HL Display
annual report 2008
3 The year in brief 4 This is HL Display 6 Statement by the CEO
8 Business concept, targets and strategies 11 HL Display operations
12 Core process 1 Market, sales and customer relations
17 Core process 2 Development, launch and product range management 21 Core process 3 production and delivery of goods and services 24 HL Display and the environment
25 Support processes 28 Customer case study 30 The share
32 Risk and sensitivity analysis 33 Nine year summary
33 Definitions
34 Administration report Group
36 Consolidated income statements 37 Consolidated balance sheets
38 Consolidated statement of changes in equity 38 Consolidated cash flow statements
Parent Company
39 parent Company’s income statements 40 parent Company’s balance sheets
41 statement of changes in the parent Company’s equity 41 parent Company’s cash flow statements
42 Notes 61 Audit report
62 Corporate governance report 2008 67 Board of Directors
68 Senior executives 69 History
70 Financial information
This annual report has been prepared in swedish and translated into english. in the event of any discrepancies between the swedish and the translation, the former shall have precedence.
Contents
The year in brief
Net sales decreased to MSEK 1,536 (1,571).
Profit before tax was MSEK 136 (155).
Earnings per share after tax amounted to SEK 3.11 (3.49, corrected for share split).
Equity per share amounted to SEK 17.40 (15.24, corrected for share split) as of 31 December 2008.
A 4:1 share split was carried out with record date on 28 April.
Key ratios 2008 2007 2006
net sales, MseK 1,536 1,571 1,448
operating profit, MseK 130 161 107
profit before tax, MseK 136 155 92
profit after tax, MseK 96 108 62
earnings per share, seK 3.11 3.49 1.97
eBiTa margin, % 8.5 10.3 7.4
eBT margin, % 8.9 9.8 6.4
equity/assets ratio, % 57.3 53.3 44.2
equity per share, seK 17.40 15.24 12.50
average number of employees 983 968 952
For key ratio definitions, refer to page 33.
The year in briefHL Display annual report 20083
This is HL Display
Where HL Display operates HL Display has 32 of its own sales companies in 32 countries in Western europe, eastern europe and asia. The five biggest markets are France, sweden, norway, russia and the UK. a further 13 countries are serviced via distributors.
HL Display’s customers
HL Display’s business is aimed primarily at three customer segments:
– Food retail – non-food retail – Brand manufacturers
HL Display’s product range Optishop
™This is HL Display’s range for the retail sector (food and non-food retail). The range consists of items including:
– products and solutions that display goods to consumers in an attractive way.
a well laid out merchandising solution makes optimal use of shelf space and stimulates the consumer to make a purchase.
– products and solutions that give consumers all the necessary purchasing information and help them to find their way around the shop quickly.
Brandman
™This is HL Display’s range of products for brand manufacturers, and consists of items including:
– products and solutions to guarantee that brand manufacturers can make the best possible use of their space on shelves in the shop.
– products and solutions to display brand manufacturers’ goods in other parts of the shop, for example floor stands.
HL Display’s biggest customers in each segment:
Food retail Brand manufacturers ahold (incl. iCa)
auchan Carrefour Casino Champion intermarché Metro systeme U Tesco
Wal-Mart (asDa) BaT Colgate Danone Kraft L’oréal Masterfoods nestlé philip Morris procter & gamble Unilever
non-food retail Baumax Decathlon Dsg retail Ltd
iKea intergamma Müller Own sales companies
austria Belgium Bulgaria China (Hong Kong) China (shanghai) the Czech republic Finland
France germany Hungary india indonesia Latvia/Lithuania Malaysia the netherlands norway
poland rumania russia serbia singapore slovakia slovenia south Korea spain sweden switzerland Taiwan Thailand Turkey the UK Ukraine
Distributors australia Canada Denmark estonia greece iceland ireland
israel italy Kazakhstan new Zealand portugal the Usa
HL Display is a leading international supplier of products and solutions for in-store communication and merchandising to the food and non-food retail sectors. The company is also a leading supplier of products and solutions to brand manufacturers for merchandising on the shelf and in other parts of the store. HL Display was founded in 1954 and the company share was first listed on the Stock Exchange in 1993. The share is now traded on the Nasdaq OMX Small Cap list.
This is HL DisplayHL Display annual report 20084
The value of HL Display’s solutions For the food and non-food retail sectors:
– Create clearer in-store communication so that shops avoid losing sales because consumers cannot quickly find what they are looking for in the shop or what products cost.
– Display goods in a way that make shopping simple for the consumer and stimulate purchases.
– Make cost savings possible by rationalising work in the shop. one example is the automatic feeding of products, which means that less time is spent on keeping shelves in order, while at the same time the shelves can quickly be topped up with new products.
For brand manufacturers:
– Create an attractive product display both on the shelf and in other parts of the shop, for example in connection with campaigns. a good merchandising solution stimulates purchases and is at the same time easy to maintain.
– Make it possible to achieve maximum utilisation of the shelf space provided.
HL Display’s factories
HL Display has seven factories in all.
Four of these are in sweden (one of which is co-owned). The rest are in China, the UK and the Usa (co-owned).
Net sales MSEK
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800
2008 2007 2006 2005 2004 1,249 1,285
1,448
1,571 1,536
Average number of employees
900 920 940 960 980 1,000
2008 2007 2006 2005 2004
967
933 952
968 983 Operating profit MSEK
0 20 40 60 80 100 120 140 160 180
2008 2007 2006 2005 2004
108
63 107
161 130
The Nordic countries 332 Western Europe 706 Eastern Europe 350 Asia and Australia 132 North America 16 Net sales per region MSEK EBITA margin %
0 2 4 6 8 10 12
2008 2007 2006 2005 2004
4.9 Goal 12%
7.4 10.3 8.6 8.5
This is HL DisplayHL Display annual report 20085
make better use of what makes HL Display unique in the market: our vast expertise in how to display goods to simplify work in the shop while at the same time increasing its sales, as well as our product development.
