Annual report
2005/2006
“We must sell dependable products at low prices and the right quality according to need.”
Clas Ohlson
793 85 Insjön Tel: +(0)247–444 00 Fax: +(0)247–444 25 www.clasohlson.se
Corporate identity number:
556035–8672
C LA S O H LS O N AN N U AL R E PO RT 2005/200 6
Contents
Financial information
We are eager to keep the market continuously informed of our sales figures and therefore report these as often as once a month. The information is issued in a press rele- ase mid-way though the following month. Our financial results are presented four times a year, at the end of each quarter.
We distribute a printed annual report by post to all sha- reholders. We also regularly send out our interim reports to those who notify us of their interest in receiving them.
The interim reports can be taken by e-mail or in a printed version by post, depending on preference.
All financial information on Clas Ohlson can be found on our website. Both press releases and reports appear there the moment they are published. The website containsall the press releases, interim reports and annual reports we have published since the initial public offering in October 1999.
They can be downloaded as either text files or pdf files. The initial public offering prospectus can also be downloaded as a pdf. It is possible to register to receive our press releases directly by e-mail. In addition, it is possible to view and lis- ten to the analysts’ presentations we hold around the time of the publication of our interim report on our website.
Reading these presentations is an excellent way of forming a picture of the company and its shares.
www.clasohlson.se
The interim reports for 2006/07 will be published on the following dates:
First quarter (May-July) 8 September 2006 Second quarter (Aug-Oct) 8 December 2006 Third quarter (Nov-Jan) 14 March 2007 Year-end report 2006/07 14 June 2007 Annual General Meeting
The Annual General Meeting for the 2005/06 financial year will be held in Insjön on 9 September 2006. Notice of this meeting will be sent to all shareholders registered at the end of July 2006. The notice can also be found on our website www.clasohlson.se under Financial information - AGM.
The notice contains an agenda and information on how to register to attend.
The Board has decided to propose to the Annual General Meeting that a divided of SEK 4.00 per share (previous year SEK 2.50) be paid, of which SEK 1.00 is an extra dividend.
Clas Ohlson AB (publ), corporate identity number 556035-8672
Annual report 1 May 2005 to 30 April 2006.
FINANCIAL INFORMATION 2
THE YEAR IN BRIEF 3
INTERVIEW WITH THE CEO 4
GROUP 6
Aims and strategies 6
Business concept 8
Employees 9
Our social responsibility - code of conduct for suppliers 12
Environment 14
MARKET 16
OPERATIONS 19
Organisation 19
Success factors and brand 20
Marketing 21
Product range and purchasing 22
Sales channels 25
United Kingdom - our next market 29
Logistics 30
IT systems and security 31
Opportunities and risks 32
SHARES AND SHAREHOLDERS 34
ANNUAL ACCOUNTS 36
Directors’ report 36
Board and nominations committee reports 39
Five-year summary 40
Comments on the five-year trend 41
Consolidated income statement and cash flow statement 42
Consolidated balance sheet 43
Parent Companyincome statement and cash flow statement 44
Parent Company balance sheet 45
Parent Company and Group change in equity 46
Accounting policies and notes 47
Signing of the accounts 59
Auditors’ report 60
CORPORATE GOVERNANCE 61
Internal control 63
BOARD OF DIRECTORS 64
SENIOR MANAGEMENT 65
QUARTERLY RESULTS 66
ADDRESSES AND DEFINITIONS 67
Addresses
HEAD OFFICE Clas Ohlson AB 793 85 Insjön Tel +46 247-444 00 Fax +46 247-444 25 www.clasohlson.se HEAD OFFICE NORWAY Clas Ohlson AS
Torggata 2–6 N-0680 Oslo Tel +47 23 21 40 05 Fax +47 23 21 40 80 www.clasohlson.no HEAD OFFICE FINLAND Clas Ohlson OY Yrjönkatu 23 A 00100 Helsinki Tel +358 9 584 002 31 Fax +358 20 111 22 34 www.clasohlson.fi
MAIL ORDER/ INTERNET SWEDEN Clas Ohlson AB 793 85 Insjön Tel +46 247-444 44 Fax +46 247-445 55 www.clasohlson.se MAIL ORDER/ INTERNET NORWAY Clas Ohlson AS Postboks 485 N-0680 Oslo Tel +47 23 21 40 15 Fax +47 23 21 40 80 www.clasohlson.no STORES IN SWEDEN Insjön
Stockholm Farsta Centrum Skärholmen Täby Centrum Kista Galleria Solna Haninge Gothenburg Bäckebol
Malmö Norrköping Örebro Sundsvall Umeå Halmstad Uppsala Eskilstuna Luleå Västerås Borås Helsingborg Jönköping Gävle Växjö Linköping Skellefteå Östersund Kalmar Partille
STORES IN NORWAY Oslo Strømmen Storsenter Sandvika Storsenter Ski Storsenter Oslo City Bergen
Lagunen Storsenter Sandnes
Kristiansand Trondheim
City Syd Kjøpesenter Tørnsberg
Haugesund Ålesund Åsane Fredrikstad Sartor, Bergen Gjøvik Hamar Porsgrunn
STORES IN FINLAND Helsinki
Itäkeskus Tampere Vaasa Kuopio Turku Espoo Vantaa
Kamppi, Helsinki
Cash flow from operations Internally generated funds including change in operating capital. Working capital
Total of current assets excluding liquid assets, less current liabilities.
Investments
Net investments in fixed assets during the financial year.
Capital employed
Balance sheet total less non-interest- bearing liabilities and provisions. Average capital employed is calculated as the average of opening and closing capital employed during the year.
Gross margin
Gross profit in the income statement as percentage of net sales for the financial year.
Operating margin
Operating profit, in per cent, of net sales for the financial year.
Net margin
Profit after net financial items as a per- centage of the net sales for the financial year.
Return on equity
Net profit for the year as a percentage of average equity.
Sales per square metre in store Store sales in relation to effective store floor area. For new stores, a conversion has been made in relation to how long the store has been open.
Equity/assets ratio
Equity at the end of the year as a per- centage of balance-sheet total. Earnings per share
Profit after tax in relation to average number of shares.
Gross cash flow per share
Profit after tax plus depreciation in rela- tion to average number of shares.
