Annual Report 2007/2008

Annual Report 2007/2008

B&B TOOLS is the largest supplier of industrial consumables, industrial components and related services to Nordic indus- try. This responsibility is managed by experienced organisa- tions with enthusiastic and knowledgeable managers and employees, who represent a combination of competence, entrepreneurship, profitability and development.

B&B TOOLS is the largest supplier of indu- strial consumables in the Nordic region

With the industrial resellers in TOOLS and the district offices of TOOLS Momentum, B&B TOOLS is currently represented in more than 200 locations in Sweden, Norway and Finland.

Proximity to customers is a crucial success factor for our vision – both geographically and figuratively. Read more on page 14

Industrial customers strive for increased efficiency

B&B TOOLS focuses on industry needs for industrial consum- ables, industrial components and related services for their MRO processes. At present, the main geographic markets are Sweden, Norway and Finland. Read more on page 9

Proximity to industrial customers

B&B TOOLS – together, we make the industry more efficient

omsättning, ResultAt, AntAl AnställdA

B&B TOOLS is the largest supplier of indu- strial consumables in the Nordic region

Complete offerings and efficient purchasing

B&B TOOLS’ Product Companies provide TOOLS and other selected market channels with industrial consumables and related services. Development of the product and service offerings is based on industrial customers’ needs – with a continuous striving to achieve economies of scale and increased purchasing power. Read more on page 19

Based on industrial customers’ needs within MRO, B&B TOOLS develops complete solutions comprising numerous products and services, as well as efficient systems for logistics and information. Read more on page 17

Oil in the machinery

Since 2002, B&B TOOLS has played an active role in the consolida- tion of the industry through such measures as a focused acquisition strategy. In the past five years, the Group has acquired some 100 businesses in the Nordic region. Since 2005/2006, the average annual revenue growth for the Group has been 33 percent.

Read more on page 11

First-rate logistics and information systems are crucial success factors for our vision. B&B TOOLS offers efficient flows and information handling throughout the value chain – from the manufacturing of industrial consumables to customer utilisation of the products. Read more on page 20

B&B TOOLS – together, we make the industry more efficient

Contents

2007/2008 Operating Year 1

President’s Statement 2–3

Vision and Strategy 4–8

Market 9–10

Operations 11–21

Markets 14–16

Products 17–19

Services 20

Employees 22–23

Theme: The Group’s profitability model – P/WC 24

Sustainable Development 25

Administration Report 26–29

Net Revenue and Operating Profit

by Operating Area 30

Consolidated Income Statement 31

Consolidated Balance Sheet 32

Consolidated Statement of

Recognised Income and Expense 33

Consolidated Cash-flow Statement 34 Parent Company Income Statement 35

Parent Company Balance Sheet 36

Statement of the Parent Company’s

Recognised Income and Expense 37

Parent Company Cash-flow Statement 38

Risks and Opportunities 39

Notes 40–77

Proposed Allocation of Profit 78

Audit Report 79

Corporate Governance Report 81–85

Board of Directors 86

Management and Auditors 87

The B&B TOOLS Share 88–89

Group in Figures Over Seven Years 90–91

2008/2009 Financial Information 92

Invitation to Annual General Meeting Addresses

Definitions and Glossary

B&B TOOLS’ statutory Annual Report (Annual Accounts) comprises pages 26 to 78. These pages have been examined by the Company’s auditors in accordance with the Audit Report on page 79.

This document is in all respects a translation of the

Swedish original Annual Report. In the event of any

differences between this translation and the Swedish

original, the latter shall prevail.

2007/2008 Operating Year

• Increased focus on the development and delivery of comprehensive solutions in the area of MRO for indus- trial customers. In accordance with the Group’s vision – First in MRO – the development of efficient supply solutions for Nordic industry continued. During the year, a number of customer agreements were signed concerning major com- prehensive commitments for leading industrial companies.

• Continued favourable earnings performance and strong sales trends. Demand within the industrial sector in the Nordic region remained favourable and organic growth for comparable units amounted to 12 percent. Measures taken to boost profitability within the Markets operating area had a positive effect on earnings.

• Market positions strengthened by agreements to acquire 27 businesses with joint annual revenue of approximately MSEK 1,600. Acquisitions of industrial reseller businesses in Sweden, Norway and Finland strength- ened B&B TOOLS’ and TOOLS’ position in the respective local markets.

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group in figures 2007/2008 2006/2007 Change

Net revenue, MSEK 9,133 6,823 +34%

Operating profit, MSEK 674 443 +52%

Profit before taxes, MSEK 600 407 +47%

Profit for the year, MSEK 432 290 +49%

Per share, seK

Profit for the year 15.10 10.35 +46%

Cash flow from

operating activities 12.90 15.10 –15%

Equity 55.60 44.60 +25%

Dividend 5.00

4.00 +25%

Operating margin, % 7.4 6.5

Return on equity, % 31 25

Equity/assets ratio, % 27 28

Average number of

employees 2,987 2,289 +30%

1) As proposed by the Board of Directors.

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President’s Statement

Vision-related efforts; improvement of our market posi- tion; growth; operating margin; Acquisitions; market- ing; Concept development; training and new projects that are in line with our vision are all examples of head- ings that each addresses the extensive efforts carried out by the group’s incredibly dedicated employees – efforts that we carried out in an extremely commend- able manner and resulted in another year of develop- ment of which the group should be proud.

Revenue / Profit / Margin

The 2007/2008 operating year was another year during which nearly all key data progressed in a positive direction. Revenue amounted to MSEK 9,133 compared with MSEK 6,823 in the preceding year, resulting in growth by 34 percent. Acquired units accounted for approximately 22 percent of this increase in revenue and organic growth for a fantastic 12 percent. In our market, it is difficult to measure exact market shares, but given this rate of organic growth, my conclusion is that we have gained market shares. In May 2008, the consolidated annual revenue rate amounted to approximately SEK 10 billion – an internal milestone in the realisation of our vision.

Operating profit amounted to MSEK 674 (443), an increase of 52 percent. The operating margin increased from 6.5 percent to 7.4 percent. Within the Products operating area, we have become accustomed to high margins and favourable profitability in the past few years and this positive trend continued during the 2007/2008 financial year. Excellent work! Within the Markets operating area, a project was launched in the summer of 2007 that aims to see all Market Companies increase their operating mar- gins – known internally as ROS (Return on Sales). Within the framework of the ROS project, highly intensive and extensive work has been carried out and has generated positive results for nearly all units. This deserves special praise since work on the ROS project took place on top of the daily operations and all other projects. The project will continue in 2008/2009.

