Hakon Invest’s holding, 50%
0 100 200 300 400
2007 2006
–5 0 5 10 15
Revenues Operating profi t Kjell & Company at a glance
kjell & company is one of sweden’s leading retailers of home elec- tronics accessories. all 29 stores carry a full range of approximately 7,000 products. the company employs 188 ftes.
2007 in fi gures, sek m
revenues 345
operating profi t –4 contribution to
Hakon invest’s earnings –2 Hakon Invest’s
holding, 100%
0 300 600 900
2007 2006 2005
0 20 40 60
Revenues Operating profi t Forma Publishing Group at a glance forma Publishing group is one of sweden’s larg- est publishing houses with a focus on consumer magazines, trade maga- zines, books and contract communication. the dom- inant subjects are food, the home, recreation and retailing. the company employs 432 ftes.
2007 in fi gures, sek m
revenues 795
operating profi t 30 contribution to
Hakon invest’s earnings 17 Hakon Invest’s
holding, 40%
0 20,000 40,000 60,000 80,000
2007 2006 2005
0 800 1,600 2,400 3,200
Revenues and earnings,
sek m Revenues and earnings,
sek m Revenues and earnings,
sek m
Revenues Operating profi t ICA AB at a glance ica ab is one of the nordic region’s leading retail companies with a focus on food. the ica group has 2,250 wholly owned and retailer- owned stores in sweden, norway and the baltic countries. the company employs 20,081 ftes.
2007 in fi gures, sek m
revenues 82,326
operating profi t 2,602 contribution to
Hakon invest’s earnings 830
Hakon Invest’s holding, 45%
0 100 200 300 400
2007 –6 –4 –2 0 2
Revenues Operating profi t Cervera at a glance cervera is a nationwide, well-established retail chain within glassware, porcelain, household utensils, gifts and home furnishings. cervera has a total of 48 wholly owned and partly-owned stores throughout sweden.
the company employs 183 ftes.
2007 in fi gures, sek m
revenues 377
operating profi t –1 contribution to
Hakon invest’s earnings –1
Hakon Invest’s holding, 50 %
0 100 200 300 400
2007 2006
20 30 40 50 60
Revenues Operating profi t inkClub at a glance inkclub is a market leader in europe in online sales of ink cartridges and other printer accesso- ries. all sales take place via the internet and ink- club has approximately 1.1 million orders/cus-
tomers in 14 european countries. the company employs 48 ftes.
2007 in fi gures, sek m
revenues 364
operating profi t 45 contribution to
Hakon invest’s earnings 4 Hakon Invest’s
holding, 60%
0 100 200 300 400
2007 –40 –30 –20 –10 0
Revenues Operating profi t Hemma at a glance Hemma is one of sweden’s largest white goods retail- ers. the chain has a total of 105 wholly owned and retailer-owned stores and the product range com- prises products with well- known brands for home, kitchen and laundry.
the company employs 175 ftes.
2007 in fi gures, sek m
revenues 368
operating profi t –30 contribution to
Hakon invest’s earnings –13
Revenues and earnings,
sek m Revenues and earnings,
sek m Revenues and earnings,
sek m
inkClub knows about online retail
In July 2007, Hakon Invest became a part owner of inkClub – a company that knows how to succeed with internet-based sales. This valuable expertise can greatly benefi t the other port- folio companies. Read more on pages 52–53.
President’s comments
Forma gaining strength
Successful retailing is based on winning and retaining consumer confi dence. This requires credible concepts that provide high customer benefi t. Read more on pages 2–5 about how Hakon Invest’s President Claes-Göran Sylvén sees the retail business.
The 2007 acquisitions of Damm Förlag and OTW strengthen Forma Publishing Group’s position in the mar- ket for books and editorial communi- cation. Read more on pages 44–45.
ICA delivers
With ICA Sverige as the prime mover, the ICA Group continued to deliver in 2007. ICA Baltic showed strong growth and ICA Norge made further progress with its action program. ICA Banken was named Bank of the Year.
Read more on pages 32, 34–43.
SEK 6
Hakon Invest’s Board of Directors proposes the dividend be raised to SEK 6.00 (5.50) per common share.