Definitions
For informaton on the addresses and telephone numbers of stores, see www.clasohlson.com
C LAS O H LS O N 2005/0 6
The year in brief
420.5
236.5 325.3
356.6
03/04 02/03
01/02 04/05
0 100 200 300 400 500
0 4 8 12 16 20
Operating profit, SEKm Operating margin%
05/06 484.5
Operating profit in SEKm and operating margin in per cent
1,732 2,131
2,510
03/04 02/03
01/02 04/05
0 1,000 2,000 3,000 4,000
05/06 3,568 2,955
Sales, SEKm
Sales totalled SEK 3,567.6 m
( SEK 2,954.8 m )
Profit after tax was SEK 352.1m ( SEK 305.3m)
Earnings per share was SEK 5.37 ( SEK 4.65)
A dividend of SEK 4.00 per share ( SEK 2.50) is proposed, of which SEK 1.00 is an extra dividend
Eleven new stores opened
Decision to open stores in the UK in 2008/09
11 new stores were opened during the financial year. At the end of the financial year the Group had a total of 59 stores.
The head office and central warehouse are located in Insjön in Dalarna.
The ye ar in b riief 3
T H E Y E A R I N B R I E F
C LAS O H LS O N 2005/0 6
“Growth is something you earn, it isn’t something that just comes to you. Many small steps have to be taken, one at a time.”
Interview with the CEO
What events would you emphasise as most important during the past financial year?
Thanks to the whole organisation and the efforts of all our employees, we can look back on yet another “best year yet”
for Clas Ohlson! We have passed a number of milestones. We already had a target of attaining 3 billion kronor in sales for the 2004/05 financial year, but did not quite reach it. Sales topped 3.5 billion kronor during this financial year. Another milestone has been passed with 1 billion in sales in Norway, in terms of both Norwegian kroner and Swedish kronor. Our target was to open between six and ten new stores during the year, and the final outcome was eleven new stores. We also re-opened two stores, which in practice means that we had 13 store open- ings during the year. Our central warehouse celebrated its tenth anniversary, and we commissioned the first part of our new, highly efficient sorting facility. In March we additionally took a Board-level decision that the next country in which to open stores will be the United Kingdom.
What kind of effect will the new picking and sorting facility have on operations?
The first part of the sorting facility entered service in January 2006. The reason why we waited until January is that we did not want to be affected by running-in problems that might disrupt deliveries during the hectic Christmas trading peri- od. The facility represents a technical landmark and is neces- sary so that we can meet deliveries to all our stores at reason- able cost over the next few years. The investment obviously means more efficient handling, but it is also an initiative to improve the working environment and part of our preven- tive efforts to counteract wear-and-tear injuries.
How is the Finnish business developing?
There has been very good growth in the Finnish operation, and sales doubled this year. Three new stores have been opened during the year, all in the Helsinki area. This means that we have attained ever greater awareness of Clas Ohlson.
We can also market ourselves more effectively in the Helsinki area now that we have five stores.
It becomes more and more difficult to maintain a high rate of growth the larger you are. How are you getting on?
We have to expand while preserving and preferably improv- ing our profitability. Sales in terms of Swedish kronor during the 2005/06 financial year increased by the same figure as the total sales we were achieving in 1996/97: expansion demands long-term planning. We take one country at a time. Before we make a commitment to a new country, the operation in the existing markets must be self-sustaining so that manage- ment resources are freed up and the rest of the organisation is adapted to expansion. Our decision in favour of the United Kingdom as our next country in which to expand does not mean we are ruling out other countries. It simply means that we rank the UK highest.
How will you ensure that the organisation will cope with opening 15-20 stores next year?
The new sorting facility is part of our endeavour to guaran- tee efficient and reliable deliveries to a substantially larger number of stores than today. When we moved the ware- house out of the building where our head office is located ten years ago, many rooms were vacant. Today all the rooms are occupied and we have been forced to build an extension.
4
I N T E R V I E W W I T H T H E C E OC LAS O H LS O N 2005/0 6
For instance, we have a training department that has capa- city to deal with all new employees and induct them into the Clas Ohlson spirit. We plan to take on 400 new employees over the next year.
To maintain growth, sales need to increase not just through new stores but in existing stores too. How is that going?
The important thing is that we have an attractive and mod- ern range that large numbers of customers are willing to spend money on and that prompts frequent visits. We must be alert and modify our range as tastes change. One example of this is the accessories catalogues we issue. These are published more often than the main catalogue and contain new ranges and cur- rent products. We do not increase the total number of products in our range, but we replace 1,500-2,000 each year. Customer service is also paramount. Customers should feel reassured when they shop at Clas Ohlson. They should be able to obtain advice and have a dialgue with our expert staff, and we provide the whole production range in our sales channels.
Many of your competitors are also opening stores at a rapid rate. Are you being affected by the increased competition?
The competition is becoming increasingly fierce, but we don’t see it as a cloud on the horizon. For the time being there’s space for everyone. Competition also spurs us to maintain stringency in our organisation. We need to make sure we are a bit better still. The product mix will become even more important in the future so that we do not lose customers and sales.
Retailing is moving away from central locations. How does that chime with your philosophy of opening stores in town and city centres?
Our resolve to open stores in town and city centres is unsha- ken. What is happening now is a polarisation of retailing rather than a real move away from the centre. We should be located in places to which there is easy access and where there is a large and continuous flow of people. A shopping centre in the metropolitan regions may have the same size of catchment area and flow of people as a town centre in a smaller town.
During the year you continued working on your code of conduct for suppliers. How far has this work progressed?
I often say that the benefit of criticism is that you increase the pace and raise the level of what you are doing. This year we have raised the level and initiated dialogue and conduct- ed reviews with our suppliers so that we can later carry out full audits. The large suppliers are already working on issues such as this with other customers. In these cases it has been possible for our work to start from a higher level. We also
have co-operation with expert organisations on these issues and try to make use of the experiences of others. The code of conduct is a living document that is continuously being renewed. It will not be fully completed until 2007.
Your private labels, such as CO/TECH and Coline, are taking an ever greater share of sales. Why are you making a commitment to private labels?
We have an objective that 25 per cent of sales should come from private labels. The trend towards private labels in retail- ing comes from a need to be unique and increase profita- bility. Our private labels are part of our customer service.