We must be out with our customers and work with them to identify areas for development and potential for improvement. it is then our job to provide them with solutions for this.
Organisational changes
To further emphasise the importance of sales we have implemented a new organi- sational structure during January 2009. The new, matrix-based, organisation will mean that the area Managers report directly to me, which sends a strong message, not least within our own organisation, about the increased focus on sales. at the same time, the area Managers will be assigned greater responsibilities which includes full responsibility for financials as well as sales for their respective areas.
Efficient business
The operating profit totalled MseK 130, a drop of 19 per cent compared to the previous year. This corresponds to an eBiTa margin of 8,5 per cent, which i con- sider satisfactory against the background of the sales decrease. it also serves as a clear example of the fact that we have been successful in our work to improve the business as a whole, not least production, which we have been working hard to achieve for several years. HL Display also had zero growth between 2002–2003 and 2004–2005, although in both these cases the lack of growth had a very significant impact on the profit figure. This is not the case this year – proof that our business is now far more efficient.
Continued improvement in gross margin During the year there was a positive effect on our profit from an increase in the gross margin and a negative one because operating expenses were too high.
The continued improvement in the gross margin is based on a number of factors in combination. in addition to the measures to improve productivity that we are implementing on an ongoing basis, our
strong position despite turbulent year
2008 has been a year that has been characterised to a great extent by the turbulence in the global financial markets and clear signs of an economic downturn.
as far as HL Display is concerned, i can confirm that we face these difficult times as a strong company in good condition. Work in recent years has had a clear emphasis on profitability improvement and we are currently running a far more efficient business than was the case a few years ago. We also have a strong balance sheet with low indebtedness.
Sales trend during the year
sales for 2008 totalled MseK 1,536, a drop of 2 per cent compared to the previous year.
in general we can confirm that customers have been more cautious where new investments are concerned. The picture varies greatly between different regions
and countries. in some countries, such as spain and France, we can see clear signs of a more dramatic hold on investments, while this is less evident in scandinavia. growth in norway, for example, reached a high level also in 2008, totalling 11 per cent – a very good outcome in a mature market.
sales for the year have also been negatively affected by a weak development in russia, which in part is due to internal issues. Moreover, the recovery on markets where we had problems in the past, for example germany, has not been as fast as expected.
Improving sales work
Having said that, we must remember that we are the ones who shape much of the success in the market, and we are working continuously to improve our sales work and what we have to offer our customers. at present none of HL Display’s competitors have the same breadth in their product range and an equally well-developed global presence. it is our ambition to achieve growth despite the fact that climate in the market will be tougher for a while. one important element of this is that we must
Statement by the CEOHL Display annual report 20086
new logistical structure with regional ware- houses has resulted in an increase in the average order size. This in turn creates longer production runs, which is an impor- tant precondition for efficient production.
in this column last year i told you about plans to start up production in russia in 2008. We can now confirm that this task has taken much longer than we expected.
our aim is that we will be able to start production in russia in 2009, albeit on a smaller scale to begin with.
The significant productivity improve- ments in production mean that we now produce more with fewer machines. as a consequence, we currently face an issue of over-capacity in production, which will be dealt with during 2009.
No cost increases in 2009 as far as operating expenses are concerned, it is our long term aim that these expenses, excluding freight, will be less than 30 per cent of sales. They were too high in 2008, corresponding to 35 per cent of sales, which had a negative impact on our profit. The long-term target remains, but is not expected to be reached as long as sales growth is below our target. During 2009, we will focus on keeping operating expenses unchanged in local currencies.
Developments in our various regions as i mentioned at the beginning, develop- ments in our company vary between the various countries and regions. in the nordic markets we have so far not seen many signs of the economic downturn. sales have grown, thanks largely to a continued healthy trend in norway and Finland.
as far as Western europe is concerned, the sales trend has failed to meet our expectations. We can clearly see that the retail sector is focusing extensively on cost, and is therefore deferring invest- ments. in France for example, which is our biggest single market, there has been no growth for a couple of years. it is, however, pleasing to note that the work on rationali- sation that has been undertaken in France has affected the profit figure, which has now returned to healthy levels. in some markets where we have had problems in the past, such as the UK and Benelux, our determined work is now starting to produce results. in both countries we are starting to see the signs of recovery. We do, however, still have some work to do before we reach the position for which we are striving.
in eastern europe there have been
acquisition targets on our list more readily available. This, combined with HL Display’s good financial facilities for acquisitions, should increase our oportunities to conduct acquisitions in the years ahead.
Continued environmental initiatives in 2008 we have continued our work on reducing the environmental impact created by our business – an important, high-priority area for us. Most of the environmental impact comes from the plastic waste generated in production, and it is therefore natural that we have chosen to concentrate many of our efforts on reducing this. Work is taking place on two fronts. First of all, we are working on improving the production processes so that we minimise the waste actually generated in production. secondly, we are working to develop methods that allow us to reuse the waste directly in our own production.
Outlook for 2009
as i sum up 2008, i can confirm that in terms of sales we have been affected by the global economic downturn. yet it is pleasing to note that despite a sales decrease we have been able to retain a good level of profitability. in terms of profits, 2008 was the second best year in HL Display’s history. i would like to thank all employees who have shown tremendous commitment in making it possible for us to develop the company during the year.
at the time of writing, in January 2009, it is still difficult to predict how the market will develop over the year ahead and how this in turn will affect our business. i can however confirm that the picture has grown increas- ingly darker over the past few months.
our financial position is strong and we have implemented a number of measures to retain profitability. at the same time we have clearly set our sights on creating growth, and we have a number of develop- ment projects under way in the company.