Operating environment trends and our conclusions The 2007/2008 operating year was a year of major changes in terms of expectations in the operating environment. In April 2007, analysts and investors predicted strong economic trends on a broad front. During the autumn and winter, expectations were

the opposite. During the spring of 2008, forecasts have been slightly more balanced, but still characterised by a wait-and-see attitude due to imbalances and circumstances in the financial markets that are difficult to analyse. When we look at our custom- ers (all forms of industrial operations), the majority seem to have experienced favourable trends and, as far as we can ascertain, have a positive outlook on the future. Our major customers’ current public outlook on the future indicates expectations of continued favourable orders development and relatively well-filled order books, but slightly lower growth on the whole. Accordingly, we are planning for continued growth and are prepared for alterna- tive scenarios.

B&B TOOLS – a group undergoing strong development B&B TOOLS is a group undergoing strong development. One way to look at the Group at the highest level is to divide the operations into two dimensions:

i. The daily business operations that aim to meet customer demand and, of course, to generate short-term profit for the Group. This is the core of the operations. The majority of the Group’s approximately 3,300 employees make great efforts on a daily basis to meet customer needs and demands, while striving to exceed customer expectations.

ii. The second dimension focuses on development work that aims to create competitiveness for the future.

B&B TOOLS is in the middle of an intensive development phase.

We have carried out some 100 acquisitions during the past few years, which together have earned us a favourable market position.

However, we confident that we can generate new customer value and increased competitiveness, but to do so, we must develop structures, processes, offerings, solutions, forms of cooperation, business models and some other factors.

We strive to be the player in the market that leads development in the direction of our vision. This goal is perhaps the most impor- tant aspect when considering B&B TOOLS from the sharehold- ers’ perspective.

In 2007/2008, several development projects were initiated. All projects are derived from our vision: First in MRO. Our vision, which is described in more detail on pages 4 to 8, plays an incredi- bly important role in determining our development projects. The following are examples of some of our Group-wide projects:

2007/2008 another fantastic year for the B&B TOOLS Group

Intensive development efforts and strong profit – at the same time!



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• Complete Product – aims to create “complete” solutions for tomorrow that meet actual customer needs. Services will gradually become increasingly significant for this goal.

• Regionalisation – aims to create an organisation that is adapted to future business relations with our customers. Internal efficiency is another guiding principle for the new organisational model.

• Logistics vision – aims to create logistics solutions for tomorrow, which is a key component of the profitability work. (For exam- ple, we have not fully utilised our strong position in both the wholesaler and retailer levels.) Naturally, the logistics solutions of tomorrow will be a key aspect of future customer solutions.

• ROS project – our operating margin is an important part of our overall profitability. In many Market Companies, margins have been too low. This project involves systematic work that is expected to result in future profitability.

Our vision, strong starting position for the future and desire and capacity to carry out powerful changes will secure the Group an indisputable leading position in our market.

What are our success factors?

To achieve a goal as ambitious as that outlined in our vision, it is necessary to hold a strong starting position – and we do, in terms of existing operations, existing customer relations and other fac- tors. Furthermore, I personally believe that the most crucial suc- cess factor is the human element. Simply put, you could say that if we have the best leaders and employees, clear goals, a positive cli- mate for development and cooperation that promotes taking ini- tiatives with a sense of responsibility and respect for close col- leagues and processes – the rest will fall into place. Following a similar line of reasoning, we always strive to improve. Personally, I believe that we probably have the strongest prerequisites of all the players in our industry to conduct development work that is as in- tensive as the work in which we are currently involved.

B&B TOOLS – first year with the new name

Just before the beginning of the operating year, the Parent Company in the Group was given a new name – B&B TOOLS. Our share- holders, Board of Directors and management were in agreement that changing the name was the right step to take, but it was still an exciting milestone in the development of the Group. Now, with the wisdom of hindsight, we are able to report that the result has been highly successful. The outcome has included positive feedback, a high-level of recognition and a decidedly increased awareness of the connection between the listed Parent Company, B&B TOOLS AB, and the TOOLS brand that we convey to the industry.

In extensive market surveys, the TOOLS brand was ranked as by far the most recognisable brand in our industry in both Sweden and Norway. During the year, TOOLS generated relatively power- ful exposure through advertising and other PR activities, includ- ing sponsoring a racing team to compete in the Swedish Touring

Car Championship (STCC) – Sweden’s largest car racing com- petition. During ten rounds of the competition, we hosted 7,000 representatives of approximately the same number of customer companies. The days were filled with a combination of infor- mation about TOOLS and the goals of the B&B TOOLS Group and pleasant socialising surrounded by motor sports. In the end, one of the TOOLS drivers, Fredrik Ekblom, won the entire STCC, which added extra excitement to the event.

STCC can be used as a symbol for several key dimensions of our operations.

To win STCC, a team must have a strong composition and be closely knit. It is the results of the team that matter. All forms of suboptimisation must be eliminated.

One of B&B TOOLS’ guiding principles is: “Think one com- pany” and largely focuses on the same issues.

Complete solutions are absolutely crucial to winning STCC – just like complete solutions are absolutely crucial for our custom- ers if they are to optimise their total cost situation.

Responsibility, performance, attitude and passion make a big difference in STCC. The same applies for us when we compete in our market and conduct our development projects.

It is important to have fun along the way. We will only be able to continue if we have fun at the same time. Considerable individ- ual and collective responsibility rests on all of us in this respect.

Everyone must do their share.

In summary

2007/2008 was a fantastic year with a favourable economic climate.

I am pleased with our financial performance and at least just as happy with all of the projects that, combined, have given us such strong trends. We have now entered the new operating year and, naturally, are focusing on the future. However, allow me to extend my sincere thanks to all employees and TOOLS partners for your wonderful contributions and fantastic results during the past year!

Our position has never been stronger!

We are now moving forward toward our vision and I hope that, together, we will achieve favourable results and strong trends – and have fun along the way!

Stefan Wigren

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Vision and Strategy

First in MRO

mRo – maintenance, Repair & operations – is an inter- national concept that focuses on industrial companies’

processes for maintenance, repair and operation of their production facilities. B&B tools provides compre- hensive solutions within the area of mRo.