This is in line with the target to distrib- ute at least 50% of the Parent Company’s earnings. Read more about Hakon Invest’s development and governance in 2007 in the Board of Directors’ report on pages 55–58 and the Corporate gover- nance report on pages 90–97.
Rapid
expansion for Kjell & Company
A solid platform enabled Kjell &
Company to double the number of stores in 2007. Read about the 29th new store on page 15.
Kjell & Company
A solid platform enabled Kjell &
Company to double the number of stores in 2007. Read about the 29th new store on page 15.
100 %
A portfolio of companies with growth platforms
Over the past two years Hakon Invest has built up a balanced portfolio of retail companies. So far, active ownership has focused on building stable platforms for future growth on the top and bottom lines. Read more on pages 33, 44–53.
90-year-old with sights set on the future
The ICA concept – which forms the basis of ICA’s
operations – celebrated its 90th anniversary. But the
ICA Group is not a tired pensioner. Read about the
new highly automated distribution center in
Helsingborg on page 13.
the group at a glance
the remaining 60% is held by the Dutch corpo- rate group royal ahold. In the shareholder agree- ment between Hakon Invest and ahold, both owners have joint control of ICa aB, as a result of a contractual requirement for unanimity for all decisions at General Meetings of shareholders and in the Board of Directors.
ICa-handlarnas Förbund
(67 %) other shareholders
12,720 (33 %)
H a k o n I n v e s t
Forma publishing Group (100 %) portFolIo CoMpanIes ICa aB (40 %)
kjell & Company (50 %) Hemma (60 %) Cervera (45 %) inkClub (50 %)
the group at a glance
hakon Invest makes long-term investments in retail-oriented companies with a geo- graphic focus on the nordic and Baltic regions. our vision, with ownership in Ica aB as a base, is to be the nordic region’s leading development partner for companies in the retail sector. the 40% holding in Ica aB forms the basis of our ownership philosophy and operations. through active and responsible ownership we contribute to the creation of value growth in Ica and develop our portfolio companies, all of which are indepen- dent companies responsible for their own earnings and profitability. added value is created for hakon Invest’s shareholders through value growth in the investments com- bined with a good dividend yield.
2007 figures
◾ revenues SeK 1,075 M (660)
◾ profit for the year SeK 1,326 M (1,054)
◾ earnings per share SeK 8.30 (6.55)
◾ equity/assets ratio 94.4% (95.2)
◾ the Board proposes a dividend of SeK 6.00 per common share (5.50)
◾ acquisition of 50% of online retailer inkclub
◾ Forma publishing group acquires Damm Förlag and the remaining almost 88% in otW
◾ holding in hemma increases from 49% to 60%
hakon Invest was listed on December 8, 2005, and is quoted on the oMX nordic exchange, large cap. Ica-handlarnas Förbund is the majority shareholder with 67%
of the shares. other shareholders number 12,720, in the form of Swedish and foreign institutions as well as private individuals. the head office is in Solna, outside Stockholm.
C o n t e n t s
2 president’s comments
6 vision, mission, business concept, goals and strategies 8 operations
14 Market and business environment 22 responsible ownership
25 Business environment and risk management 28 Hakon Invest’s shares
30 Five-year financial summary Hakon Invest, definitions
31 Hakon Invest’s holdings 34 ICa
44 Forma publishing Group 46 kjell & Company 48 Hemma 50 Cervera 52 inkClub
55 Board of Directors’ report 59 Consolidated income statement 60 Consolidated balance sheet
62 Consolidated statement of changes in equity 63 Consolidated cash flow statement 64 notes to the consolidated accounts 79 parent Company income statement 80 parent Company balance sheet
82 parent Company statement of changes in equity 83 parent Company cash flow statement 84 parent Company’s notes 88 proposed disposition of profits 89 audit report
90 Corporate governance report 2007 98 Board of Directors and executive Management 100 Financial calendar and contacts
this annual report is a translation
of the swedish version.
preSIDent’S coMMentS
Ica dominates our asset base, accounting for almost 90%, and hakon Invest’s share of profits from Ica still exceeds our revenues. It is therefore crucial for hakon Invest that Ica delivers.
the whole of ICa delivers
Ica continued to deliver in 2007 – not just a good result, but also by meeting almost all its commitments.