We must, however, be humble towards the fact that market climate can deteriorate rapidly and that this could have distinct negative effects on our business. This means that we will be paying very close attention to changes in the market climate and are prepared to respond quickly and appropriately if required.
stockholm, January 2009 Gérard Dubuy
Managing Director and Ceo positive developments in many countries,
including in poland and Ukraine. yet the picture for region as a whole is adversely affected by the trend in russia, which was weak in 2008. There was a significant increase in competition in the russian market, which also created more pressure on prices.
as in the nordic countries, we have con- tinued to see a healthy trend in asia. The fact is that December 2008 was the best- ever month for the region. We can see that our competitive strength has improved, not least as a consequence of our setting up local production through the factory in suzhou. sales increased by 15 per cent during the year, which means that the region now accounts for 8 per cent of the group’s total sales.
Product development – a decisive competitive advantage
HL Display invests more in product develop- ment than anyone else in our industry. We view this as our most important competitive tool. our ambition is clear: we shall be the player that develops the innovations that become industry standards. in 2008 the aim was to raise the level of innovation in our product development, and this resulted in the launch of several new solutions, including the merchandising solutions sideKick
™and Heroshelf
™.
While we are striving to achieve a high level of innovation, our development work is definitely market-driven and is conducted in close collaboration with customers. This ensures that we develop solutions that meet customers’ requirements and needs, and for which there is an immediate demand. in 2009 we will be further increasing the rate of product development, and we have a number of interesting projects under way.
Acquisitions
HL Display has clearly stated its ambition to reinforce both its market position and its range of products and services through acquisitions. We also work very actively on these matters. at the same time i can confirm that this is a long-term process, which is both complex and time-consuming.
The potential acquisition targets that we are looking at must satisfy a specification of requirements in both financial and commercial terms.
The change in tempo that we are now seeing in the current economic situation may possibly bring about new possible acquisitions and make some of the
Statement by the CEOHL Display annual report 20087
How HL Display works to achieve its financial targets
The profit target
The profit target shall be achieved by means of growth in volume combined with contin- ued rationalisation measures. For a number of years HL Display has been implementing wide-ranging efficiency improvements in production, with the result that the company now has a healthy gross margin. The aim for the operating expenses, excluding freight, is that these shall represent less than 30 per cent of net sales in the long term.
The growth target
HL Display’s ability to achieve the growth target is affected by a number of parameters. successful product devel- opment and effective sales work are two areas on which HL Display places special emphasis. growth can also be achieved through acquisitions.
it is HL Display’s stated aim that product development shall take place in close collaboration with customers, thus guaranteeing a range of products that best satisfies customers’ needs.
in parallel with this, HL Display works to strengthen its sales work in terms of both process and organisation. one of the funda- mental considerations in the new logistical structure, for example, is that administra- tion and warehousing are moved away from the sales companies so that they can focus exclusively on sales.
in recent years work has focused quite clearly on profitability improvements. in 2008 HL Display has opted to a greater extent than before to supplement this with initiatives aimed at achieving increased growth. During the year the company implemented a programme to identify opportunities, in order to strengthen sales work in future.
HL Display’s objectives and strategies
HL Display’s overall corporate objective is to be a market-leading growth company with good profitability and growth in value for shareholders.
Profitability must be prioritised. The overall corporate objective is broken down into two financial targets: a growth target and a profit target.
Business concept
HL Display’s business concept is to increase its customers’ profitability by offering the retail sector and the brand manufacturers cost-efficient products and solutions for in-store communication and merchandising. The focus is on making products and solutions adaptable to customers’ specific needs.
HL Display’s financial targets HL Display has two long-term financial targets: a profit target and a growth target.
Profit target
an eBiTa margin of at least 12 per cent.
Growth target
organic growth of 5-10 per cent.
Efficient operations – optimised operating expenses
Growth target Organic growth of 5-10 per cent
annually
Profit target An EBITA margin
of 12 per cent Efficient production
– good gross margin
Product development
Strengthened sales work
HL Display’s work to achieve its financial targets
Business concept, targets and strategiesHL Display annual report 20088
EBITA margin %
0 2 4 6 8 10 12
2008 2007 2006 2005 2004
4.9 Goal 12%
7.4 10.3 8.6 8.5
Growth %
-4 -2 0 2 4 6 8 10 12 14
2008 2007 2006 2005 2004
3
Organic growth
Goal for organic growth 5-10%
Acquisition 13
8
-2 11
Results in 2008 The profit target
The eBiTa margin totalled 8.5 per cent compared with 10.3 per cent for 2007. The eBiTa margin was affected positively by the gross margin increasing to 49 per cent, and negatively by a decrease in sales and the fact that operating expenses were too high during 2008. operating expenses totalled 35 per cent of net sales in 2008, compared with 32 per cent in 2007.
The growth target
sales in 2008 fell compared with 2007, totalling MseK 1,536. The prevailing uncer- tainty in the market affected HL Display.
This could be seen in the way customers have adopted a more cautious attitude towards new investments and the sales process has become longer. in most cases however, there is no talk of a ban on invest- ment among customers.
»
Operating expences, excluding freight, in relation to net sales %
29 30 31 32 33 34 35 36
2008 2007 2006 2005 2004
34.3 35.4
33.5
31.5 34.8
Business concept, targets and strategiesHL Display annual report 20089
Strategies
With a view to achieving the group’s financial targets, HL Display operates on the basis of the following strategies:
HL Display shall:
– focus on the company’s core processes and core products
– be perceived as being a natural business partner by the world’s leading retail com- panies and brand manufacturers – focus on design and innovation with a
view to setting new standards – continuously rationalise and adapt the
organisation according to the market’s requirements and needs
– uphold the corporate culture and its focus on profitable growth
– actively investigate opportunities to strengthen the product range and market position through acquisitions.
