Mechatronics has therefore strengthened its marketing and support functions.
Several companies in the division have managed to broaden
their customer base in recent years. This has been accomplished
on existing geographic markets as well as on new ones. The
establishment by subsidiary Elpress in China has been a success
in this regard. Initially, the offer has been aimed at existing customers from the home market in the Nordic Region setting up operations in China. A broadening towards local players in the same segment has begun. Also in other parts of the world export efforts towards a few selected segments has continued successfully.
In some areas low-cost production initiatives were taken outside the Nordic countries. A partner network has been created and manufacturing has been initiated for some of the division’s products.
PROSPECTS
The global climate issue and requirements for safe and secure electricity distribution to the various functions in society drives the demand. Mechatronics and its customers are active in market segments that are likely to be interesting investment targets, for example, wind power production, energy efficiency and effective transportation.
Revenue by business type
Special production 39%
Proprietary products 35%
Trading 24%
Services 2%
Key figures
Division Mechatronics 2008/09 2007/08 2006/07
Net revenue, MSEK 628 604 541
Operating result, MSEK 49 50 35
Operating margin, % 8.4 8.3 6.5
Operating margin shown not including items affecting comparability.
Elpress contributes to augmenting safety and performance at Sweden’s largest nuclear power plant.
Knowledge about strong connections is included as an important part in the improvements to Sweden’s largest nuclear power plant – Ringhals. Through training, high quality and a holistic approach Elpress contributes to the development.
A total of SEK 12 billion will be invested at Sweden’s largest nuclear power plant
Ringhals to upgrade its security systems and strengthen its protection, but also at the same time raising output. This involves the replacement of many components and digital technology will be introduced. There will be a larger number of electrical connections and these will have to stand up to greater loads. For a comparatively small share of the total investment, a mechanically and electrically strong connection with a long life is secured with the Elpress system.
System Elpress is a solution comprising both the crimping tool and the connection, and also trains the installers. All material in the system is selected and tested to fit together. All material in the crimping tool as well as the connection itself is load-tested in accordance with international standards. The installers attend advanced training and given an opportunity for certification. By delivering an entire system, Elpress has good control over all elements of the process.
To ensure the security as well as the performance increase, very close tolerances and genuine, age-resistant capacity is of the essence. This is what system Elpress offers.
For more information:
Elpress AB: www.elpress.se
The Swedish radiation safety authority: www.stralsakerhetsmyndigheten.se
IAEA: www.iaea.org
Sweden’s first nuclear reactor R1: http://sv.wikipedia.org/wiki/R1_(reaktor)
Division
Communications
Division Communications offers products, systems and services in the areas of digital image trans- mission/technical security, access products and software. The division’s companies are active in Sweden, Denmark, Norway and Finland.
The division’s eight companies offer their solutions to the market based on being value-creating distributors and systems integrators. A growing portion of the division’s revenue is comprised of different forms of services.
MARKET
The division is a market leader in several areas, including video conferencing solutions in Sweden and CAD software in Denmark and Norway. The division also has a strong position in camera-based surveillance systems, health care security and other products for technical security, and in access products for telecom and broadband networks and data security.
Regardless of which business they are in, Lagercrantz has chosen a clear niche strategy for its companies, either with an aim at a certain type of customer, or in the form of product segmenting. In all cases the businesses are local, with deep customer and market knowledge.
2008/09 OPERATIONS
Net revenue amounted to MSEK 783 (790). The division’s digital image/technical security area saw a positive develop- ment. Revenue increased and earnings improved. COBS AB, the company acquired during the year, contributed to the positive development.
The access area continued to be strong contributor to the division’s result, although revenue as well as earnings declined from last year, particularly due to weaker demand for the division’s data security products. Revenue in Norway also declined due to weaker overall demand in satellite
communication in shipping. Demand for niched IT products remained at a good level.
Revenue increased in the division’s software area. The company CAD Kompagniet acquired during the year was a contributor here.
The operating result amounted to MSEK 52 (51). This result includes items affecting comparability in the amount of
MSEK 5 (0). Without theses costs, the operating margin increased to 7.3 percent (6.5).