Ica Sverige is the stable prime mover in the business, with the high- est operating margin in the sector. the fully automated distribution center now in place in helsingborg gives Ica an infrastructure that will provide considerable competitive advantages in the years ahead. this creates conditions for long-term, sustainable profitability and the first clear effi- ciency enhancements could already be seen in 2007.
the operations in norway are still underperforming but despite this have delivered in accordance with the take-off program, which is designed to establish genuine customer orientation. the most important confirmation of success in 2007 is the positive sales trend in comparable stores in all store formats. the parallel restructuring program with closure of 60 stores led, however, to lower market shares and negative earnings for Ica norge as a whole.
the operations in the Baltic countries also delivered. rimi Baltic has shifted from a start-up business to a profitable growth engine in record time. growth in store sales during 2007 was almost 20%.
Finally, Ica Banken, a venture about which many were initially skeptical, continued to deliver. the Bank of the Year award is added confirmation that this enterprise is correct. Ica Banken delivers the cus- tomer value that was the intention right from the start.
encouraging the
customer-driven
company
preSIDent’S coMMentS
Portfolio companies with strong growth platforms as an owner hakon Invest’s work is far-sighted and long-term.
among other things this means that we encourage Ica and our portfolio companies to invest in the development of busi- ness models and infrastructures that will provide sustained growth and profitability.
Kjell & company is a textbook example of a retail chain that has a very clear concept today. as an active owner we allowed the company to be in the red so it could work hard and chisel out a strong concept and then be able to double the number of new stores. today, Kjell & company is one of Sweden’s fastest-growing retail companies with 12 new store openings during the year.
So, did our portfolio companies also deliver during 2007? Both yes and no. they did not deliver financially but in all portfolio companies we have created conditions that will allow them to do this in the future.
Forma publishing was reorganized into three business units: Forma Magazines, Forma contract and Forma Books.
Within Magazines, Icakuriren was totally redesigned and relaunched successfully. contract is the largest business unit and here Forma made strategic acquisitions which also make the company a key player within television production. Books was organized into non -fiction, fiction, and literature for chil- dren and young people. the fact is that Forma is the third-larg- est general book publisher in Sweden today and the largest within contract production.
at hemma, we worked intensively with both organization and management structure as well as concept and product range during the year. this has transformed the company from a retailer federation into “one hemma” in terms of struc- ture and approach to product range. We are now entering an implementation phase that will take the new hemma from the drawing board to reality.
In cervera, our work focused on increasing customer ori- entation and making the supply chain more efficient. Based on extensive customer surveys, we revised the concept and built up a product range clearly linked to customer require- ments and preferences. We believe in competitiveness based on reliable statistics.
the customer-driven company
I would like to point to the work with cervera as our general model for creating “the customer-driven company”. retail has traditionally lived from the perspective of suppliers who saw the retail sector as a distribution channel, which retailers were far too ready to accept. Ica was something of a pioneer in changing this perspective by moving the emphasis closer to the customer. this includes everything from private labels to customer-driven store concepts, well grounded in surveys that indicate customer preferences.
here too there is much to learn from the Ica example.
Working primarily from a customer perspective is a methodol- ogy that can be applied to almost all areas of the retail trade.
« all successful retail operations are based on having the confidence of consumers.
Consumer confidence is won through relevant and credible concepts, that deliver a high
customer benefit. »
preSIDent’S coMMentS
Steadily building up and refining the toolbox in order to create customer-driven companies is one of the cornerstones of hakon Invest’s business model. another is to create optimal conditions for entrepreneurship.
inkclub is perhaps the portfolio company that has made the greatest progress in both these areas. inkclub has suc- ceeded with both volume and profitability due to a highly methodical process and the company will now provide the entire group with expertise and experience from online trad- ing. We are currently making an inventory of what other types of products can be sold on the same retail platform. ink- club has also been highly successful in building up the loyalty of individual customers, and here too there is a lot to learn.