It should guarantee a dependable purchase. The products should be inexpensive, with high and consistent quality, and be a competitive alternative to other branded goods.
Customers should not need to spend time analysing and comparing different products themselves.
The long-awaited decision on your next market came in March. Why was it the United Kingdom that was chosen?
The most important thing when we analyse new markets is that we do not intend to change consumers’ behaviour. We find out exactly what consumption patterns are like for the type of products we sell, what consumers are used to pay- ing for these and what price levels exist, taking account of VAT and any duties payable. The possibility of obtaining retail premises, rent levels and terms, personnel and marketing are also included in the costing. On the basis of these parameters, it turned out that the UK is a good match for us.
What will happen over the next few years?
The operation in Finland no longer demands heavy manage- ment resources, and the resources that have been freed up now enable us to make preparations for the launch in the UK.
In September we will also make a start on the last part of our sorting facility, which will be large enough to cope with the needs of 90 stores. We are also continuing to analyse how we can proceed to build an organisation that can handle other future markets, just as we have recently done ahead of the UK launch. This applies, for instance, to such things as support and warehousing. At the same time we will continue to devel- op and safeguard our existing operation. That is what creates the necessary basis for expansion. Growth is something you earn, it isn’t something that just comes to you. Many small steps have to be taken, one at a time. We are continuing to take these small steps with a view to Clas Ohlson continuing to be a successful company in the future!
[email protected]
5
I N T E R V I E W W I T H T H E C E O
C LAS O H LS O N 2005/0 6
Aims and strategies
INTERIM AIMS AND STRATEGIES
Growth rate of 15 per cent
Our objective is an annual growth rate of 15 per cent. This is to be achieved through increased sales in existing stores and through further new store openings. For the 2006/07 financial year, our target is to open 12-15 new stores, while the target for 2007/08 is 15–20 new stores. The organisation is to be continuously prepared for continued growth in both existing and new markets. The expansion is to continue over the next two years in Sweden, Norway and Finland. We are then to establish a presence in the United Kingdom, where we initially intend to open 2-4 stores during the 2008/09 financial year.
Sales increased by 21 per cent during the financial year, and the average rate of growth in the latest five-year period has been 22 per cent. Eleven new stores were opened during the financial year: two in Sweden, six in Norway and three in Finland.
Operating margin 13–15 per cent
Our target with regard to profitability is an operating margin of 13-15 per cent over an economic cycle.
Operating margin was 13.6 per cent during the financial year. Average operating margin for the latest five-year period was 14.2 per cent.
Private-label products 25 per cent
The Board has decided on an increased commitment to pri- vate-label products. Our target is for the proportion of pri-
vate-label goods within three years to account for 25 per cent of sales. This proportion was 12 per cent during the financial year. The proportion was not previously reported, and there are therefore no other figures for comparison.
Strengthening the Clas Ohlson brand
The Clas Ohlson brand is already regarded as strong today, and is to be made even stronger through targeted marketing.
Alongside our traditional marketing with the aim of pro- moting sales, that is to say catalogue mailings and themed campaigns, we did much more during the financial year to boost the brand. For example, we had our own stand at four large trade fairs in Sweden, at which we made many contacts with both present and future customers.
To attain our operational objectives we also strive at all times to develop and become even better in our focal areas of range, logistics and sales channels.
A broad and attractive range
We have to offer our customers a broad and attractive range.
10-15 per cent of the range is therefore renewed every year, by adding new product areas and adding to and replacing prod- ucts in existing areas. The range has to be identical in all the stores and for mail order and for Internet customers.
The year’s catalogue contained 1,700 new products. This
We intend to develop a strong retail chain with high profitability and good growth in value for our shareholders.
PRODUCT RANGE LOGISTICS SALES
CHANNELS
History
Clas Ohlson, who was very interested in tech- nical products, started the company in Insjön in 1918 as a mail-order company. The product catalogue, which at that time only ran to a few pages, was gradually expanded and over the years has been a great source of inspiration for generations of customers. The company then grew year by year, and Clas himself was active in the company throughout his life.
6
G R O U PC LAS O H LS O N 2005/0 6
means that 14 per cent of the catalogue range of 12,000 items has changed since the previous year. Many new products and product lines have been added, for instance in computer acces- sories, boat accessories and household items. There has also been a successful focus on products sold under the CO/TECH and Coline private labels.
A level of service of 98 per cent
When they order goods, customers should receive at least 98 per cent of the items ordered in the first delivery.
The average level of service in mail order and Internet sales during the financial year was 98.0 per cent, which means an increase in comparison with the previous year’s 96.6 per cent.
Our experience is that the level of service in stores on average is 1-1.5 percentage points higher, which would result in a level of service of over 99 per cent for the stores.
Rate of stock turnover 6–7 times in the central warehouse The annual rate of stock turnover in the central warehouse was 6.4 times. In the previous financial year it was 6.7 times.
This means that we replace the whole central warehouse stock of all 15,000 items more often than once every two months.
Rate of stock turnover 8–10 times in in-store stocks The stores’ annual rate of stock turnover was 6.0 times dur- ing the financial year. Our largest stores meet the target of 8- 10 times a year, while the smaller ones attain a lower rate.
Motivated, knowledgeable and committed staff
Our focus on our staff is evident in the low rate of staff turn- over among employees of the Group. Staff turnover during the financial year was 6.1 per cent among full-time employees (previous year 3.7 per cent), which is low for the retail sec- tor. Staff turnover among employees at the head office and warehouse in Insjön over the same period was 2.4 per cent (previous year 0.6 per cent).
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G R O U P
7
C LAS O H LS O N 2005/0 6
The business concept is based on the original statement made by our founder, Clas Ohlson: “We must sell depend- able products at low prices and the right quality according to need.”
By focusing the whole time on the main aspects of the busi- ness concept of price, quality and service and improving in these areas every year, we are working towards attaining the overall aim of increased trust among our customers.
Price
The aim is to have prices at least 10 percent lower than the specialist trade. In addition, the total purchase is always to be regarded as a positive experience and good value for money.
Quality
Quality is a key concept at Clas Ohlson. We adapt product qual- ity to the needs of our customers. Infrequent users find prod- ucts at low prices, yet with satisfactory quality. For professional users, there is an equivalent product from a brand manufacturer but still at a lower price than in the specialist trade.