One of B&B TOOLS’ most important goals, which guides the Group’s development, is the striving not only to solve customer supply needs for industrial consumables, but to simultaneously optimise this supply in terms of profitability – for the customer.

This goal requires an excellent understanding of the customers’

MRO processes (and, as a result, of the related need for industrial consumables), as well as the ability to translate different needs into standardised solutions. B&B TOOLS’ solutions always comprise a combination of products and services.

High costs for MRO within the industry

All industrial companies, in all sectors, carry out MRO initiatives that aim to increase production efficiency.

Meeting the need for industrial consumables in an efficient manner requires the following:

• extensive competence,

• an efficient system for logistics and information,

• a large number of items,

• a wide range of services and

• local presence.

The number of items required to meet the industry’s total need is closer to one million than one hundred thousand.

An important aspect of MRO planning is ensuring that the right product is available at the right place at the right time – otherwise, in the worst-case scenario, an entire production process could suffer. Meeting customer needs based on the customers’

total cost situation – including taking alternative costs for prod- uction disruption into consideration – is difficult.

At B&B TOOLS, we strive to plan and implement our con- sumables supply in an optimal manner in cooperation with our industrial customers. Together, we can help industrial companies make significant savings. Often, our projects also result in positive spin-offs in such areas as quality, the environment and production safety. We summarise it in the following motto: “Together, we make the industry more efficient!”

Our vision – First in MRO

B&B TOOLS strives to be perceived as the leader in the MRO market.

• We are the first Nordic supplier company to give real meaning to the MRO concept.

• We want to be perceived as the player at the forefront of the area of MRO.

• We strive to be the first player to introduce new concepts and services in the area of MRO.

• We strive to be the player that secures the leading position in the consolidated market.

An efficient supply of industrial consumables for maintenance, repair and operations creates opportunities for earnings improve- ments for industrial companies.

Together, we make the industry more efficient.

industrial consumables

indsutRiAl ComPAnies

Raw materials and input goods labour energy B&B TOOLS’ MAIN FOCUS: SUPPLYING INDUSTRIAL CONSUMABLES TO INDUSTRIAL CUSTOMERS

Hundreds of thousands of products from thou- sands of suppliers and manufacturers

machinery and buildings



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First in MRO means that B&B TOOLS will gradually develop and deliver an increasing number of complete solutions in the area of MRO, thereby becoming a natural partner for the customers.

By consistently focusing on MRO, B&B TOOLS will help the industry to become more profitable, which, in turn, will create the necessary prerequisites for long-term and profitable growth of the B&B TOOLS Group.

STRATEGIC CORNERSTONES

B&B TOOLS’ strategy – a more efficient value chain

The Group’s strategy is aimed at creating an increasingly efficient value chain to enable us to achieve our vision. This strategy is based on three cornerstones:

1. Securing distribution.

Proximity to customers is a crucial success factor for our vision – both geographically and figuratively. Proximity to industrial cus- tomers is achieved through such measures as establishing a pres- ence in every justifiable location, either through proprietary reseller businesses or via partnerships with successful resellers.

2. Securing brand control.

Our vision and strategic cornerstones support each other. The fol- lowing connection is certainly true: the closer we become to our industrial customers, the stronger the connection we can establish with important suppliers. B&B TOOLS is a trading operation and should not have any in-house manufacturing.

The Group’s total product portfolio is based on two main guide- lines:

a. In market niches with world-leading suppliers, we will seek out cooperation with top players.

b. Within selected market niches, we will gradually build an in- creasingly strong portfolio of proprietary brands.

3. Investing in economies of scale.

Top logistics and information systems are crucial success factors for our vision. Within these areas, we will create and utilise econo- mies of scale.

We will strive to achieve efficient flows and information hand- ling throughout the value chain – from manufacturing of indus- trial consumables to customer utilisation of the products.

Our goal: All industrial customers should experience a sense of proximity

During the past five years, B&B TOOLS has undergone major development, which has given the Group a distinct market position. The Group’s strengths include nationwide coverage in Sweden, Norway and Finland, with a presence in more than 200 locations through proprietary operations or TOOLS partners.

This creates a unique proximity to the customers and a high level of industry competence that is continuously utilised to further develop the Group’s offerings.

Vision and Strategy

CONSOLIDATION IN B&B TOOLS’ MARKET

Wholesale business with coordinated IT and logistics.

Focus on gaining posi- tion – through acquisi- tions and partnerships.

Focus on utilising the effect of positions that have been gained through increased focus on end customers and profitability – all with the aim of achieving our vision First in MRO. Acquisition activities continue.

“One Company” – with a fully integrated value chain from manufacturer to end customer.

Market share

Time

gain position develop

solutions for tomorrow

market leader in a consolidated market

00 years 2002  years 2007 App.  years 20XX

0 i ii iii

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B&B TOOLS intends to continue strengthening its market position through organic development of existing businesses and acquisitions, as well as by utilising the effects of positions that have been gained.

MARKET STRATEGY

Industry is the B&B TOOLS Group’s primary target group.

TOOLS, including TOOLS Momentum, is the Group’s market channel for industrial customers. TOOLS comprises both propri- etary reseller businesses and independent partners.

The focus segments currently include the process, engineering and manufacturing industries. A common feature for all custom- ers is that they incur considerable costs if their industrial processes are hit by interruptions or production disturbances. This is the ba- sis for our customers’ increased interest in more profitable supply and outsourcing solutions for MRO products and services. This is the Group’s number one area of focus.

Some parts of the Group’s product range are also suitable for other customer groups. One such group is the construction and real estate sector. Packaging product groups and solutions that are suitable for these segments creates the prerequisites for important

additional sales. However, B&B TOOLS has explicitly decided that the construction and real estate sector is not strategic in rela- tion to the Company’s vision. The segment is being cultivated via partnerships with construction materials dealers and other exter- nal market channels. B&B TOOLS also conducts some sales to the do-it-yourself market via external market channels.

The Nordic region is our principal market

Today, Sweden, Norway and Finland are the B&B TOOLS Group’s principal geographic markets. Through TOOLS’ local in- dustrial resellers and TOOLS Momentum, the Group is currently present in approximately 200 locations in the Nordic region. Cus- tomers in these countries are cultivated in a similar manner. Swe- den is the single largest market. Sales in other countries in the Baltic region have gradually increased in recent years.