STRATEGY AND BUSINESS DEVELOPMENT
In the access area the adaptation of the product line and the offer continued in the quest to find more distinct niches within which to operate.
The organisation in technical security was overhauled last year, which means that operations are focused on a small number of areas where the division already today has a strong position. Additional focus was placed on developing the after- market offer. This change has been a positive one and the business has been able to strengthen its market position, especially vis à vis the retail trade. COBS AB is a part of the division since September 2008. This company has a strong position in telephony and alarm solutions for health care and correctional institutions in the Nordic Region. The company’s exports showed a positive development during the year. At present the company is developing the next generation hand- held unit.
CAD Kompagniet is a part of the division since the beginning of the year. The division has thereby broadened its offer in CAD solutions to include consultancy.
The growing flow of information is a strong driving force which pushes investments in IT/telecom infrastructure. Video conferencing is becoming an increasingly appealing alternative to travel as companies are scaling back their travel budgets.
Another driving force is the trend towards a more closely monitored society in the form of security and camera systems that are relatively unaffected by the state of the market.
In the access area the division focuses on niched products for
telecom operators needed to build infrastructure. The area also
includes niched IT products.
PROSPECTS
There are possibilities in several areas to strengthen the role in the supply chain, in part through in-house-developed con- cepts/solutions and in part through a growing proportion of services. This work, together with acquisitions, will be the most important factors for future growth in the division. In addition hereto, a broadening of the product line and increased sales of proprietary products are other ways for the division to streng- then its market position.
During the coming year the change work in the access business will continue.
Revenue by business type
Trading 70%
Systems integration 20%
Services 8%
Proprietary products 2%
Key figures
Division
Communications 2008/09 2007/08 2006/07
Net revenue, MSEK 783 790 682
Operating result, MSEK 52 51 43
Operating margin, % 7.3 6.5 6.3
Operating margin shown not including items affecting comparability.
Sörmlands Sparbank invests in security
Sörmlands Sparbank offers long-term support for the regions citizens and businesses. Security for the customer, concern and a comprehensive approach is at the heart of the bank’s work. This calls for responsible management and genuine security.
Security and IT are the most important systems for a banking operation. Investments here are significant and to run them takes a lot of personnel – often around the clock. Lars Fogelberg is
head of security at Sörmlands Sparbank. He has been developing a structure for the bank’s security system since the mid-1990s.
The basic alarm functions in banking operations cover burglary alarm, assault alarm, access control, TV surveillance and fire alarm systems. Theses systems must also be upgradeable to handle additional functions in the future. In order to meet these requirements software is needed that is modular in structure, which can be developed as the needs change, and there must be a stable central computer with extremely high accessibility to back the systems.
All alarm functions shall be integrated and information must be presented to the operator in easy-to-use and clear interface.
There must also be functions for authorisation levels and history. The system must be programmable so that it is possible to track what has been done by whom and which events have occurred. If an alarm is triggered, sound and image must be ready to be played back when the police arrive at the bank.
Nordic Alarm was chosen, and its integrated security system Nordic Integral meets all of Sörmlands Sparbank’s requirements.
Seen over a longer period of time, the total cost of the investment, its operation and service also proved to be favourable.
For more information:
Nordic Alarm and Nordic Integral: www.nordicalarm.se
Sörmlands Sparbank: www.sormlandssparbank.se
Acquisitions
Acquisitions are an important part of Lagercrantz Group’s growth strategy. The strategic target group of possible acquisition targets is broad in the interest of raising the rate of growth. The ambition is to grow into new technology areas, and to acquire three to five companies on average per year.
PROCESS
Interesting complementary acquisitions are identified by the subsidiaries; acquisitions to broaden a division’s operations are dealt with at the division level, whereas larger strategic acquisitions are handled by the management of Lagercrantz Group. Two persons in the Group devote their time to acquisition issues. Making successful acquisitions requires a well-structured process to identify, evaluate and consummate corporate acquisitions. Lagercrantz Group works with a process that consists of five phases:
Identifying potential target companies based on different strategic perspectives and financial key ratios.