Service
Clas Ohlson aspires to lead the market in customer service.
Today we achieve a high level of service and have a very gen- erous customer service policy. We judge that a high level of service pays for itself in the long run and results in a loyal customer base.
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Our operation rests on two pillars. One is our business concept, which has proved successful ever since Clas Ohlson founded the company 88 years ago. The other is our employees, who over the years have been involved in building the strong brand that Clas Ohlson has come to represent.
Business concept
Our business concept is to sell do-it-yourself items at competitive prices in stores and by mail order and the Internet. We aim to operate with good product qua- lity and a high level of service.
8
G R O U PEmployees
Clas regarded his staff as one big family,
his philosophy being that all employees are
equally important. This corporate culture
continues to be characteristic of the company
today. Other important keywords in this
culture, the Clas Ohlson spirit, are warmth,
service-mindedness, commitment, loyalty
and reassurance. It is our employees who
over the years have built up the strong
brand that Clas Ohlson has come to
represent.
C LAS O H LS O N 2005/0 6
During the financial year we also held training courses on such things as store service that sells, the working environ- ment, fire safety and health and fitness.
The majority of our courses are held at head office in Insjön, but training courses for staff in our stores can also be held using our videoconferencing facility. As all Group stores are linked to this facility, it is used for joint training courses and meetings.
Working environment
It is important for staff to have a sense of participation and of being able to influence their work. The overall aim of efforts relating to the working environment in Clas Ohlson is to cre- ate a good working environment in which our staff can have a sense of security, job satisfaction and community. The change process often takes place in the form of projects so that we can make the most of the knowledge, experience and commitment of our staff. The groups include staff from various departments and with various skills. As the basis for the decisions has been created by these project groups, the change process becomes firmly established throughout the organisation, the result is better and implementation time is reduced. The enlargement of our central warehouse is an example of how staff from dif- ferent departments have been involved in teams that work on premises and future ways of working.
Equal opportunities
The Group’s policy on equal opportunities indicates guide- lines for work on gender equality and diversity. An inspi- rational working environment has to be achieved by staff The Clas Ohlson spirit
Clas Ohlson regarded his staff as one big family, and knew all his employees by name. Based on Clas Ohlson’s way of run- ning the business, a special corporate culture has emerged.
This is characterised by a high degree of positive attitude, commitment and loyalty. All contacts between staff and cus- tomers are notable for warmth and service-mindedness. With the focus on the customer, we work together to attain identi- fied aims on the principle that all staff are equally important.
It is important for us to be able to preserve this familiar corporate culture in an ever larger organisation, as this con- tributes towards job satisfaction and, in the longer term, to a stronger company and brand.
We organise a two-week training course in Insjön for all staff recruited to work in new stores in the Group. Theory and practice are blended with activities with the aim of boosting team spirit. Lectures are held on the company’s history and values, customer relations, customer service policy, product knowledge and routines. Equivalent induction in the corpo- rate philosophy is offered to new staff at head office and at the central warehouse.
Recruitment
Controlled expansion creates a good basis for personal devel- opment. Vacancies that arise are largely filled through inter- nal recruitment. As a result, our staff are given an opportu- nity to develop in the company, while we maintain the con- tinuity and tradition we aim for. Nine out of sixteen manage- rial positions which fell vacant during the year under review were filled by internal recruitment, which we regard as a highly positive factor.
2,200 applications for 30 vacancies
While we encourage internal applications, we receive many applications from outside for advertised vacancies. This applies both to vacancies at our head office and central ware- house in Insjön and to our stores. We had 2,200 applications for 30 vacancies at our new store which opened in Kalmar in November 2005. Around 200 of the applicants were inter- viewed. Many of them confirmed that they were applying largely because we are regarded as an attractive employer.
Development of skills
The commitment to developing skills is continuing. Every financial year a training plan is drawn up for the whole com- pany, giving our staff an opportunity to develop both in their specialist area and in other areas.
Clas Ohlon’s most important resource is skilled, committed and motivated staff. We therefore aim to make sure that the employees have a good working environment, a sense of job security, opportunities for personal development and a good level of pay.
Our staff are what make Clas Ohlson
9
G R O U P
with different skills and of different genders, ages and faiths working together. The policy forms the basis for the gender equality plan which we update regularly and evaluate at least once a year.
The aim of the gender equality plan for the year is to attain more even gender distribution in each department, firstly through strategic skills development and internal recruitment in the departments and secondly by giving priority to an even gender distribution in filling new vacancies. At present 38 per cent of the Group’s staff are women, which is an increase of one percentage point in comparison with the previous year.
Our objective is that no occupational group is to consist of less than 40 per cent men or women.
Topping-up of salary for staff on parental leave
As part of our efforts on gender equality, during the finan- cial year we introduced topping-up of salary for our staff in
Sweden who are on parental leave. This is intended to boost freedom of choice for parents with regard to staying at home with the child during the first 18 months of its life. The top- up amounts to 10 per cent of monthly salary, up to a maxi- mum of SEK 5,000 per month.
Health and fitness
We continued developing our strategic health work during the year under review. Our overall aim is for health and fit- ness efforts to foster both physical and mental well-being in the workplace. We achieve this by making the health per- spective a natural part of systematic efforts in relation to the working environment. In addition to this we have to arrange activities and training in the following areas:
• physical health – Good fitness, body control and appropriate diet
• mental health – Low stress levels, companionship and a sense of belonging
• social health – Group community in the workplace, job satisfaction and ability to influence the work situation During the year under review we implemented health and fitness initiatives in the form of our own Fitness Hunt and held a Health and Fitness Day which included a number of different activities. Our aspiration with the activities we carry out is for all staff to be able to take part according to their individual circumstances. We now wish to reach out broadly with our efforts, instead of targeting them at a small number of people.
MANAGERS & SUPERVISORS
Management from a health and safety perspective, rehabilitation, employee communications staff appraisal, etc. 6,456 hours (13%)
SPECIALIST TRAINING In-store area manager, marketing manager, advertising manager, etc. 6,881 hours (14%)
GENERAL SKILLS
Customer sales, fitness talks, new employee induction,
fire safety,interactive product training, etc. 36,033 hours (73%)
We divide our training courses into three segments, as illustrated above.
We devoted a total of 49,370 internal hours to training during the finan- cial year. Travel time is not included, only the hours during which our staff have attended training as participants and trainers.