FINANCIAL DEVELOPMENT

During the past five years, B&B TOOLS has reported strong growth – both organic and through acquisitions – which is also reflected in the Group’s financial development. The graphs below illustrate this development.

NET REVENUE

OPERATING PROFIT B&B TOOLS’ MARKET STRATEGY

Industry sales via the group’s own market Companies and partners within tools and tools momentum

2. Based on solutions and products offered to industry:

Construction mate-

rials dealers enter into partnerships and create and develop package offerings with construction materials dealers

Consumer chains no strategic focus for the group. sales via the Järnia chain, for example

CustomeR

segment

. main focus

Products Markets

December 2001 March 2008

MSEK

0 2,000 4,000 6,000 8,000 10,000 12,000

Products Markets

December 2001 March 2008

0 200 400 600 800 MSEK

nB: The graphs above refer to rolling 12 months, not including B&B TOOLS Services and Group functions and before eliminations.

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For sandvik in Finland, tools now offers complete procure- ment and logistics solutions. An entirely new service model has been established for the customer, which enables fast and cus- tomised deliveries of all industrial consumables required by this “heavy-duty” industrial business.

the concept of “heavy-duty” industry is particularly fitting for sandvik mining and Construction (smC). this business area within the sandvik group specialises in products and solutions for the mining and civil engi- neering industries, such as machinery, hard-metal tools, service and tech- nical solutions. smC has approximately 2,200 employees and operations in 0 countries. the sandvik group is a tools customer in sweden and Finland.

“We offer complete procurement and logistics solutions for industrial consumables and components. this includes everything from customised inventory handling and efficient product data assistance for ‘kanban’ ser- vices,” explains Pekka Posa, Regional manager, Region east within tools Finland. “We have adopted a comprehensive approach to supply flows and are coordinating large parts of smC’s earlier network of subsuppliers.”

Kanban is a system for production control that involves automatic refill- ing of the customer’s inventories without any planning or forecasts. the consumers themselves order more materials and new materials are not delivered until old materials are used up.

New service model

tools’ commitment is extensive, comprising smC’s plants in tampere and turku, as well as several subsuppliers in the Finnish market and smC’s plants in lyon and eindhoven. deliveries focus on such product groups as hydraulics, ball bearings, transmissions, sealing, chemicals, fas- tening elements and specialty products for smC.

“A major challenge was to create a service organisation that could meet the needs of smC’s various plants. At each plant, we had some ten different service points and identifying and establishing new supply rou- tines at these locations was demanding,” says Pekka Posa. “to accomplish this, we had to create new it routines for our own product handling.”

Cooperation between smC and tools is a key concept. this coopera- tion enables tools to become an integrated part of smC’s supply organi- sation.

Customised supply flows at sandvik

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Market

Industrial customers strive for increased efficiency

Marknad

TOTAL COST OF OWNERSHIP (TCO) FOR MRO PRODUCTS

Maintenance 15% Inventories 35% Purchasing 20% Invoice amounts 30%

In calculating the total cost for the supply of industrial consumables, the price of the product itself only accounts for 10 to 30 percent of the total cost. As a result, focus- ing on solutions that also minimise other costs associated with the supply becomes extremely important – solutions in such areas as inventory optimisation and efficient logistics solutions.

B&B tools focuses on the industry’s demand for indus- trial consumables, industrial components and related ser- vices for its mRo processes. At present, B&B tools’ main geographic markets are sweden, norway and Finland.

MARKET STRUCTURE

Historically, the Nordic market for industrial consumables and components has been highly fragmented. The industry is now be- ing consolidated like all other industries. Old patterns are being broken and new patterns are being established. Industrial custom- ers’ increased awareness of potential efficiency gains as a result of professional management of MRO products and services is a driving factor behind this consolidation. The potential for stream- lining the value chain (in a market as large as industrial consum- ables) is another reason behind the consolidation. B&B TOOLS is playing an active role in the consolidation of the market and the Group management believes that this consolidation has reached about halfway in the Group’s principal markets. The total market for industrial consumables for Nordic industry is estimated to amount to approximately SEK 45 billion.

The market comprises players with a variety of profiles:

• A few large companies with operations within a broad range of products. These companies typically have their own logistics and IT solutions. Some also have a local presence through pro- prietary resellers within a country or a region.

• Niche players that specialise in narrower product areas and typ- ically market their products throughout a larger region or with- in a certain country. Competitive tools: competence within the product area and field of application.

• Local resellers that focus on the industry in the local area con- cerned. Competitive tools: proximity to customers and accessi- bility.

MARKET TRENDS

Continuous efforts in the industry to streamline its MRO pro- cesses are now beginning to have an effect in the area of consum- ables. An increasing number of industrial companies are recognis- ing the potential of integrating their consumables supply into their MRO processes in a professional manner. Another distinct trend is that customers want to reduce the number of suppliers, and consequently transferring greater responsibility to selected suppliers.

Moreover, many larger companies are demanding multi-loca- tion agreements, whereby a supplier satisfy the needs of all units regardless of where they are located within a country or region.

Another market trend is that individual reseller businesses are increasingly coming to the conclusion that they will not be able to invest enough in infrastructure and competence in the long term to maintain their competitiveness. This trend is contributing to the consolidation of the market.

More intense focus on services

The market for industrial consumables and components is a rela- tively mature industry. To a large extent, overall demand for prod- ucts follows the general economic trends in industry and con- struction.

B&B TOOLS believes that services will become an increasingly important area of focus and will account for a progressively larger proportion of growth over time. The potential is significant.

nB: Percentages stated are estimates.

Market

Products themselves will not create greater efficiency. However, new services, combined with traditional products, could generate substantial potential for industrial customers in terms of efficiency.

COMPETITION

There are today no players in the Nordic markets with the same profile as B&B TOOLS. The only players that currently have a presence in all three of our principal markets (Sweden, Norway and Finland) and similar qualifications in terms of structure are the Swedish company Ahlsell and the German company Würth.

At every individual location, B&B TOOLS encounters com- petition from one or more local resellers that work in limited geographic markets. At the national level, the Group encounters

a few major national players in each country. Many small and mid-sized niche players exist that normally remain within a well- defined product area.

In certain areas of technology, large international companies are also represented. These companies operate primarily within selected product areas, in which competitiveness is based on strong brands and a high level of niche expertise.