Contact with companies and their owners, clarifying idea, prerequisites, purpose and common grounds.
Analysis of market and company, drawing up a business plan and negotiating the terms.
Final negotiations, quality assurance, contract of sale and press release.
Closing, implementation of business plan, introduction of governance and reporting, and information to employees, customers and suppliers.
The subsidiaries in the Group have a very important function, especially in contacts and the initial evaluation thanks to their local market knowledge. A growing number of potential target companies are identified via Lagercrantz Group’s subsidiaries.
TARGET COMPANIES
Businesses that Lagercrantz Group looks for are often entrep- reneur-led companies. It is then important that the seller feels that the company ends up in the right environment and continues to have good opportunities for development. Lager- crantz Group offers a stable and financially strong platform in a decentralised organisation, with a large measure of freedom and a clear responsibility where the company often retains its name, location and organisation.
ACTIVITIES DURING THE YEAR
During the 2008/09 operating year two companies were acquired: CAD Kompagniet AS in Denmark, with the closing taking place 1 April 2008, and COBS AB in Gothenburg, with the closing taking place 1 September 2008. The level of activity was high at the beginning of the year with a number of parallel processes. As the state of the economy deteriorated, Lagercrantz chose to reduce the level of activity in the acquisition area. A number of dialogues are continuing, which creates
opportunities to initiate processes quickly once the business situation stabilises. During the year the Group also strengthened its financial position, which resulted in an improved equity ratio and lower net liabilities. The Group’s basis for consummating acquisitions has been strengthened.
OUTLOOK
Lagercrantz Group sees good prospects for making acquisitions
going forward and look for companies with a proven earnings
record and good management. The geographic area is the
Nordic Region in the first instance. Target companies should
have a niche orientation and a strong market position within
this niche. Lagercrantz Group’s contribution in the form of
competence and development opportunities make it possible
for acquired companies to continue the development.
The Lagercrantz share
Over a five-year period, the market price performance of the Lagercrantz share shows a gain of 5 percent. The broad OMX Stockholm Price Index fell during the same period by 6 percent, and the benchmark Carnegie Small Cap Index scored a gain of 4 percent. During this five-year period the highest price was SEK 42.80, in July 2007. This is the highest quotation since the Company was listed in September 2001.
The lowest price was SEK 16.50, in November 2004. The share price on 31 March 2009 was SEK 23.50 (28.80). The trend during the 2008/09 financial year (April–March) involved a drop of 20 percent (13). During the same period OMX Stockholm Price Index fell by 45 percent (22) and Carnegie Small Cap Index, which shows the aggregate development for smaller companies, fell by 38 percent (19).
Lagercrantz, with a market capitalisation of approximately MSEK 546 at the end of March 2009, is included in the Small Cap segment for companies with a market capitalisation below EUR 100 million on Nasdaq OMX Stockholm’s main list.
PROPOSAL TO THE 2009 ANNUAL MEETING
The dividend proposed by the Board of Directors for the 2008/09 financial year is SEK 1.50 (1.50) per share. This is equivalent to a total dividend payment of MSEK 33 (34).
TRADING IN THE SHARE ON THE STOCK EXCHANGE
The number of shares traded during the financial year was just over 4.4 million (9.8), equivalent to a value of MSEK 115 (327). The turnover rate for free floating shares was 24 percent (51). The average rate of turnover in the Small Cap segment during 2008 was 35 percent (74). The number of transactions per day in the Lagercrantz share was 14 (19) per trading day.
SHARE CAPITAL
As of 31 March 2009 the share capital amounted to MSEK 48.9, divided into 1,094,654 class A shares and 22,078,655 class B shares. Each share has a quotient value of SEK 2.11. Class A shares entitle their holders to ten votes, while class B shares entitle their holders to one vote. Both classes of shares entitle their holders to the same rights with respect to the Company’s assets and earnings. The Articles of Incorporation allow for conversion of class A shares to class B shares. A total of 1,344 shares (-) were converted during the year. The number of votes in the Company is
33,025,195 thereafter.