Our buyers
The present-day buyers have inherited the curiosity Clas had for new products and areas of technology. Every year we present between 1,500 and 2,000 exciting new items in our various product catalogues. A total of 60 employees work in our purchasing depart- ment. The product managers are often on their travels, attending trade fairs and visiting suppliers around the world.
10
G R O U PC LAS O H LS O N 2005/0 6
Our co-operation with the company health service has also been enhanced, and there too our efforts are increasingly focused on preventive health efforts.
Absence due to sickness
It is pleasing to note that our efforts in terms of staff rela- tions, the working environment and health and fitness are producing results in the form of a reduced rate of absence due to sickness. However, the rate of sick leave increased slightly in 2005/06. The total sick-leave rate was 5.2 per cent, 0.3 percentage points up on 2004/05 (4.9 per cent). The pro- portion of employees on long-term sick leave in total absence due to sickness was 43 per cent, unchanged in comparison with the previous year.
Health-promoting workplace of the year Clas Ohlson AB was named Dalarna health-promoting workplace of the year for 2005. The jury comprised representa- tives of the county project ‘arbetsfriska Dalarna’ (‘healthy work in Dalarna’). Good leadership, working environment, preven- tive activities, health and fitness activities and a long-term approach were some of the features commented upon.
Incentive schemes
Just as it pays to be a customer of Clas Ohlson, it should pay be an employee. All employees therefore receive some form of performance-based pay. For staff in the stores, a signifi- cant proportion of monthly pay is based on sales in the store concerned. An equivalent system of performance-based pay applies to our warehouse staff, with the difference that pay is based on sales by the whole Group.
Salaried staff have a bonus system based on Group earn- ings, and the bonus is paid twice a year. A bonus which is based on the Group’s earnings and net margin is paid to sen- ior management. This bonus is paid once a year. The incentive schemes are thus not share-related. Our intention is that pay should be related to the work put in, not to share price.
Low staff turnover
Our generous personnel policy and our strong focus on our staff result in low staff turnover. Staff turnover during the financial year averaged 6.1 per cent among full-time employ- ees in the Group (previous year 3.7 per cent), which is low for the retail sector. Turnover is higher among part-time employees, which is natural as we have large numbers of students working part-time during their studies. Staff turno- ver among our employees in Insjön, at the head office and in the warehouse over the same period was 2.4 per cent (previ- ous year 0.6 per cent).
Part time, 49%
Temporary, 6%
Full time, 45%
In-store staff at 30 April 2006
Sweden Norway Finland Total
Stores 1,039 509 188 1,736
Warehouses 330 0 0 330
Salaried employees 214 43 19 276
Total 1 583 552 207 2,342
Of whom women 38% 36% 47% 38%
Average period of employment in the company
Salaried employees 5 years 6 years 2 years 5 years Store/warehouse 7 years 2 years 2 years 5 years Average rate of absence due to sickness %
Total absence due to sickness 5.0 6.5 3.6 5,2 - of whom long-term sick leave 43 43 43 43
- of whom men 3.9 5.8 3.5 4.1
- of whom women 7.0 7.5 3.7 7.1
- of whom employees aged up to 29 4.0 4.8 3.1 4.0 - of whom employees aged 30-49 4.9 6.9 5.6 5.2 - of whom employees aged over 50 8.0 9.9 2.0 8.0
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G R O U P
11
Age distribution in Group
Number of employees at 30 April 2006
C LAS O H LS O N 2005/0 6
C LAS O H LS O N 2005/0 6
Where are our products manufactured?
We do not manufacture any products oursel- ves and buy in all the products we sell. Nor do we have any product patents of our own.
Our suppliers are located in 30 different countries and number around 800. During the financial year Swedish suppliers accoun- ted for 56 per cent of purchases, Asian suppliers for 38 per cent, European supp- liers for 5 per cent and suppliers in other parts of the world for 1 per cent.
Our social responsibility – work on a code of conduct for suppliers
12
G R O U POur responsibility
We are a purchasing-oriented retailing company with- out our own manufacturing, with a corporate culture that emphasises simplicity, expertise and commitment as a way to foster trust. Our most important task is to develop a finan- cially sound and successful company.
We endeavour to be a good employer and social citizen.
From our founder Clas Ohlson we have inherited a strong tradition of a sense of family and taking responsibility. We administer our inheritance from Clas by emphasising good ethics, mutual respect, collaboration and an open exchange of thoughts and ideas in our way of being.
The process we follow in developing and introducing a code of conduct
As an element in our work on social responsibility, in 1998 we adopted a policy on child labour, related to the UN Convention on the Rights of the Child (1989) and the ILO’s Mininum Age Convention (no. 138, 1973). In 2004 a decision was taken to broaden our work on social responsibility by starting the process of developing a code of conduct.
This work is an important part of the company’s develop- ment process and is undertaken with representatives from Group management, the purchasing department, environ- ment/safety and other parties concerned.
Requirements to be met by suppliers, action plans, meth- odology for follow-up and action are to feature customer
focus. The code of conduct will apply in our own operation and be a natural part of the dialogue when products and serv- ices are purchased from our suppliers.
The code of conduct will be introduced gradually, and we anticipate that our suppliers will respect the principles con- tained in our code of conduct and that they will endeavour to implement it in their operations.
History
– 1998: Policy concerning child labour – 2001: Environmental policy
– 2004: Start of the process of developing and introducing a code of conduct
– 2005: Clas Ohlson’s code of conduct for suppliers published
Work process
The process of work on our code of conduct is divided into various stages. The first three stages entail carrying out an analysis of the current situation, developing the Clas Ohlson code of conduct and creating tools to follow up our suppliers.
Work on stage 4 out of a total of 6 stages is now in progress.
The intention is that the Clas Ohlson code of conduct will be fully effective in our purchasing activity and among our sup- pliers during the course of 2007.
A description of stages 4–6 follows on the next page.
As Clas Ohlson is becoming an ever larger buyer of both products and services in various countries, this
necessitates that we act in a responsible and long-term manner. CSR, or Corporate Social Responsibility,
is an important strategic issue, and taking social responsibility is also in line with our fundamental values.