Although the number of players is substantial – and the com- petition intense – significant opportunities exist for a company to develop its market position and offerings – particularly for com- panies that have the capacity to participate in the ongoing con- solidation in the market.

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in norway, tools concluded partnering agreements with three leading industrial groups in the spring of 2008. the agreements pertain to the supply of industrial consumables to some 0 units within Aker solutions, Aker Yards and Bjørge. the customer bene- fits generated include lower costs and more efficient purchasing.

the partnering agreements represent the largest procurement process for industrial consumables in norway to date. the total annual purchase value is mnoK 0.

“to reduce purchasing costs and streamline the purchasing process, we are reducing the number of suppliers of consumables from nearly 00 to only a few,” says Bård Hauge, Vice President supply and Commodity at Aker solutions Corporate. “in the procurement process, besides the prices of the products and services, we have placed considerable importance on the suppliers’ adaptability and delivery solutions.”

Standardised purchasing and product range

these partnering agreements will generate major savings for the three companies. moreover, purchasing processes will be simplified and become more uniform through such measures as increasing follow-ups and prod- uct standardisation, focus on electronic orders and customised logistics.

the agreements are an example of the comprehensive solutions offered to nordic industrial companies by B&B tools.

”it is exciting to participate in the new procurement processes of these industrial businesses by implementing more cost-efficient and time-saving solutions,” says Bjørn oddvar Andresen, President of tools norge. ”We currently work with many of norway’s largest industrial groups and there is no company in norway with better prerequisites for carrying out these assignments than we.”

more efficient supply for norwegian industrial companies



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Operations

Market strength and strong comprehensive offerings

With strong comprehensive offerings, B&B TOOLS is able to assume a greater supply and service responsibility in the area of MRO for its industrial customers. This enables the Group to reduce the total cost for its industrial customers for their MRO processes.

B&B TOOLS’ OFFERING – FOCUS ON COMPREHENSIVE SOLUTIONS

manufacturer Customer



B&B tools is the largest supplier of industrial consum- ables, industrial components and related services to nordic industry. the operations are based on highly decentralised business responsibility. this responsibility is managed by experienced organisations with

enthusiastic and knowledgeable managers and employ- ees, who represent a combination of competence, entrepreneurship, profitability and development.

While daily operations are decentralised, all companies and indi- viduals have maintained a common vision and coordinated devel- opment agenda.

Market strength – Markets

With the industrial resellers in TOOLS and the district offices of TOOLS Momentum, B&B TOOLS is currently represented in more than 200 locations in Sweden, Norway and Finland. The Group’s own reseller operations are known within the Group as Market Companies.

Markets is the name of the operating area that is responsible for

all processes related to industrial customers. Thus, Markets is re-

sponsible for the Group’s development of its market position at

the reseller level. Accordingly, Markets organises all of the Market

Companies and is in charge of development and operation of the

TOOLS concept.

Operations

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2

Sales by customer segment

Sales by geographic market

Share of purchasing by geographic area SALES AND PURCHASING

Packaging paper company Billerud coordinates its purchasing of industrial consumables via tools, thereby generating savings of several million seK. As part of this cooperation, tools is responsible for the total supply of manufac- turing supplies, consumables and standard spare parts to the plants in skärblacka and gruvön.

Billerud reduces its costs for consumables

Strong comprehensive offerings – Products

B&B TOOLS has broad and deep product ranges. Competence is a key concept – one that comprises products, manufacturers, applica- tions and related issues, such as safety. The companies that work on creating the Group’s offerings are known within the Group as Product Companies.

Products is the name of the operating area that is responsible for all processes that lead to complete product and service offerings.

Efficient flows of information and products – Services Customer needs for effective IT and logistics solutions are met within the Group by the Services operating area. Services’ goal is to always provide customers with efficient and simple access to in- formation, products and services.

ACTIVE ROLE IN THE CONSOLIDATION – CORPORATE ACQUISITIONS

Since 2002, B&B TOOLS has played an active part in the consoli- dation of the industry through such measures as an active acquisition strategy. During the past five years, B&B TOOLS has acquired some 100 businesses in the Nordic region, of which 27 were acquired during the 2007/2008 operating year. Since 2005/2006, average revenue growth for the Group has been 33 percent annually, with organic growth accounting for 12 percent and acquired growth accounting for 21 percent.

Industrial sector 65%

Construction sector 21%

DIY (Do-It-Yourself)/

Private market 5%

Other industries 9%

Sweden 53%

Norway 26%

Finland 13%

Other 8%

Europe 75%

Asia 22%

USA 2%

Other 1%

Operations

“tools has an optimal basis for creating compre- hensive solutions”

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“this structure provides us with a partner with overall responsibility in the area, which generates major cost savings within the consumables supply,” says lars-gunnar Almryd, Purchasing manager at Billerud.

Increased integration

As a result of this cooperation, Billerud gains a strong cooperation partner with expertise and experience. in skärblacka, deliveries are managed via a store that tools has established in the plant area. gruvön’s supply is provided through depots placed close to the production units. tools is also responsible for the product supply to the storage facility in the area.

“this solution was established in cooperation with Billerud and demon- strates that tools has an optimal basis for creating comprehensive solutions in terms of total cost,” says torbjörn eriksson, market and sales manager at B&B tools markets.

According to the agreement, Billerud will carry out its purchasing from tools’ product range. in addition to a lower total cost for the products, this cooperation will result in several other gains. through tools’ integration and optimisation processes, Billerud can reduce its administrative handling, thereby decreasing the number of invoices. Another benefit is a reduction in stock-keeping, which will substantially lower the amount of tied-up capital.

Billerud reduces its costs

for consumables

 |

Markets – Proximity to industrial customers

the markets operating area comprises tools and tools momentum, which, together, form the group’s market channel for industrial consumables and industrial components for nordic industry.

Markets is responsible for all processes related to industrial cus- tomers, including the development of the Group’s market position at the reseller level.

Markets had revenue of approximately MSEK 5,700 during 2007/2008 and has, taking into consideration the acquisitions for which closing occurred before 31 March 2008, a current annual revenue rate of approximately MSEK 6,500.

TOOLS

TOOLS is the largest industrial reseller chain in the Nordic re- gion and provides Nordic industry with industrial consumables.