The datastrip slimline™ is available in several different designs and the price labels can easily be placed next to the relevant product.
Prioritised areas for HL Display
in its annual report for 2007 HL Display mentioned a number of focus areas for 2008. The table below provides follow-up on these.
This is supplemented by a description of how work within each area will be continuing during 2009.
Focus areas for 2008 Results in 2008 Focus areas for 2009
Work on operating expenses will be stepped up.
The aim is that operating expenses excluding freight will in due course be less than 30 per cent of net sales.
a project to bring down operating expenses to less than 30 per cent of net sales was launched during the year. The results of this work were adversely affected by a decrese in sales, which meant that operating expenses in relation to net sales rose from 32 to 35 per cent.
The target remains in the long-term, but is not expected to be reached as long as sales growth is below target. During 2009, HL Display will focus on keeping operating expenses unchanged in local currencies.
Continuing work to further increase efficiency in production. greater co-ordination between the production units to improve capacity utilisation and reduce lead times. HL Display plans to start up a new factory in russia in 2008 and to investigate additional needs for local production.
Work on additional efficiency improvements has been successful in 2008, which has increased the gross margin. The startup of the factory in russia has proved to be more complex than expected, which has meant that HL Display have had to adjust the schedule.
Continued rationalisation measures are planned.
important issues include the distribution of pro- duction capacity and how to deal with over-capa- city. The aim is that production in russia can start up during 2009. The work within production will be facilitated by the appointment of a dedicated production manager.
The creation of a logistics centre for Central europe is a high priority for HL Display.
all preparatory studies and analyses have been conducted during 2008.
The extension of logistics centres for Central europe will be implemented in stages during 2009.
Focus initiatives in the field of product development towards greater innovation.
a greater focus on innovation has led to several major launches in 2008 and several projects that will be launched in 2009.
Work on focusing initiatives in the field of product development on greater innovation will continue and be supplemented by increased investment in 2009.
greater focus on initiatives in the area of the environment, including in the form of in-house recycling of plastic waste in production.
Work has proceeded with undiminished vigour and good results in 2008. 90 per cent of all pvC waste from the extrusion production process is now recycled, a small amount of which is reused in the company’s own production.
priority will continue to be given to initiatives in the area of the environment, with an emphasis on continuous improvements. in 2009 special emphasis will be placed on improving production processes to significantly reduce raw material waste, and to increase the proportion of waste that is recycled.
HL Display plans to continue to strengthen the company’s product range and market position by means of acquisitions.
HL Display has, during 2008, worked according to an acquisition list with priorities. HL Display has internal resources that are dedicated to matters relating to acquisitions.
HL Display plans to continue to strengthen the company’s product range and market position by means of acquisitions. The current market condi- tions are likely to create increased opportunities, which, in combination with HL Display’s current financial strength, should enable the company to close deals during the coming years.
New focus: HL Display will increase its focus on purchasing to gain economic advantages. a new purchasing strategy is already in place.
Outlook for 2009
The Board of HL Display acknowledges that it currently is difficult to predict how the market will develop over the year ahead and how this in turn will affect HL Display.
profitability will be prioritised and further
cost control measures are planned.
HL Display will continuously monitor the development of market conditions, in order to be able to quickly react to changes if needed.
»
Business concept, targets and strategiesHL Display annual report 2008 10
Customer Core process 3
Production and deliver y of goods and ser vices
Core processes
HL Display’s core processes manage the entire chain from purchase to customer cooperation
Support processes Core process 2 Development, launch and product range management
Core process 1 Market, sales and customer relations
Finance
IS/IT
Human Resources
HL Display’s business operations
The next few pages present HL Display’s business operations against the background of three central business processes. These are supplemented by support processes for the whole Group that support the business operations in the three core processes.
Core process 1 involves the market and all market-related activities, such as planning and operational work on sales and customer relations. This includes information about developments in the market, as well as HL Display’s customers and competitors. read more about this on pages 12-16.
Core process 2 involves all activities relat- ing to HL Display’s products and solutions, from product range development and work on launches to product range management and phase-out. it includes information about HL Display’s range of products and solutions and how they are positioned.
read more about this on pages 17-20.
Core process 3 involves all activities relating to production, purchasing and logistics. it includes a description of the various production methods in which HL Display specialises. read more about this on pages 21-24.
Support processes
The core processes are supplemented by the three support processes for the whole group that support the business operations in the company. These are:
– Finance – is/iT
– Human resources
read more about this on pages 25-27.
HL Display operationsHL Display annual report 2008 11
HL Display’s customers include most of the world’s largest food retail chains, non- food retail chains and brand manufacturers.
HL Display has a low level of dependence on individual key customers. sales to the 19 biggest customers on a global scale totalled around 30 per cent of sales in 2008.
HL Display’s market and sales work
HL Display’s market strategy is based on a local presence in all important markets through wholly owned subsidiaries. In markets where the company does not have a presence of its own, sales are channelled via distributors.
HL Display currently has its own sales companies in 32 countries. A further 13 countries are serviced via distributors.
New organisation reinforces the focus on sales
on 1 January 2009 a new, matrix-based organisation came into force at HL Display.
The aim is to create shorter paths between the Ceo and the sales companies, and to clearly signal an increased focus on sales throughout the whole business.
HL Display’s five area Managers now report directly to the Ceo and have also taken on greater responsibility. They are not only responsible for sales work, but also have full responsibility for management and profits in their regions.
HL Display’s customers
HL Display has three prioritised customer segments: food retail, non-food retail and brand manufacturers. The food retail sector is currently by far the biggest customer segment. HL Display is working to increase sales to the non-food retail sector and brand manufacturers. one result of this is a significantly strengthened product range, an important element of work under way to rea- lise the potential that exists for HL Display within these two customer segments.