C LAS O H LS O N 2005/0 6
Goods from Asia are transported by sea 38 per cent of our purchases consist of direct imports from Asia. As goods from Asia are transported to Sweden (Gothenburg) by sea, we need to order well ahead of the required delivery date. It generally takes two to three months from the date an order is placed until the item of goods is available for sale in our stores.
13
G R O U P
Stage 4: Training and communication – Training of key individuals and staff – Pilot testing and evaluation – Informing our suppliers
Stage 5: Supplier audit and handling of non-conformities – Assessing suppliers
– Remedying non-conformities – External verification of our work Stage 6: Evaluation and improvement – Successive evaluation and improvement The code of conduct in brief
Our code of conduct is to provide support for our suppli- ers in their efforts to improve the working environment and working conditions and reduce their environmental impact.
It supports the UN’s Global Compact and the OECD’s guide- lines for multinational companies.
It is our purchasing organisation that is responsible for informing suppliers, as well as supporting the work and mon- itoring compliance with the code. We aim for long-term rela- tions with our suppliers and put our trust in an active dialogue and co-operation.
As we work with the code and learn from our experience in its implementation, it will be successively adapted.
The code’s headings 1. Our responsibility 2. General principles
3. Open dialogue with the outside world 4. Products
5. Guidelines for purchasing
6. Working environment and working conditions – Health and safety
– Housing – Discrimination – Forced labour – Disciplinary measures – Child labour
– Pay and working hours
– Freedom of association and the right to collective pay bargaining
– Alcohol and drugs 7. Environment
8. Application and follow-up – Application
– Follow-up
The complete code of conduct can be found on our website,
www.clasohlson.se, where the description of our work proc-
ess is also regularly updated.
C LAS O H LS O N 2005/0 6
We are concerned about the environment
Our environmental policy
Clas Ohlson sells do-it-yourself products through its own stores, mail order and the Internet. We aim to promote sustai- nable development of society for future generations through active environmental efforts.
We mainly have an impact on the environment through
• transportation of products, from the manufacturer via the warehouse and stores to the customer
• environmentally harmful products contained in the products
• printing and distribution of catalogues and brochures
• use of packaging
• use of energy in our operations
We have to take active steps to reduce our direct and indirect impact on the environment, while supporting other operatio- nal objectives. We have to take account of the environment in all decisions and at all levels of our operations and comply with applicable laws and other environmental requirements.
Our environmental efforts are based on a life-cycle perspec- tive. We therefore have to work towards
• having a continuous dialogue on environmental issues with our suppliers and contractors and setting relevant requirements
• increasing the knowledge of our staff on environmental issues and encouraging participation in environmental activities
• increasing the proportion of environmentally sound pro- ducts and improving environment-related information supplied to customers
Environmental objectives
With regard to our overall environmental objectives, we have selected five areas, and our aspiration is to improve in these every year in comparison with the year before.
transportation
• In line with the development of society and technology, we should reduce the energy consumption of our trans- portation and emissions of pollutants per tonne-kilome- tre, in the areas of Outgoing Freight, Incoming Freight Europe and Incoming Freight Asia.
products
• As far as possible, we have to choose products with a known and low environmental impact.
packaging
• In co-operation with our suppliers, we have to reduce the proportion of environmentally harmful product packa- ging.
printed matter
• In the production of our printed matter we have to aim for technology and materials that have a low and well- documented environmental impact.
energy use
• Energy use in our own and leased premises and properties is to be documented. It should be steered towards speci- fied savings targets in kWh per square metre and per year for the central warehouse, the head office and our stores.
Results of environmental efforts transportation
With regard to our greatest environmental impact, transporta- tion, it is encouraging to note that this is continuing to decrea- se slightly. As the table shows, our emissions per tonne-kilo- metre in 2005 decreased in 2005 in comparison with 2004 with regard to both outgoing freight and incoming freight for Asia. For outgoing freight, the decrease is due to our haulage firms using vehicles that produce lower emissions per tonne- kilometre by having more modern engines. With regard to incoming freight from Asia, the reduction is due to a decline in the proportion of transportation by air to the benefit of sea transport. However, for incoming freight from Europe the key indicators have deteriorated slightly. This is because we are buying an even smaller proportion of goods form Italy and Spain, where most goods are transported by rail and sea.
products and packaging
We have started measuring the presence of PVC in our pro- ducts and packaging. Our aim is to reduce the number of products and packaging items containing PVC year by year.
This key indicator will also be reported from next year’s annual report.
energy use
We have divided energy use into three different areas: elec- tricity consumption by the stores, consumption of electricity and oil at head office and consumption of electricity and oil in the central warehouse. Consumption is then measured per year and per square metre of floor space. Note that the key indicators are not subjected to normal-year correction, that is
We at Clas Ohlson consider it vitally important to minimise the company’s environmental impact. We therefore continued working actively on the basis of our environmental objectives and action plans during the year under review.
14
G R O U PC LAS O H LS O N 2005/0 6
to say they are not adjusted to take account of any deviations in average temperatures.
It is encouraging to note that the key indicators have impro- ved with regard to oil consumption. This is due to the fact that we used an electric boiler for heating to a greater extent than in the previous year.
From objectives to action
To facilitate our work, we have also broken the overall envi- ronmental objectives down into detailed targets.
There are a number of measures we are working on for each detailed environmental target and there is a member of staff responsible for each measure. For more detailed infor- mation on our environmental efforts, visit our website www.
clasohlson.se
El-kretsen and WEEE
Clas Ohlson is a member of El-kretsen, the electrical industry’s jointly-owned company for the management of waste from electrical and electronic products. As we sell many such pro- ducts, we have a responsibility to deal with the waste, under an ordinance concerning producer responsibility introduced on 1 July 2001. This responsibility has been further strengthe- ned by the WEEE Directive, which came into force on 13 August 2005. WEEE is an EU directive, and stands for Waste Electrical and Electronic Equipment. Clas Ohlson complies with the terms of the Directive.