Consumer confidence essential for success
all successful retail operations are based on having the confi- dence of consumers. consumer confidence is won through relevant and credible concepts that deliver high customer benefit at an attractive price. and by representing values with which target consumer groups can identify.
this will be even more decisive in a weaker economy.
there are many winners during periods of high prosperity.
now it will be clearer who has a sustainable concept and who does not. even if the economy remains strong in the early part of 2008, we expect consumption will be under more pressure in the future. this is when it is important to know your customer, to have chiseled out a niche in the market and to have a clear
offering. and to clearly stand on the side of the customer. after many years of stable prices, inflation has started to gather pace again and this is felt in the consumer’s wallet in many ways. It is not only prices that will rise, borrowing costs will also increase.
We have had a long period of rising loan-backed consumption and there will be less scope for this in the future. In both Ica and the other portfolio companies we are making intense efforts to improve the entire supply chain making it more effi- cient and to allow these efficiency gains to benefit consumers in the form of favorable prices. this is not necessarily the same as price reductions, but being able to maintain existing price levels while the underlying raw material prices rise.
Retail trade as prime mover
We are also convinced that the retail trade is inherently a key driving force for the entire economy. Sweden has industrial thinking at its base, which is understandable given our strong industrial tradition. By contrast, in the u.S. for example, con- sumption has long been seen as the prime mover of the entire economy and now when various stimulation packages are being introduced, the focus is on consumption. china is the best example of a major economy that has moved from a focus on production as the primary driving force to consump- tion. It is not until a strong home market has emerged that the real growth take-off will occur in the chinese economy.
as a leading development partner to the retail trade, per-
haps our approach to this matter is rather obvious and further
preSIDent’S coMMentS
accentuated by our focus on the end-consumer. We believe in the ability of the retail trade, consumption and consumers to contribute to economic development – and we also see this as a responsibility.
sustainable entrepreneurship
consumer confidence is totally decisive for long-term success.
Building up confidence is an arduous process and naturally it is important not to betray consumers’ confidence. at the end of 2007 such a betrayal occurred within Ica when a number of individual Ica retailers manipulated the date labeling on ground meat. as chairman of the Board of Ica aB, I immedi- ately made it very clear that this was totally unacceptable and that we cannot tolerate such behavior in our processes. one of the retailers has already left Ica, others will have their mem- bership reviewed once all the facts are available. We have not only made the rules of the game extremely clear but also established control procedures that will minimize the risk of anything similar happening again. I do not rule out the fact that confidence in Ica has been hurt, although so far there are no clear signs of this. In any case, this must not happen again.
We applaud the entrepreneurial spirit and the driving force to make money – and this always starts in the individual store where you meet the customer. But sustainable entrepre- neurship never puts personal gain before the interests of the customer. Just as hakon Invest does not place the results from a single quarter before long-term competitiveness and sustain-
able earnings, the individual retailer must understand the bal- ance between short and long term and always prioritize the interests of the consumer.
During 2007 we worked intensively with the acquisitions we have made and, apart from inkclub and the deals made by Forma, we did not make any new acquisitions. We ana- lyzed several companies but price expectations were gener- ally too high in an intensive boom period.
at the beginning of 2008, hakon Invest acquired a large shareholding in the listed company hemtex, the nordic region’s leading home textiles chain with a total of 207 stores in January 2008 – 144 in Sweden, 39 in Finland, 9 in Denmark, 12 in norway, 1 in estonia and 2 in poland. this is a retail segment where we believe we can provide exper- tise and therefore value to this investment. the intention is that in time we will take an active role and provide expertise for the company’s further development.
a weakened economy poses threats but at the same time there are a number of bright spots. one such bright spot is that we can enter a more active acquisition phase.
Solna, February 2008
claes-göran Sylvén President and CEO
« successfully building up and refining the toolbox in order to create customer-driven companies is one of the cornerstones of Hakon
Invest’s business model. another is to create
optimal conditions for entrepreneurship. »
VISIon, MISSIon, BuSIneSS concept, goalS anD StrategIeS
long-term values of retail entrepreneurs
vision
With its ownership in ICa aB as a base, Hakon Invest will be the leading development partner for retail companies in the nordic and Baltic regions.
Mission
From its origins and inspiration in the ICa concept, Hakon Invest will create opportunities for entrepreneurship, growth and profitability in retail operations through its financial capacity and extensive retail expertise.
Business concept
Hakon Invest makes long-term investments in the retail sector in the nordic region with good risk diversification and thus helps to ensure the long-term success of the ICa concept. shareholder value will be created through value growth in the portfolio companies combined with a good dividend yield, which will be achieved through active and responsible ownership.