Core Process 1 Market, sales and customer relationsHL Display annual report 2008 12
HL Display’s biggest customers in each segment:
Food retail Brand Manufacturers ahold (incl. iCa)
auchan Carrefour Casino Champion intermarché Metro systeme U Tesco
Wal-Mart (asDa) BaT Colgate Danone Kraft L’oréal Masterfoods nestlé philip Morris procter & gamble Unilever
non-Food retail Baumax Decathlon Dsg retail Ltd
iKea intergamma Müller
HL Display’s sales work is channelled
primarily through direct sales in local sales companies all over the world. it is HL Display’s ambition to be the custom- ers’ local partners in the task of creating selling retail environments. a strong local presence is an important success factor for HL Display. Most purchases of solutions for in-store communication and merchandising are made locally in each country.
The exceptions are mainly in the customer segment of brand manufacturers.
These companies often market the same product in a large number of markets, and merchandising solutions are therefore often procured for several markets at the same time. This is also reflected in HL Display’s work with this customer segment, which is characterised by greater central co-ordination.
Sales per customer segment MSEK
Retail food 630 (2007: 616) Brand manufacturers 287 (2007: 293) Retail non-food 223 (2007: 272) Shop-fitters 155 (2007: 144) Distributors 103 (2007: 115) Other 138 (2007: 131) HL Display’s solutions for auto-
matic product feeding guarantees that the products are always displayed at the front of the shelf.
The competition
HL Display is facing an extremely frag- mented situation as regards competition. at present none of the company’s competitors have the same breadth in their product range and an equally well-developed global presence. HL Display also has sales that are considerably higher than those of its competitors.
80-90 per cent of competitors sell their products in one or two countries. Most of them compete with HL Display in one or
two customer segments and one or two product areas.
This means that there is a large number of competitors. about 150 more or less direct competitors of varying sizes can be identified. The table below shows a summary of the competitive situation facing HL Display.
HL Display’s competition International players (operations in ≥ 5 markets)
Regional players (operations in 2-4 markets)
Local players
(operations in one market) Examples of
competitors
Checkpoint systems (Usa) oechsle (germany)
Kleerex (ireland) Wilson & Brown (poland)
aL-Display (germany) ppe (UK)
visioplast (France)
Competitors’
strengths
– Well-developed product range within their niche.
– efficient production process.
– Low prices.
– often family companies with a low cost base.
– Flexible production process for small batches.
– good contacts with customers in the region.
– very good customer contacts.
– High level of customisation.
HL Display’s competitive advantages
– Total offer that satisfies customer’s total needs.
– offers complete category solutions.
– significant investments in product development create a leading position.
– good relations with the end customer, in contrast to competitors who often work via distributors or agents.
– Total offer that satisfies customer’s total needs.
– offers complete category solutions.
– Through its global presence, HL Display can follow its major customers when they expand and become a preferred supplier.
– Major global retail companies and brand manufacturers value a supplier who can help them in several markets.
– significant investments in product development create a leading position.
Core Process 1 Market, sales and customer relationsHL Display annual report 2008 13
Through a clear segmentation the consumers can quickly find the product they are looking for.
»
The market
HL Display is represented in 45 countries, primarily in the nordic region, Western and eastern europe, and asia. Market developments usually differ, depending on the region. in general, however, it can be said that HL Display’s market has a strong association with developments in the retail sector, both globally and regionally.
a significant element of HL Display’s sales are made to the after-sales market, in areas such as spare parts and supple- mentary orders. Demand in this area is relatively stable, as shops regularly undergo renovation and rebuilding projects.
Factors that affect demand
– HL Display becoming established in new markets.
– The development of and maturity in markets, leading to demand for more sophisticated solutions.
– The general economic trend, both globally and locally.
– HL Display’s product development.
Factors that affect demand in mature markets
– implementation of new retail concepts/
renovation projects.
– new trends in shop design.
– introduction of new technologies, e.g.
electronic price labels.
– Brand manufacturers’ investments in campaigns in shops to reinforce brands.
Factors that affect demand in growth markets
– new shop openings.
– Brand manufacturers’ investments in campaigns in shops to reinforce brands, e.g. to establish a brand in a market.
Market developments
as mentioned before, HL Display’s market is affected by developments in its custom- ers in the retail sector, both globally and regionally.
The retail sector in 2008 was character- ised by higher inflation in many countries – not least thanks to significant price rises for food – and the global financial concerns that became more prominent during the autumn, after having appeared to be under control as recently as during the summer.
This has been followed by clear signs of a global recession. as consumers’ inclination to consume has fallen, the prospects for growth in the retail sector have worsened.
one example of this is the fact that retail trading volumes in the eU fell by 0.2 per cent in november 2008 compared to the same month last year, according to eurostat, the eU’s statistical office.
in the Usa too, there are signs of a drop in the inclination to consume. sales in american retail chains fell by 1.7 per cent in December 2008 compared to the same month in 2007, according to figures issued by the international Council of shopping Centers (isCs).
Difference between sectors
it is, however, important to remember that there is tremendous variation between the various sectors within the retail segment.
research conducted in this field indicates that reduced opportunities for consumption and increased food prices tend to have
relatively little effect on the food retail sector compared with, for example, consumer discretionary sectors such as home electronics.
it is possible, on the other hand, that consumption in the food retail sector may be channelled towards the cheaper options that can exist in each product category. it is also possible that food retail segments that focus on price, for example the discount chains, will benefit from a situation in which consumers are trying to cut their consumption costs.