Good environmental choice
In 2005, Clas Ohlson was one of 16 companies to meet the criteria for Good Environmental Choice according to the haulage company Green Cargo. This haulier, which accounts for nearly
OUTGOING FREIGHT
ENVIRONMENTAL IMPACT PER TONNE-KILOMETRE 2005 2004
Carbon dioxide, grams 51.60 58.00
Nitrogen oxides, grams 0.387 0.587
Total energy consumption, kWh 0.196 0.220
INCOMING FREIGHT – EUROPE
ENVIRONMENTAL IMPACT PER TONNE-KILOMETRE 2005 2004
Carbon dioxide, grams 32.10 30.20
Nitrogen oxides, grams 0.343 0.310
Total energy consumption, kWh 0.129 0.127
INCOMING FREIGHT – ASIA
ENVIRONMENTAL IMPACT PER TONNE-KILOMETRE 2005 2004
Carbon dioxide, grams 3.68 3.92
Nitrogen oxides, grams 0.094 0.096
Total energy consumption, kWh 0.014 0.015
ANNUAL ENERGY USE
PER SQUARE METRE 2005 2004
Store premises, kWh 119 119
Head office, kWh 106 102
Central warehouse, kWh 81 84
Head office, litres of oil 4.8 5.7
Central warehouse, litres of oil 1.6 2.0
When the goods have been brought ashore, they travel by train to Insjön
Most goods are transported from Gothenburg to Insjön by rail. This has been made possible by a container terminal we share with the local sawmill and housebuilder. The goods are then distributed to our central warehouse, where they are put into storage.
15
G R O U P
80 per cent of Swedish goods transport by rail, issues Good Environmental Choice certificates every year to those com- panies that fulfil the criteria. We regard the certificate as fine recognition of our increased commitment to goods trans- portation by rail.
Folksam’s climate survey
All companies listed on the stock exchange were previously
included in Folksam’s climate survey. With effect from this
year, Folksam has limited the survey to the 40 companies that
account for 95 per cent of carbon dioxide emissions by Swedish
listed companies. Clas Ohlson does not belong to this group.
C LAS O H LS O N 2005/0 6
res, despite a decline in mail order and Internet sales. This means that we gain market share with each new store we open.
Our aspiration is to continue to take market shares in all the countries where we operate.
MARKET TREND
A good year for Swedish retailing
2005 was another good year for Swedish retailing. Swedish retailing on average in 2005 was 7.6 per cent up in fixed pri- ces compared with 6.0 per cent for 2004. The same trend was also apparent in trading in consumer durables, which in 2005 rose by an average of 10.1 per cent in fixed prices, compared with 9.5 per cent in 2004.
Private consumption increased in 2005 in Sweden by an average of 2.4 per cent. The equivalent increase for 2004 was 1.8 per cent. (Statistical information from Statistics Sweden.)
Clas Ohlson sales in Sweden increased by 15 per cent in 2005/06, with sales in like-for-like stores up 4 per cent.
According to the Swedish Research Institute of Trade (HUI), Swedish retail trade is expected to increase by 6.0 per cent in fixed prices in 2006 and 3.5 per cent in 2007. Trade in consumer durables is also expected to increase. The HUI forecast shows an increase of 8.5 per cent in 2006 and 5.5 per cent in 2007. The principal reason why retail trade is expected to increase is stated as being a combination of election year, which signifies increases in benefits and tax reductions, and continued low inflation and interest rates.
Consumption in our current markets in Sweden, Norway and Finland has developed well in recent years and is expec- ted to continue to do so over the next few years. Good retail trade and private consumption normally favour Clas Ohlson, as our customer base largely consists of private indi- viduals. Good trade in consumer durables also favours us, because accessories for products such as computers, mobile phones, televisions, videos, radios, cars and boats form part of our product range.
Downturns that affect retailing do not usually have a great impact on us. The reasons for this are our product range and pricing policy. Our product range includes do-it-yourself items and consumables. There is always demand for consu- mables, and demand for do-it-yourself items tends to increa- se when times are not so good. Our low prices also mean that our products are particularly attractive during periods of declining demand.
Market share
It is difficult to calculate our market share in each country, because our range is so broad and covers so many different groups in the statistics compiled by each country. We do not therefore estimate market share, to avoid the risk of provi- ding incorrect information.
We can, however, state that our market share is increasing.
The locations where we have opened stores are seeing a more rapid increase in sales for all our product groups than the increase in the total market for equivalent product groups.
Our overall sales rise in locations where we open new sto-
Clas Ohlson’s markets are flourishing
The retail and consumer durables markets are flourishing, and Clas Ohlson is gaining market share.
Our products usually also sell well in periods of less favourable market development due to our strategies for product range and pricing.
Daily deliveries to the stores
The central warehouse in Insjön provides all the stores in the Group principally with daily deliveries. Deliveries are also made to all customers who shop by mail order and the Internet. Some goods are put into storage in our fully automated high-bay storage facility.
The goods are then distributed to the sto- res via our new sorting facility. Some 300 employees work in our central warehouse.
16
M A R K E TC LAS O H LS O N 2005/0 6
Continued positive trend for consumer durables in Norway Retailing in Norway is still on the up. According to Statistics Norway, retail trade in 2005 increased by an average of 3.9 per cent in fixed prices. This was a slightly greater rise than in 2004, when the equivalent increase was 3.8 per cent. Trade in consumer durables continued to increase at a faster pace than other retailing, and in 2005 rose by an average of 13.3 per cent in fixed prices. The equivalent increase for 2004 was 13.0 per cent.
Private consumption increased by 3.2 per cent in Norway in 2005, compared with an increase of 4.7 per cent in 2004.
Clas Ohlson’s sales in Norway increased by 21 per cent in 2005/06, with sales in like-for-like stores up 4 per cent.
According to the Federation of Norwegian Commercial and Service Enterprises (HSH), retail trade is expected to deve- lop well in Norway over the next few years. The forecast for 2006 is for retail trade to increase by 3.8 per cent and for trade in consumer durables to increase by 6.5 per cent.
Retailing in Finland
The retail trade in Finland also grew at a stable rate.
According to Statistics Finland, retail trade in 2005 increased by an average of 5.1 per cent in fixed prices. This was a slightly greater rise than in 2004, when the equivalent increase was 4.7 per cent. Finnish retail trade has grown well over the latest five-year period, with an average rate of growth of 4.2 per cent a year.
Private consumption increased by 3.4 per cent in Finland in 2005, compared with an increase of 3.2 per cent in 2004.
Clas Ohlson sales in Finland increased by 110 per cent in 2005/06, with sales in like-for-like stores up 13 per cent.