TOOLS comprises the Group’s own Market Companies and in- dependent partner companies. All TOOLS companies are loyal to the TOOLS concept and work to secure the leading position in the MRO market.

Today, TOOLS operates in more than 200 locations in Sweden, Norway and Finland and has approximately 2,500 employees. The single largest market is Sweden, where TOOLS has a presence in just over 100 locations.

Total revenue for the Market Companies amounted to approxi- mately MSEK 4,800 in 2007/2008. This accounted for approxi- mately 70 percent of TOOLS’ total revenue of approximately MSEK 7,000. In 2007/2008, 26 new Market Companies were acquired.

Acquired businesses are integrated according to established models for reporting, profitability, planning, business control, strategies, concepts and internal control.

The Group strives to create a uniform structure that comprises all Market Companies.

TOOLS MOMENTUM

TOOLS Momentum supplies industrial components and related services to the same target group as TOOLS. TOOLS Momen- tum has extensive product and application expertise in the area of industrial components used in rotating axles (bearings, seals, caulking and more). TOOLS Momentum has well-established MRO concepts that are intended to help the customers in various situations concerning the supply of industrial components. The concept aims to establish:

• More efficient purchasing

• More efficient inventory management

• Optimisation of operational situations

• Optimisation of maintenance of industrial plants

An overall goal is to help customers minimise downtime and unplanned production interruptions.

The principal market is Sweden, but TOOLS Momentum also has subsidiaries in Norway and Denmark. In 2007/2008, net revenue amounted to approximately MSEK 800.

MARKET ACTIVITIES

During the 2007/2008 operating year, TOOLS focused on a number of prioritised activities with clear objectives. Among other goals, TOOLS aimed to increase the customers’ general awareness about TOOLS’ offering and long-term ambitions.

Initiatives included market communication, advertising, customer dialogues and sponsorship. Surveys indicate that these activities generated the desired effect. Customer awareness and knowledge about TOOLS’ comprehensive offerings has increased markedly.

Activities implemented during the year include:

• TOOLS’ animated figure “MrO” emphasised important mes- sages concerning the area of MRO and TOOLS in newspaper advertisements and on the Internet during 2007/2008.

• In Sweden, TOOLS sponsors a racing team in the STCC series (Swedish Touring Car Championship). In 2007/2008, the competition comprised 12 rounds (on different occasions and different race tracks). During the summer period, a total of more than 7,000 people (industrial customers) were welcomed to spend ten full days with TOOLS, including information about TOOLS, product exhibitions, meetings with the Group’s management teams and employees and socialising throughout the races themselves – during which everyone developed a natural loyalty to the “TOOLS drivers.”

• In Norway and Finland, TOOLS implemented nationwide road shows during the past year, during which more than 20,000 customers received information on TOOLS’ offerings within the area of MRO, as well as TOOLS’ operations.

Operations

= TOOLS and TOOLS Momentum = Local offices of the Product Companies

= Central warehouses

B&B TOOLS’ geographic presence

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Starting in 2007, TOOLS has sponsored the West Coast Racing Team in the STCC. During the year, one of the drivers on the team, Fredrik Ekblom, won the entire se- ries. His victory is proof of a successful cooperation – which will continue during 2008!

Operations

in January 2008, torbjörn eriksson – market and sales manager at tools – was awarded the distinction of 2007 mercurius of the Year by dagens industri and training company mercuri interna- tional. the title is awarded annually to a person that has con- ducted persistent, goal-oriented sales work and has improved his or her organisation in a way that is crucial for the company’s suc- cess. the explanation for the choice of winner stated that tools has created the market’s most efficient and competent sales team by breaking down the group’s business goals into a tang- ible development plan within the area of sales and marketing.

tools has also gone from selling individual products to compre- hensive solutions, while simultaneously integrating 220 local partners into a joint sales organisation.

tools – 2007 mercurius of the Year

Jörgen Svantesson, President of Mercuri International Scandinavia, and Gunilla Herlitz, Editor-in chief and Publisher of Dagens Industri, congratulate Torbjörn Eriksson (middle) on his award.

Operations

COMPETENCE DEVELOPMENT

Another prioritised area for Markets during the year was com- petence development.

To date, the “TOOLS Academy,” which organises all work related to competence development within TOOLS, has targeted its training initiatives toward the approximately 1,200 sales representatives. The TOOLS Academy’s programmes focus on the development of job-specific skills, such as sales approaches.

However, gradually establishing a joint sales culture and common approach to such areas as comprehensive solutions and service development is equally important.

STRENGTH THROUGH COOPERATION

Integration between the businesses within Markets is constantly improving. TOOLS Momentum and TOOLS are developing an increasing number of joint concepts. A tangible example of this is the Swedish packaging company Billerud, with which a coordi- nated programme for industrial components and industrial con- sumables has been in operation since 2007 (see pages 12 to 13).

This programme is based on the customer’s needs, from which customised comprehensive solutions are developed that contri- bute to increased efficiency within Billerud.

Another example of cooperation is the integration within the entire B&B TOOLS Group. Cooperation between Markets, Products and Services is continuously being intensified, using the Group’s vision as a guide.

Markets’ share of the Group

Revenue Operating profit Employees

6 |

Operations

Products – complete offerings

the Products operating area comprises the group’s Product Companies and a management and develop- ment function. the Product Companies conduct opera- tions within a large number of product areas and pro- vide tools and other selected market channels with industrial consumables and related services.

Products is responsible for processes related to the Group’s offer- ings. This entails considerable responsibility that includes the management and development of existing and future products and services.

In 2007/2008, Products had revenue of approximately MSEK 4,300. TOOLS currently accounts for slightly more than one third of the Product Companies’ total sales.

DEVELOPS PRODUCT AND SERVICE OFFERINGS

B&B TOOLS’ five Product Companies focus on providing and developing complete solutions for a variety of industrial needs.

These solutions include:

• the right product and service (requires knowledge about the market, suppliers, products and applications)

• at the right time (requires first-rate IT and logistics systems)

• with the right knowledge (requires competence and conceptual capability)

• with the right application instructions (requires understanding of the customer’s situation)

• with the right information (places significant requirements on IT solutions)

• on competitive terms (requires an understanding of profitability and efficiency)

Products is responsible for the development of B&B TOOLS’

product and service offerings. This work is based on the needs of

industrial customers. Within the framework of this work, contin- uous efforts are made to achieve economies of scale and increased purchasing power.