Globalisation a dominant trend
international expansion is the trend that has had the clearest effect on the retail sector in recent years. This has been the most promi- nent growth strategy for most retail chains.
an exception is the american chains, which with their large domestic market have shown less inclination to expand internationally than their european colleagues.
if we look at the biggest european food retail chains, it can be confirmed that 30-40 per cent of sales take place in markets other than the domestic market. The expla- nation of this desire to expand abroad can be found in the highly consolidated, satu- rated domestic markets. Most european markets are currently dominated by a small number of players, and there is limited opportunity to expand.
in 2008 the credit crunch in the Usa became clearly evident in europe. Just as in the Usa, falling house prices in many european countries have meant that house- hold assets have fallen in value, which has had a negative effect on the retail sector.
The economic downturn is also a factor in several european markets. even though analysts are uncertain of the precise consequences that this will have, it can be confirmed that the retail sector will probably be affected negatively by the prevailing market climate.
Tougher competition in growth markets as a consequence of the expansion of the Western european chains, and to some extent also those in the Us, the retail sec- tor in growth markets has been changing
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Core Process 1 Market, sales and customer relationsHL Display annual report 2008 14
extensible shelves with trays specially adapted for spice bottles.
Sales per region
Own sales
companies Distributors Market position
Developments during the year Nordic
region net sales MseK 332
Finland norway sweden
Denmark iceland
HL Display is the market’s leading supplier of products and solutions for both the retail sector and brand manufacturers.
The sales trend continued to be healthy in the nordic region, despite the prevailing market climate. sales increased by 2 per cent, a trend that was driven above all by Finland and norway.
Western Europe net sales MseK 706
austria Belgium France germany the netherlands spain switzerland the UK
greece ireland italy portugal
HL Display has a strong position in the market, and the company supplies many of the major retail chains and brand manufacturers. There is, how- ever, tough competition in the market, combined with indications of greater cost awareness among customers. it is HL Display’s ambition to reinforce its market position by focusing more clearly on the areas in which the company has unique conditions and competence. The company has to be, among other things, a sounding board and a natural busi- ness partner for customers in their work to find new solutions that improve product displays and facilitate work in the shop.
sales in the region fell by 7 per cent in 2008.
in many markets there are clear indications of a worsening market climate, which has caused customers to focus specifically on cost-cutting mea- sures and to postpone investments.
Eastern Europe net sales MseK 350
Bulgaria the Czech republic Hungary Latvia/Lithuania poland rumania russia serbia slovakia slovenia Turkey Ukraine
estonia israel Kazakhstan
Thanks to the fact that HL Display established operations in many countries in the region at an early stage, HL Display currently enjoys a strong position in the market in both the retail sector and among brand manufacturers.
sales in the region fell by 1 per cent in 2008.
There was a very healthy trend in many markets, for example poland and Ukraine. The picture of the region as a whole is, however, adversely affected by the weak trend in russia.
Asia and Australia net sales MseK 132
China (Hong Kong) China (shanghai) india
indonesia Malaysia singapore south Korea Taiwan Thailand
australia new Zealand
HL Display’s position in the market has been significantly reinforced in recent years, partly because the company has increased its com- petitive strength by setting up local production facilities. in 2008 HL Display stepped up its work with brand manufacturers to strengthen its market position in this customer segment.
There continued to be a healthy trend in asia in 2008. sales increased by 15 per cent, thanks to a positive development in most markets in the region.
North America net sales MseK 16
Canada Usa
Trion industries is responsible for all sales work in the Us market. at present sales work is targeted exclusively at retail companies. sales in the north american market totalled MseK 16 (19) in 2008.
Core Process 1 Market, sales and customer relationsHL Display annual report 2008 15
rapidly. significant annual increases in gnp and an expanding middle class with greater spending power combined with fragmented markets and the limited emergence of modern retail operations are some of the reasons why retail companies are showing a major interest in these markets. after several years of international expansion, the competition in many growth markets has now increased significantly, and attention is shifting gradually towards new markets. in recent years the Middle east and north africa have emerged as attractive growth markets.
Attractive markets in Asia
india continues to be one of the most attractive markets for the retail sector, even if a lower rate of growth in national gnp is predicted for the immediate future. For foreign companies, however, india remains a rather problematical market – the result of factors including tough legislation and a poor infrastructure. a so-called “multi- brand retailer”, which includes the food retail chains, may not run its own business in india, but must establish itself according to the franchise model in partnership with a domestic company. Many of the major
The most attractive growth markets (based on a weighting of risk, how attractive the market is, market saturation and time horizon)
1. vietnam 2. india 3. russia 4. China 5. egypt
source: The 2008 a.T. Kearney global retail Development index™
chains now have operations in the country, including Wal-Mart and Metro, to name a few.
at the same time local chains such as pantaloon and Trent have expanded rapidly to make sure they are ahead of the foreign players.
Fragmented market in China
China is another market that has attracted tremendous interest for many years. There are now signs that growth in China’s economy is slowing down a little, partly because the rate of growth in its exports to the Us market has slowed down some- what. Forecasts do, however, indicate that growth in gnp will nevertheless exceed 9 per cent. The international chains have
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quickly become established in the biggest cities, and this expansion has continued on to smaller cities. Carrefour and Wal-Mart are two of the chains that have expanded most quickly in the country. Just as in india, domestic chains are growing quickly, not only in China, but also in many other asian markets. Despite this, the Chinese retail market remains fragmented. even though the chains are growing significantly in the biggest cities, the five biggest food retail chains account for only a few per cent of total food retail sales.
Russia an important market russia has been an important growth market for the international retail sector for a number of years. The main reasons for this has been strong economic growth, driven by rising oil and gas prices, combined with a relatively unregulated market and strong consumer demand.
Cities such as st. petersburg and Moscow have for many years been the subject of interest for international retail chains. as the market has become increas- ingly saturated, the chains have started to look for new opportunities in smaller cities and in large industrial regions.