Goals for the Hakon Invest Group
Operating objectives
for Hakon Invest Read more on page
◾ to establish and consolidate the position as a leading development partner for companies in the retail sector in Sweden, as a first step towards the vision of becoming a leading development partner in the
nordic and Baltic regions ...8–12
◾ to gradually build a portfolio of holdings
with a balanced risk ... 33
Operating objectives for ICA AB Read more on page
◾ to be the market leader in the countries
in which Ica aB is represented ... 40–43
◾ to increase revenues in the long term in each submarket at a faster rate
than total market growth ... 40–43
Financial targets for Hakon Invest Result 2007
◾ to provide a dividend of at least 50%
of the parent company’s profit ... 50.4 %
◾ to seek an equity/assets ratio for the
group of not less than 70% over time ... 94.4 %
◾ In each individual holding, the average total return on hakon Invest’s invested capital to exceed 15% during the
ownership period. ...n/a
◾ annual return from internal financial
management of at least 5% ...4 %
Financial targets for ICA AB Result 2007
◾ operating margin (eBIt) of 3.5–4.0%... 3.2 %
◾ return on equity of at least 14–16%
over a business cycle ...19.1 %
◾ an equity/assets ratio of 30–35% over time ... 32.4 %
◾ In the shareholder agreement, hakon Invest and ahold have undertaken to work to ensure a dividend of at least 40% of the
Ica group’s profit for the period. ... 50 %
VISIon, MISSIon, BuSIneSS concept, goalS anD StrategIeS
strategies
Balanced portfolio build-up hakon Invest works with a long-term approach to expand the investment portfolio, both with new investments and with add-on acquisitions to existing holdings.
Good risk diversification
to ensure that the total portfolio, in addition to Ica aB, has a balanced risk, hakon Invest invests in different types of business, of varying size, within the retail sector. risk diversification over time is also created through successive investments. We invest in companies with clear concepts and established operations, which keeps down the level of risk.
Active and responsible ownership hakon Invest will be an active owner and support the development and expansion of its portfolio companies. We feel very involved in the companies in which we invest. We want to have shared interests with the entrepreneurs in our portfolio companies and consider it an advantage if the previous owners remain in the company in some form.
Long-term ownership
the aim is a long-term approach to both port- folio build-up and the individual investments.
Ica aB is a “permanent” investment but other- wise hakon Invest’s investments do not have a set timescale.
From words to deeds
Investment in inkClub – a growth-oriented and profitable online retailer – has diversified and broadened our retail- oriented portfolio. Read more on pages 52–53.
Forma Publishing Group made two acquisitions which strengthen its market position within books and contract communication. Read more on pages 44–45.
Kjell & Company doubled its new store openings – 12 new stores were added in 2007. Read more on
pages 46–47.
Hemma’s organization is in place and ready to build profitable growth. We increased our holding in the chain from 49% to 60%. Read more on pages 48–49.
Cervera strengthened its management group and stream- lined its customer offering. Read more on pages 50–51.
ICA Sverige started up the new distribution center in helsingborg – an investment that provides sustained competitiveness. Read more on pages 13 and 40.
ICA Norge is starting to see effects on sales from the ongoing “take-off” program. a new norwegian retailer association was formed to promote a greater customer focus and efficiency in the stores. Read more on page 41.
Rimi Baltic has expanded fast and shows a strong sales growth. Read more on page 42.
Work on sustainable development resulted in a sustain-
ability policy and related guidelines. these clarify what
responsible ownership and sustainable value creation
mean for hakon Invest. Read more on pages 22–24.
operatIonS
hakon Invest has a long history within retailing. We are now using the knowledge and experience built up over the years to ensure the long-term success of our portfolio companies through active, responsible and long-term ownership. our geographic focus is the nordic and Baltic regions. the aim over time is to build up a portfolio of about ten companies.