The 2008 Annual Meeting resolved to cancel class B shares without repayment. During 2008 a total of 1,240,923 class B shares were cancelled. Through a concurrent bonus issue of just over MSEK 2.5, the share capital remains intact.
REPURCHASE OF OWN SHARES
The 2008 Annual Meeting resolved to authorize the Board of Directors to repurchase shares. During the year 500,000 (1,200,000) class B shares were repurchased. Lagercrantz Group’s total holding of shares in treasury on 31 March was 1,195,000 (1,36,423) class B shares, equivalent to 5.2 percent (7.9) of the number of shares outstanding and 3.6 percent (5.6) of the votes in Lagercrantz. 695,500 of the repurchased shares are intended to fulfil the Company’s commitment under outstanding option programmes, where the redemption price is SEK 36.00, SEK 44.40 and SEK 38.60, respectively, per call option. The average acquisition price for repurchased shares is SEK 25.57 per share.
INCENTIVE PROGRAMME
In 2006 an incentive programme was introduced for managers and members of senior management in the Group in
accordance with an Annual Meeting resolution. The purpose of the programme is to raise the motivation and create participa- tion for managers and members of senior management regarding opportunities for the Company’s development. The purpose is also to motivate managers and members of senior management to continued employment in the Group. The programme is a revolving three-year programme based on call options on class B shares held in treasury. The total number of outstanding call options issued under the programme may at no time exceed approximately three percent of the total number of shares outstanding (class A as well as class B shares).
The 2006 Annual Meeting resolved to award 255,000 call options and the 2007 Annual Meeting resolved to award 260,000 call options. The 2008 Annual Meeting resolved to award 180,500 additional call options. The programmes were fully subscribed. Each option gives its holder the right to purchase one share at a redemption price of SEK 36.00 (2006 programme), SEK 44.40 (2007 programme) and SEK 36.80 (2008 programme, respectively. The options can be exercised between 20 September and 20 December 2009 (2006 programme), 21 September 2010 and 21 December 2010 (2007 programme) and between 27 September and 27 December 2011 (2008 programme). In all, the programme is equivalent to 3 percent of the total number of shares outstanding and approximately 2 percent of the votes in the Company.
OWNERS
Skandia Liv is the Company’s largest owner in terms of
proportion of capital. Anders Börjesson and Tom Hedelius
own class A as well as class B shares and hold 13.4 percent and 11.4 percent of the votes, respectively. During the past year Swedbank Robur fonder acquired Carnegie fonder. Robur thereby increased its ownership in Lagercrantz. The proportion of foreign ownership was 25.3 percent (26.7) on the balance sheet date. The number of shareholders changed marginally during the year and as of 31 March 2009 Lagercrantz had 3,497 shareholders (3 614).
INFORMATION PROVIDING
Lagercrantz Group provides information about important events in the Company by publishing press releases. The Company also provides financial information in the form of quarterly reports. Press releases and quarterly reports are available at the Company’s website, where economic surveys and current corporate governance information are also
published. At the website it is also possible to download pdf- files for printout to subscribe to press information via e-mail.
There is also a list of analysts who follow Lagercrantz Group.
The Annual Report, interim reports and press releases are made immediately available in Swedish and English via Lagercrantz Group’s website. They are simultaneously distributed via an established service provider and registered with the Swedish Financial Supervisory Authority. In the opinion of the Company this is the procedure that best fulfils the requirements of the EU directive about non-discriminatory dissemination and immediate European availability. As a consequence hereof the reports are not distributed in printed form other than upon request.
Market price performance and trading volume 1 year
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Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
SEK
0 100 200 300 400 500 600 700 800 Number of shares traded (in thousands)
Number of shares traded (in thousands)
OMX Stockholm PI Lagercrantz Group B Carnegie Small Cap index
Market price performance and trading volume 5 years
0 10 20 30 40 50 60 SEK
0 2,000 4,000 6,000 Number of shares traded (in thousands)
2005/06 2006/07 2007/08 2008/09
2004/05
Number of shares traded (in thousands) Carnegie Small Cap Index
Lagercrantz Group B
OMX Stockholm PI