There are now clear indications that growth in the russian economy will slow down, partly because of lower raw material prices, financial crisis and poorer export prospects.
Market trends that affect HL Display The prevailing market climate probably means that the retail sector will focus more on cost savings as one way of maintaining profitability. such a trend may have a nega- tive effect on HL Display if the consequence is that companies postpone investments in HL Display’s area.
The trend towards cross merchandising has been evident for a number of years, and it can now be said to be a natural, accepted way of working in the food retail sector. HL Display leads the way with solutions in this area.
There is a general trend towards creating clarity in the shop to make things easier for the consumer. This creates increased demand in areas such as in-store signage solutions.
During the year in-store aids based on new technology have met with greater interest in some of HL Display’s biggest markets, for example France. examples of this are electronic price labels and digital screens to display advertising messages.
Core Process 1 Market, sales and customer relationsHL Display annual report 2008 16
HL Display has a full range of display hooks for products that are displayed hanging.
HL Display’s product range
HL Display’s product range for its customers is divided into Optishop
™, solutions for the retail sector, and Brandman
™, solutions for brand manufacturers.
HL Display offers products and solutions for the retail sector, both food and nonfood, and brand manufacturers who produce goods that can be bought in the shop. These customers each have different needs and requirements. The retail sector is primarily interested in solutions that increase sales or make work in the shop easier, which saves time and money. For their part, brand manufacturers are interested in solutions that help them to build up the brand and make their products visible in the shop.
For this reason the retail product range is brought together under the optishop
™brand, and the product range for brand manufacturers under the Brandman
™brand.
Development and management of the product range
HL Display works very actively on the range of products and solutions that is offered to customers. on a general level, this work can be broken down into three elements.
Firstly, the company invests more than anyone else in the industry in product development in order that it can continuously renew what it has to offer its customers.
secondly, it is crucially important for HL Display to follow up on sales trends at all times and to phase out any products for which there is little demand, in order that the conditions exist for profitable production.
a third element is what is known as value engineering. Here the company systemati- cally reviews the best-selling products and investigates how production processes and material utilisation can be developed in order to improve performance and cut costs.
A stronger product range for brand manufacturers
HL Display currently has the market’s broadest ranges of solutions for in-store
communication and merchandising for the retail sector. in 2008 the ambition was to clearly strengthen the product range aimed at brand manufacturers. a number of new solutions were launched, which were very well received by customers. in addition, a new web site, dedicated to the segment, has been launched at www.hlbrandman.com
in 2009 HL Display aims to continue to improve its customised product range for brand manufacturers and to strengthen the product range for the retail sector with new, innovative solutions. a number of develop- ment projects are under way, including the next generation of category solutions.
Positioning of HL Display’s product range HL Display shall be a market-leading supplier of solutions for in-store communi- cation and merchandising, and a natural business partner for the retail sector and brand manufacturers as regards boosting the shopping experience for the consumer.
What differentiates HL Display from its competitors is, above all:
The level of innovation – HL Display shall be the supplier that develops
the innovations that become industry standards. The company’s product development initiatives are unparalleled in the industry.
Quality – HL Display’s products and solutions are characterised by high quality and functionality.
Competence – HL Display has built up a vast wealth of expertise when it comes to displaying products in shops. HL Display is a natural partner of the retail sector and brand manufacturers when they are fitting out shops or developing new concepts for their shops.
Customer focus – The company’s presence in the customer’s local market guarantees
a high level of service. »
Core process 2 Development, launch and product range managementHL Display annual report 2008 17
roller Track
™is HL Display’s latest solution for chilled cabinets for dairy products such as milk and yoghurt. The unique feeder system, which is easy to move and can easily be adapted to changes in the planogram, guarantees that products are always displayed at the front of the shelf. increased sales and a halving of the time spent on topping up with new products are just some of the benefits mentioned by food retailers who have installed the systems.
Making the most out of your selling space
Core process 2 Development, launch and product range managementHL Display annual report 2008 18
Optishop
™HL Display’s product range for the retail sector is found under the optishop brand.
This range offers products and solutions for in-store communication and merchandising.
In-store communication
provides consumers with all necessary purchasing information and helps them to quickly find their way around the shop. Well laid out in-store communication means that shops avoid losing sales because consum- ers cannot quickly find what they are look- ing for in the shop or what products cost.
Merchandising
Displays products in a way that makes
them attractive to consumers. a well laid
out merchandising solution makes optimal
use of shelf space and stimulates the
consumer to make a purchase. HL Display’s
merchandising products also generate
cost savings by rationalising work in the
shop. one example of this is the automatic
feeding of products, which means that less
time is spent on keeping shelves in order,
while at the same time the shelves can
quickly be topped up with new products.
Bring your brand to life
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Core process 2 Development, launch and product range managementHL Display annual report 2008 19
Brandman
™The Brandman brand houses HL Display’s product range for brand manufacturers.
it offers both individual products and total solutions for Primary placement and Secondary placement.
Primary placement
HL Display offers products and solutions to guarantee that brand manufacturers can make the best possible use of their space on shelves in the shop. Category management and shelf management create an attractive product presentation that is easy to maintain. This is combined with point of sale accessories that can, for example, provide the customer with information about the product or solutions that provide support in connection with product launch.
Secondary placement
HL Display offers products and solutions to display brand manufacturers’ goods in other parts of the shop. These include product merchandisers, for example customised floor stands, as well as solutions for cross merchandising, i.e. products that are closely associated are displayed together in order to generate extra sales.
The newly developed solution sideKick™ makes it possible to create even more sales space in the store.
product development
an insight into customers’ requirements and needs is a cornerstone of product development at HL Display. successful product development work starts in col- laboration between product managers and the sales companies, who between them identify new opportunities, for example to improve merchandising or to make work easier in the shop. it is HL Display’s stated ambition that all development shall take place in close collaboration with customers.