Investment strategy
our investment focus today is on established retail compa- nies with clear concepts, strong entrepreneurship and posi- tive cash flows that are looking to take the next step in their development. these include:
◾ chains with wholly owned stores that need expertise and capital in order to expand or make add-on acquisitions, such as Kjell & company
◾ chains with retailer-owned stores or franchise stores facing new stages in their development, such as hemma and cervera
◾ companies with successful concepts that are ready to expand in new geographic markets and/or market segments, such as inkclub
hakon Invest’s strategy is to own a majority holding in the portfolio companies. Since the entrepreneurial spirit is a key factor for success, we are happy if the company’s founder and former owners stay on. In this way we acquire a shared agenda with those who run the company, which in turn cre- ates a strong commitment and good opportunities to earn money for all owners, including hakon Invest.
Development partner with entrepreneurial spirit
hakon Invest owns and develops companies in the retail sector.
through active and responsible ownership with a clear entrepreneurial spirit we help our portfolio companies to become winners over time.
Identification and selection
Companies that meet Hakon Invest’s investment criteria and which are judged to be attractive investment candidates are selected for an initial, general analysis.
assessment
the initial assessment stage includes visits to the company, interviews with management, discussions about the business plan, market analysis and an appraisal of the company’s present financial and business situation and opportunities.
negotiations
Discussions with the company’s owners on the terms of Hakon Invest’s possi- ble ownership are tangible and take place in stages so that the parties can assess the likelihood of a deal as early as possible. these discussions are formalized in legal documents such as a declaration of intent, shareholder agreement, new issue agreement and purchase agreement.
Due diligence
Following the initial assessment stage a legal and financial examination (due diligence) is performed by well-reputed consultants. When required, in-depth analyses are conducted by people in Hakon Invest’s network.
Investment
If the Board decides to complete the investment, a financing structure and business structure are prepared which are tailor-made for the specific situation. this then forms the base of Hakon Invest’s active ownership.
Investment process
Identification and selection Final due diligence Investment
assessment
negotiations
operatIonS
« our investment focus today is on established retail companies with clear concepts, strong entrepreneurship and positive cash flows
that are looking to take the next step in their development. »
anders Hallgren, Charlotte Hjorth and Charles Wade
In order to achieve a balanced risk profile in the portfolio outside the Ica holding we seek investments in different seg- ments of the retail sector and of varying size.
ICa as a platform
Ica’s business model is based on professionalism at every level and close contact with consumers. the model rests on the idea that clear owner incentives at every level lead over time to increased value creation and profitability throughout the entire business chain.
the Ica group has a common capital base and deci- sions on new store openings are made centrally. Many Ica retailers have another Ica retailer as their biggest competitor which creates healthy competitive pressure.
purchasing and logistics functions must always be the best in the market to ensure that they are the individual Ica retailer’s natural first choice. Ica retailers are self-employed and there is no contractual requirement to buy all products from Ica.
each individual Ica retailer has an average of some 50 dif- ferent suppliers, many of whom are local, for bread, vegeta- bles and fresh products. this healthy pressure on Ica’s pur- chasing and logistics functions ensures that competitiveness is
constantly in focus, something that everyone gains from. In this way both the Ica group and the individual stores maxi- mize their efficiency and profitability in the long term.
Food retail background provides strength
Its background in food retail is one of hakon Invest’s strengths.
competition in this market has been very intense for a long time. this is an important explanation for why the food retail sector has made such progress when it comes to developing
Johan Junehed
operatIonS
customer relations and making flows more efficient. other parts of the retail sector still have a lot to do in these areas, although some industry leaders are well out in front. Most retail companies started with sales and have not had oppor- tunities to invest in efficiency improvements for purchasing, warehousing and logistics.
the food retail business has been working for many years to increase its throughput, which is essential with a growing proportion of fresh products. now other sectors are also start- ing to shift from a seasonal approach to the product range to continuous renewal and adjustment of their assortment.
skills and entrepreneurship
hakon Invest possesses broad skills within finance, company management and structural planning. one key difference from other investors is our unique range of retail-oriented skills.
capital strength, retail expertise and a strong entrepre- neurial spirit, in both its own organization and in hakon Invest’s network, are our foremost competitive advantages.