Through partnerships with such construction materials dealers as Interpares, Optimera and Byggmakker and with other external market channels, the Product Companies provide parts from the total product range to the construction and real estate sectors and the do-it-yourself market.

Coordinated purchasing

The Group’s purchasing is gradually being coordinated. Products has approximately 40 employees in China (Shanghai) and Taiwan (Taichung). Practical purchasing work includes such aspects as product quality, function, the image of the brand and price. Pur- chasing work also includes setting requirements and quality con- trol in cooperation with suppliers.

Focus on proprietary product brands

The Group’s total product portfolio is based on two main guide- lines:

a. In market niches with world-leading suppliers, we will seek out cooperation with top players.

b. Within selected market niches, we will gradually build an in- creasingly strong portfolio of proprietary brands.

Work involving proprietary brands has been successful and accounted for 37 percent of the Product Companies’ total sales in 2007/2008.

The brand portfolio is gradually being improved. For example, in 2007, a decision was made to launch Luna as a product brand and, consequently, to integrate six existing product brands into the new profile (thereby replacing six brands with a single brand with significant market weight).

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Operations

Complete Product

Complete Product is the Group’s general term for the goal of providing complete solutions that aim to fully meet actual cus- tomer needs within defined areas. Understanding the actual needs of the customer is difficult. Creating complete solutions given a certain definition of these needs is also difficult. Accord- ingly, it is always important to remind ourselves of our aim.

The concept of Complete Product could potentially be limitless, but our focus is placed on comprehensive solutions that reduce the total cost incurred by industrial customers for industrial con- sumables. The purchase value per item is often relatively low for industrial consumables, but all of the related costs can easily be- come substantial. Work that is classified under Complete Product is a highly important part of the Group’s efforts to achieve its vision – First in MRO.

EXPORTS

The largest market for Products is Sweden, followed by Norway and Finland. In recent years, sales outside the Nordic region have increased, primarily in the markets in the Baltic countries and Poland. Export sales are increasingly coordinated. The Product Companies currently conduct their own operations in 12 coun- tries and have sales of proprietary product brands via external distributors in an additional ten countries.

Customised deliveries and simplified administration that reduce costs – these are a few of the advantages of tools’ cooperation with sKF sverige and ovako steel.

the cooperation, which was initiated at the beginning of 2007, fo- cuses on personal protection equipment from skydda, B&B tools’

Product Company, including gloves, protective goggles and shoes.

the agreement is extensive and the volumes are large – approx- imately 00,000 pairs of gloves, 200,000 ear protectors and 2,000 pairs of protective shoes annually. deliveries are made to five units within sKF and ovako steel throughout sweden.

Numerous direct deliveries

“to streamline distribution, direct deliveries are also made from skydda to the individual locations of operation,” explains Håkan Jedemark, Key Account manager at tools. “At sKF’s unit in gothenburg, administration has also been rendered more efficient via an invoice-free system known as self billing, which helps to cut costs.”

For every unit, a unique product catalogue has been developed with the help of local safety representatives and work groups, which simplifies the process of selecting personal protection equipment.

“together with local representatives, skydda is also responsible for training and information sessions at the units,” concludes Håkan Jedemark.

On-the-spot protection for SKF

Products’ share of the Group

Revenue Operating profit Employees

Source: SKF



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PRODUCT COMPANIES – ATTRACTIVE PRODUCT AND SERVICE OFFERINGS

Personal protection equipment

skydda specialises in personal protection equip- ment. the Company develops and markets a com- plete product range of work clothes and shoes, work gloves, technical protection and fall protec- tion and also offers risk analysis, advisory services, technical support and training. skydda has several strong proprietary brands, such as guide, Zekler and l.Brador. in 2007/2008, skydda’s net revenue amounted to slightly more than mseK ,000.

Tools & machinery

luna supplies high-quality tools and machinery for professional use, including hand and measuring tools, compressed air tools, cutting tools, sheet metal and wood-working machinery and welding and soldering equipment. luna has a number of proprietary product brands – such as luna, Ferax, tengtools and limit – that are combined with well- known brands from world-leading manufacturers.

in 2007/2008, luna’s net revenue amounted to slightly more than mseK ,600.

Fastening elements

essve specialises in fastenings and sealing. its main product areas are fastening elements, drills, screws, adhesives, joint seals and fire seal. the Company also offers electrical hand tools and nailing tools.

most of the Company’s sales pertain to proprietary brands, such as essVe and Fireseal. in 2007/2008, essve’s net revenue amounted to approximately mseK 00.

Workplace equipment

gigant focuses on workplace products in the areas of furnishings, storage, lifting, transportation and environment. the Company’s offer- ing to industrial customers includes individual products and complete ergonomic workplace solutions. using its competence in the area of work environment, gigant develops solutions that meet customer demands for both ergonomics and efficiency. in 2007/2008, gigant’s net revenue amounted to approximately mseK 00.

Operations

Industrial and construction consumables

grunda supplies consumables for the maintenance, repair and operation of industrial buildings. Product areas include fittings and security, environment and cleaning, absorbents and drying and electrical equipment. the Company offers well-developed purchasing and sales systems that simplify purchasing, product choices, store design and sales activities for resellers. in 2007/2008, grunda’s net revenue amounted to approximately mseK 00.

TOOLS meets

industrial customer demand for industrial consumables

TOOLS’ offering of products and services is extensive and can be divided into 21 product areas. Suppliers within these product areas comprise the Group’s own Product Companies and a number of complementing suppliers and manufacturers.

Workplace equipment

Consumer goods

Compressed air technology

Hand tools

Grinding &

cutting technology

Pneumatic

Machinery &

equipment

Cleaning

Technical sealing

Measuring technology

Environment

Bearings

Welding technology

Torque

Transmission

Electrical hand tools

Chemical technology

Industrial rubber

Personal pr otection

Fastening technology

Hydraulics

Operations

20 |

Services – oil in the machinery

the services operating area is responsible for providing the Products and markets operating areas with first- rate it and logistics solutions. services is the driving force behind the continuous efforts to streamline the information and product flows.

The Group’s vision, First in MRO, stipulates that all of the Group’s units should strive at all times to create efficient supply solutions for industrial consumables and industrial components that optimise customer profitability in relation to these areas. Services’ compe- tence and active participation is crucial for success in this area. Ser- vices also provides other services that offer distinct economies of scale, such as personnel administration and financial services.