MARKET TRENDS IN EUROPE
Local chains branching out internationally
The market for the type of products Clas Ohlson sells is con- tinuing to increase in Europe, but is nevertheless beginning to reach relative maturity, particularly in the largest markets of Germany, France and the United Kingdom. The sector has been dominated by local chains in each country. These have been able to grow and increase their market shares, chiefly at the expense of individual specialist dealers. As the rate of growth for these local chains is now starting to decline, increa- sing numbers of them are looking beyond national borders.
Larger stores
Another European trend is for stores to become ever larger.
In the countries mentioned, it is by no means unusual to find stores of between 5,000 and 10,000 square metres, in the vast majority of cases located close to out-of-town shop- ping centres. This runs directly counter to the Clas Ohlson strategy which entails opening stores with good locations in town and city centres.
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Low prices and private labels
It is becoming increasingly common in Europe for retail chains to market products under private labels. This is a way of reducing the number of intermediaries between the pro- ducer and retailer so that chains can maintain their margins despite the downward pressure on prices that affects trade in general. Clas Ohlson has also increased its proportion of pri- vate-label goods, especially in the last three years, and aims to continue increasing the proportion.
17
M A R K E T
C LAS O H LS O N 2005/0 6
MARKET TRENDS IN THE NORDIC REGION Chains gaining market share
The market in the Nordic countries is continuing to grow and will probably continue to do so for a few more years.
The market has historically been dominated by local domes- tic players. In the retail trade, however, large store chains have been taking market share from individual specialist dea- lers in recent years. This trend is often due to the fact that large chains are able to offer better prices and reach further with their marketing. Larger chains are often also able to offer completely new products at an earlier stage than indi- vidual specialist dealers. Sales are consequently tending to be concentrated on a small number of large players. The chains largely go in for large retail premises, often away from the town centre. The exception is Clas Ohlson, with stores main- ly in town centres.
Inter-Nordic competition
International players are still quite rare in the Nordic region.
An exception is the Swiss Bauhaus company, which has esta- blished a presence in the Nordic region with twenty stores, ten of which are in Sweden. Another example is the German retailer Hornbach, which has Nordic expansion plans and opened its first Nordic store in Gothenburg in the autumn of 2003. It is more common for the Nordic chains to establish a presence in neighbouring countries. Examples of cross-bor- der players in the Nordic region, apart from Clas Ohlson, are Biltema (Sweden) with stores in Norway, Finland and Denmark, Harald Nyborg (Denmark) with stores in Sweden and K-rauta (Finland) with a number of building materials stores in Sweden.
Clas Ohlson Jula Biltema Rusta Micro Bildelar Järnia Silvan K-Rauta Bauhaus Coop Forum
Electrical &
electronics Mobile phone
accessories Computer accessories Boat
accessories Artists’
materials Machinery Tools Plumbing
and heating Storage Household Clocks &
watches
Competitors
Few competitors cover the greater part of our range compri- sing 15,000 items (see the table). The ones who come closest are Jula and Biltema.
Jula has a range similar to ours, presented in a catalogue which is issued twice a year and covers more than 7,000 pro- ducts. Jula’s turnover in 2005 totalled SEK 1,029m, broken down into SEK 107m from mail-order and Internet sales and SEK 922m from stores.
Biltema was originally a chain that sold car parts and tools.
In recent years the product range has been broadened and has become increasingly similar to that of Clas Ohlson. Biltema’s range at present comprises around 15,000 items. The chain has a presence in the Nordic region with a mail-order operation and 36 stores, partly run on a franchise basis. Fifteen of the stores are in Sweden, fifteen in Norway, four in Finland and two in Denmark. Sales to consumers, i.e. at the franchisees, exceed SEK 2.5 billion including value-added tax.
Other competitors include companies which can com- pete with one or more of our product groups. Examples of such companies are Rusta, Järnia, Bauhaus, K-rauta, Silvan, Byggmakker, Power and Teknikmagasinet. Another group of competitors are supermarkets and department stores, such as Coop Forum, which cover part of our range.
Teknikmagasinet is the only one of the competitors men- tioned to have a store-opening philosophy similar to that of Clas Ohlson, with stores located in town centres, preferably alongside busy shopping centres.
The table below shows how the ranges carried by our com- petitors overlap ours.
18
M A R K E TC LAS O H LS O N 2005/0 6
Organisation with short decision lines
Clas Ohlson operates in Sweden, Norway and Finland and today employs more than 2,300 people. Our head office, distribution centre and warehouse for the whole Group are located in Insjön in Sweden.
Our organisation is flat and features short decision lines.
Head office
The head office in Insjön contains the purchasing, mar- keting, sales, finance, administration, customer service and Group management functions. Insjön is also the location for our central warehouse, to which all goods are delivered for onward distribution to the Group’s stores and to mail-order and Internet customers. Clas Ohlson in Sweden has a total workforce of 1,583.
Norway
The Norwegian operation is run through the wholly- owned subsidiary Clas Ohlson AS, with its head offi- ce in Oslo. This is where administration, marketing, customer service and mail-order and Internet sales for the Norwegian market are located. Clas Ohlson in Norway has a total workforce of 552.
Finland
The Finnish operation is run through the wholly-owned subsidiary Clas Ohlson OY, whose head office is in Helsinki. This is where administration and marke- ting for the Finnish market are located. Clas Ohlson in Finland has a workforce of 207.
Stores Number
Sweden 30
Norway 20
Finland 9
Mail order and Internet Sweden
Norway Year started
Sweden 1918
Norway 1985
Finland 2002
United Kingdom 2008/09 (forecast)
19
O P E R A T I O N S
Luleå Skellefteå Umeå Sundsvall Östersund Insjön
Gävle Uppsala Täby Kista Solna Stockholm Farsta Skärholmen Haninge
Kuopio Vasa Tammerfors Åbo Östra Centrum Helsingfors Kampen, Helsingfors Esbo
Vanda Trondheim
City Syd Ålesund Hamar Gjøvik Åsane Bergen Sartor Lagunen Haugesund Sandnes
Sandvika Oslo Oslo City Strömmen Ski Kristiansand Tønsberg Porsgrunn Fredrikstad
Partille Bäckebol Göteborg Borås Halmstad Helsingborg Malmö
Västerås Eskilstuna Norrköping Örebro Linköping Kalmar Jönköping Växjö