We contribute with knowledge of logistics throughout the chain and an understanding of concepts, product range, categories, supply chain, and store network planning as well as how changing consumer behavior should be met.
hakon Invest’s network of competent and experienced people, who can be involved in the partner companies in
different ways, is a tremendous support when the portfolio companies need to sharpen and hone their concepts for the future. the base of the network is the over 1,500 Ica retail- ers throughout Sweden. they can assist with store openings in new locations and provide support after establishment as good neighbors and colleagues.
active ownership every day
our business concept includes contributing to growth in value and a good yield in the portfolio companies through active and responsible ownership. this means that we contribute to the companies’ development process throughout the entire investment period.
our ownership is exercised through active work on com- pany boards, with board representatives from hakon Invest or our network. We normally seek to be entrusted with the chairmanship. the network ensures board representation with business critical expertise in all portfolio companies.
We have close contact with the managements of the port- folio companies and function as a sounding-board, instigator and arranger of contacts.
tools for value creation
our aim is to contribute to sales growth, increased competitive- ness and improved profitability. long-term success in the retail
knowing the product range and suppliers knowing the customer
knowing the competition
right employees
Competitive advantages
sales growth
profitability
tools for value creation
◾ purchasing the right goods at the right price
◾ price and quality levels
◾ Choice of suppliers
◾ private labels
◾ own imports
◾ efficient management of distribution centers and logistics
◾ location of distribution centers
◾ stock and on-demand items
◾ low tied-up capital in stock
◾ Business location
◾ store environment
◾ Displays
◾ placement of goods
◾ Marketing in different media
◾ loyalty programs
◾ Complaints management
◾ Installation service
◾ exceeding expectations
◾ on-time deliveries
◾ effective staffing
◾ skilled and service-minded employees
value creation in practice
attractive customer offering
shareholder
value
operatIonS
« Capital strength, retail expertise and a strong entrepreneurial spirit, in both its
own organization and Hakon Invest’s network, are our foremost
competitive advantages. »
Marie-louise Genschou, pernilla linger, stein petter ski and Fredrik Hägglund
Britt-Marie olsson and Bertil tell Birgitta Wahlberg
sector requires a solid platform with an attractive customer offering, a strong concept and an efficient supply chain.
the components in our governance model are the same for all portfolio companies. the starting point is a clear holding plan where we have identified value-creating strategies, return targets and resource requirements. We also make sure that the portfolio companies work with a well thought-out business plan which turns key strategic objectives into reality thus creating lasting values. We follow up strategic choices and activities continuously.
our activities and efforts that create value in practice
vary between the different portfolio companies. they include
streamlining a customer offering and concept by ensuring
operatIonS
purchase of the right products, the right store environment, the right loyalty program and service-minded employees.
We provide knowledge of both customers and competitors in order to strengthen market position. By improving the effi- ciency of purchases, stock and logistics we contribute to sustained competitiveness and profitability.
Components in portfolio companies’ business plans
◾ corporate culture
◾ Strategic and business development
◾ Financial matters
◾ operational and financial targets
◾ reporting and control systems
our exit philosophy
With the exception of the holding in Ica aB, the portfolio com- panies will eventually be sold. exit alternatives are analyzed even before the investment is made when we draw up the hold- ing plan. unlike other companies with investment activities, hakon Invest has no fixed time horizon. We have a long-term approach to ownership; sometimes it takes time for retail opera- tions to be truly successful. the time to sell a portfolio company will be chosen carefully and this will be done in a manner that creates the best possible return for hakon Invest’s shareholders.
Claes-Göran sylvén and susanne eriksson
Johan Örengård and Göran Hesseborn
« With ownership of ICa aB as
a base, we will be the nordic
region’s leading development
partner for retail companies. »
VerKSaMheten
ICa aB
63,000 square meters, about the same size as ten soccer fields. ICa’s ultramodern and highly automated distribution center in långeberga, east of Helsingborg, is the most advanced food distribution center in northern europe.
T he distribution center, which has 600 employees, supplies goods to 390 ICA stores in southern Sweden every day. Frozen food deliveries extend all the way up to Värmland and cover some 700 stores.
“ICA’s sales are rising and we must prepare for large volumes. This new center ensures an efficient structure that will suffice for ten years or more. In this way we can be one step ahead of our competitors,” says Anders Torell, VP Logistics at ICA, and adds that the location in Helsingborg is optimal.
“Strategically it is totally correct. We are close to the motorway, port and railway and right in the center of the flow of imported goods from the continent.”