CENTRALISED INFRASTRUCTURE

While the Group applies a highly decentralised business responsi- bility, the opposite approach is utilised when it comes to infra- structure. Infrastructure is centralised! The Group’s service, logis- tics and IT units are integrated within the Services operating area.

Investments in IT and logistics are extensive and require concen- tration of both capital and competence. This is one of the factors driving the consolidation of the entire industry.

The Group has two large logistics centres in Alingsås and Ulricehamn, where the majority of Services’ approximately 350 employees work.

CONTINUOUSLY MORE EFFICIENT INFORMATION AND PRODUCT FLOWS

A key aspect of the goal of creating an efficient value chain is integra- tion. Services is responsible for integrating the Group’s suppliers with the Group’s system solutions. Customers are also offered effective in- tegration solutions that enhance efficiency in everyday dialogues.

Adapted systems – more efficient management

The development of increasingly efficient flows is being carried out in three stages. First, standardised technical platforms are devel-

oped that streamline the processes. During the next stage, standar- disation of internal work is enhanced following the implementa- tion of the platforms into the Group’s various operations. During this phase, the need for internal communication is substantial since work methods and routines also need to be adapted to the new op- erational systems. In the third stage, the effects of the investments will be gained. After several years of extensive corporate acquisi- tions, this was an area of intense focus in 2007/2008.

One example of how flows are being made more efficient is the implementation of a common business system within the Group.

During the first phase, the system will give all Market Companies a homogeneous IT structure. This, in turn, will open up an entire world of integration opportunities. An important aspect is that an effective business system will make it possible to invest less time in routine transactions and to place greater focus on increasing customer benefits.

Toolstore is one of the largest e-commerce portals in the Nordic region. Via Toolstore, 800 customers and 1,500 resellers ask numerous questions and place thousands of orders every day.

Services’ share of the Group

Employees

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Share of the Group’s employees

Luna 13%

Essve 7%

Skydda 5%

Gigant 3%

Momentum 8%

Services 11%

Other 2%

Grunda 1%

TOOLS/Market Companies 50%

Employees

Development toward MRO solutions

Human resources work helps employees take an active part in the group’s future development, during which solutions for industrial customers’ needs within mRo is the main focus. Recruitment, competence development and career planning are key areas. B&B tools’ values, which emphasise employee responsibility, performance and positive attitudes, also act as a guide.

B&B TOOLS operates in a decentralised organisation. This also applies to the human resources work, with local units working independently on recruitment and competence and personnel development. In line with its vision, B&B TOOLS aims to increasingly act as one company. As a result, the need for integra- tion and systematics is also growing when it comes to the human resources work. To a large extent, integration is a responsibility for the Group-wide functions and means that overall policies and guidelines increase in significance. This results in improved quality assurance of the Company’s human resources work, but also more structured support for the local units.

Changes through MRO

Moving toward more complete MRO solutions will also change the requirements for human resources work. The high rate of ac-

quisitions means that new employees and companies must be in- tegrated into the Group in an efficient manner. At the same time, internal routines and work methods have to change when more comprehensive customer needs are to be met.

As an employer, B&B TOOLS strives to provide its employees with ample opportunities to develop and try new roles. To achieve this goal, the Company culture must be strong and attractive, internal mobility must be encouraged and the Group must offer exciting career paths. This means that the recruitment processes are gradually being changed and that competence development is being adapted to the new requirements associated with the Group’s focus on industrial customers’ needs in the area of MRO.

In general, these efforts aim to ensure that employees are satisfied, grow and remain in the Group. Internal dialogues are another fundamental part of the work related to common culture, satisfac- tion and development.

Expanded competence development

Via the “TOOLS Academy”, TOOLS offers all sales representa- tives in Sweden, Norway and Finland customised training. Com- petence development covers the topics of Leadership, Sales and Customer Care. In the long-term, this type of training will be ex- panded and will also include leadership development programmes for executive managers within the B&B TOOLS Group.

Employees in the B&B TOOLS Group

Men 77%

Women 23%

60 years and over, 7% 29 years and under, 16%

30–39 years, 25%

50–59 years, 22%

40–49 years, 30%

16 years or more, 22%

Under 2 years, 25%

2–5 years, 23%

11–15 years, 10%

6–10 years, 20%

Average number of employees

Age distribution Length of employment

As a result of the group’s focus on mRo solutions, integration – such as the integration between the market Companies and the five Product Companies and between the market Companies in various regions – is increasing. the group’s values act as tools in this work toward increased integration. they are based on the following five points:

•

•

•

•

•

Values guide the way

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Theme: The Group’s profitability model – P/WC

B&B TOOLS has an internal profitability target for the Group as a whole and all of its profit units. The measure that is used is called P/WC, which refers to operating profit in relation to utilised working capital for the profit unit being measured. The Group’s goal is for P/WC to amount to at least 45 percent per year for the Group as a whole and for each individual operating area. In other words, the working capital that is utilised for each individ- ual operating area should generate a return of at least 45 percent annually. The working capital that is required for the Group’s various units is simplified into inventories plus accounts receivable less accounts payable.

Every Group company develops its own activity plans and priorities based on its performance in relation to a P/WC of at least 45 percent.

Using P/WC as a model offers numerous advantages:

• P/WC can be broken into two key ratios that are easy to work with:

P/WC= Operating margin (ROS) x Working capital turnover rate.

• These two ratios can be used to compare any units within the Group.

• It is easy to delegate responsibility for ROS and turnover rate to involve inventories, accounts receivable and accounts payable.

• P/WC makes it possible to focus on one thing at a time, while still striving to achieve the goal.

• Products has an average P/WC of approximately 70 percent. This is the result of several years of goal-oriented work.

• Markets is in the middle of an extensive project focusing on ROS. The project began in the summer of 2007 and has already generated positive results. Once ROS has achieved a satisfactory level, focus will shift to working capital.

The diagram above illustrates how various combinations of ROS and working capital turnover rates can generate the same profitability (P/WC). It also shows the P/WC development for the Group, Products and Markets from March 2006 to March 2008.

ROS, % 0

3 6 9 12 15

16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1

30%

60%

45%

15%

75%

Working capital turnover rate

• Products 2006–2008 • Markets 2006–2008 • Group 2006–2008

Group goal