This makes sure that the company develops solutions that meet customers’
requirements and needs, and for which there is an immediate demand. HL Display invested a total of MseK 28 (38) in product development in 2008, corresponding to 2 (2) per cent of sales.
A clear process
Two years ago HL Display overhauled its product development process with a view to increasing the tempo and cutting lead times in product development work. The company now works with a clearly defined product development process consisting of five
stages, with weekly reporting of non-confor- mities in all projects.
The overall responsibility for the development strategy and deciding which projects are to be undertaken rests with the market council, which includes members of the group’s management team. The product managers then assume responsibility for the project throughout the development phase. The product develop- ment group also includes constructors and designers, as well as factory or production managers, in order to guarantee a prompt start to production when the development of the product has been completed.
Successful projects in 2008
in 2008 HL Display had on average around 30 ongoing development projects. 55 projects were completed successfully during the year.
Many of the new products that were launched during the year enjoyed a very positive reception in the market. not least of all sideKick
™, a solution that can easily be attached to the side of the end section on shelves – a previously unutilised space.
This makes it possible to create even more sales space in the shop.
Concept – Product-
specification – Market analysis – Project
approval
Engineering – Drawings and
technical specifications – Design review – Tenders for
tooling invited – Investment is
approved
Tooling – Tool order – Tooling design
approved – Final acceptance
of tooling
Industrialisation – Tooling validated – Product samples
produced – Production
parameters validated
Market launch – Launch
material – Full scale
launch
HL Display’s product development process
HL Design – HL Display’s own design agency
HL Design, situated in France, is a central resource with tremendous expertise in the field of graphic design, which can be used by all sales companies all over the world. HL Display’s products are customised to a large degree, for example in the form of customised front sections for merchandising solutions. This work involves creative design work to satisfy the strict requirements of graphic design that are specified by, for example, the world’s leading brand manufacturers.
Patent and design protection
The main purpose of HL Display’s patent strategy is to protect the company’s best- selling products. at the end of 2008 the company had 74 (80) registered patents and 21 (21) patent applications being processed. The number of new patents in 2008 totalled 4 (10).
at the end of the year HL Display had 78 (88) registered protected designs and 5 (3) applications were being processed.
The total cost of patent and design protection in 2008 was MseK 2 (2).
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Core process 2 Development, launch and product range managementHL Display annual report 2008 20
Continued productivity increases in production
HL Display’s production is concentrated on three production methods – extrusion, injection moulding and hot-bending and printing of plastic (the production methods are explained in more detail in the table on page 23). The majority of the production that lies outside these areas is currently performed by subcontractors. HL Display has seven factories in total, four of which are in Sweden.
HL Display’s production is undertaken largely in accordance with the principles of
“lean production”. in very simple terms, this can be described as work that focuses on the elements that add value for customers.
This includes, among other things, a clear focus on quality and productivity.
Improved productivity
Work to improve productivity has contin- ued to be in the spotlight in 2008, which is one important reason why the gross margin increased from 47 to 49 per cent.
at the factory in sundsvall, which is HL Display’s biggest production facility, specialising in both extrusion and injec- tion moulding of plastic, the primary focus areas during the year have been work on raw materials and fine-tuning production processes, thus achieving even more cost- efficient production with bigger orders.
During the year the factory changed its raw material supplier and started to use a cheaper raw material in certain products.
By adapting the production process, equally good or better quality has been achieved using the cheaper material.
The factory in Karlskoga has undergone a clear process of specialisation, and now focuses on innovative, highly automated injection moulding. as a result of this, the element of production with a high content of manual work has been transferred to
the factory in suzhou. The factory has also been given extra products, as some parts of the product range acquired from Display Team are now manufactured in Karlskoga.
This production used to be outsourced to subcontractors.
The factory in Falun has also undergone a distinct change, towards greater special- isation and automation. The factory now specialises in the automated production of hot-bent products with or without printing. »
Core process 3 production and delivery of goods and servicesHL Display annual report 2008 21
Quality
HL Display undertakes extensive work on quality, based on key figures with clearly defined targets. These key figures are followed up every month. all factories have quality systems that are structured according to the international quality standard iso 9001. The factories in Falun, Karlskoga and sundsvall are all certified in accordance with iso 9001.
Lead time in days
Relates to average lead time from order to delivery.
Production facility Target Actual, 2008 Actual, 2007
Falun 12 12 14
Karlskoga 8 8 9
sundsvall 11 11 11
suzhou 9 7 –
Delivery performance (as a percentage)
Defines the proportion delivered within the agreed delivery time.
Production facility Target Actual, 2008 Actual, 2007
Falun 97.0 96.0 95.6
Karlskoga 98.0 98.4 97.4
sundsvall 98.0 98.7 96.1
suzhou 98.0 99.9 –
Proportion of claims (as a percentage)
Refers to the number of claims in relation to the total number of orders.
Production facility Target Actual, 2008 Actual, 2007
Falun 0.6 0.7 0.7
Karlskoga 0.6 0.4 0.2
sundsvall 0.3 0.5 0.5
suzhou 0.3 0.4 –
There have been major changes during the year, resulting in increased productivity and thus shorter lead times.
at the factory in the Chinese city of suzhou production capacity was increased during 2008 and today the factory has capacity for production using both extrusion and injection moulding. production here is characterised by high levels of quality and productivity. about half of production is exported to europe and russia. The factory is leading the way in terms of production development. Many of the innovative concepts that are developed in suzhou, including some relating to raw materials, are subsequently implemented in the other factories.
in total the group’s investments in production facilities amounted to MseK 20
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Core process 3 production and delivery of goods and servicesHL Display annual report 2008 22