The distribution center has fresh products, frozen goods, non-perishables, fruit and vegetables. Handling of non-perishables, such as dried and canned food, is in prin- ciple wholly automated which allows very good control of order management and picking. Errors, breakages and shrinkage can be minimized. The food retail trade has experienced changed consumption patterns in recent years. Demand for fresh and frozen food has risen.
“The stores must carry a broader range and we must make sure we can supply these goods. This means having sufficient warehouse space but also a secure cold chain that guarantees high quality and a long shelf life,” says Anders Torell.
ICA has invested approximately SEK 1.1 billion in the Helsingborg facility which was opened in 2006. This is a lot of money but Anders Torell is convinced that the investment will pay off over time.
“We can coordinate transport more efficiently. In total this will lead to less runs, which will also provide environ- mental gains.”
Environmental aspects are central to these operations.
Among other things, energy will be saved by waste heat from the freezers being used to heat the rest of the build- ing. The light bulbs are low-energy, the electricity is eco- labeled and 97% of the packaging and other surplus material is recycled.
The center in Helsingborg is a major and important part of ICA’s focus on a new, Nordic distribution network and more efficient logistics.
“In line we this there are also plans for a new fresh
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aware consumer seizes power
Hakon Invest's main geographic markets
the positive trend within european retail continued in 2007.
the nordic and Baltic regions – hakon Invest’s main markets – performed very well helped along by an economic boom
and households’ increasingly strong private incomes.
In Sweden, retail noted a new record year. the good growth was also noted in norway and Finland, while the Danish market grew at a slightly slower rate.
In estonia, latvia and lithuania, the double-digit growth rate continued. growth slowed at the end of 2007, however, in pace with rising interest rates and more restrictive lending.
Driving forces within european retail
consumer purchasing power is the basic driving force for sales development within the retail sector. purchasing power depends in turn on the prevailing economic and interest rate situation, the labor market and the tax burden. how consum- ers allocate their purchasing power – to their homes, con- sumption and savings – depends among other things on expectations about the future.
the first signs of weaknesses in the american economy appeared in mid-2007. the u.S. housing market burst and the subsequent mortgage crisis also rocked the international credit markets. Despite this, the european economies devel- oped better than for many years. the growth rate exceeded the rate in the u.S. in 2007, something that has seldom occurred in modern times.
the positive trend during the year for the european econo- mies is attributable to an increasingly strong labor market which put unemployment at historically low levels. a strong contributory factor to the brightening in europe is the german economy where optimism is rising steadily.
Despite an increasingly strong economy and rising opti-
mism, consumption and growth within the retail sector for the major west european countries, such as germany and France, did not really gain momentum. Mediocre real wage develop- ment is the main restriction on household spending. Instead it is the former eastern bloc countries which, with strong domestic demand spurred on by rising incomes and easily accessible loans, continued to show very high growth rates.
nordic retailing also reached new record levels but with- out the Baltic countries’ high inflation and tendency to overheat.
societies and markets in perpetual motion
the changes occurring in the retail sector and the trends that are forming in the market are very much consumer-driven.
consumers’ values and behavior are affected in turn by demographic changes which often occur slowly. Behind rapid changes there is often an external catalyst that makes a certain trend take off or change direction.
the increasingly high proportion of elderly people is a demographic change of major significance for today’s con- sumption patterns. the elderly today are far better off than pre- vious generations and considerably more focused on experi- ences. they therefore choose to a greater extent to consume services rather than products. older consumers are also more demanding. they have purchased a wide variety of products and services throughout their lives. they attach great impor- tance to brands, a high level of service and good information while the advertising message is less important.
another example of demographic changes is the trend towards smaller households. Sweden, for example, is the european country with the highest number of single-person households. this places different demands on store format, product packaging and services compared with countries and cities with a larger proportion of nuclear families.
2007 was another strong retail year in the nordic and Baltic regions. aware con-
sumers with money to spend continued to drive the development of new offerings
and retail channels. a good knowledge of customers’ values, driving forces and
needs is possibly becoming even more important for successful retailing.
kjell & Company
a new kjell & Company store opens in täby, the 29th store so far.
Mikael Dahnelius, who is responsible for sales and new stores, is in stockholm for a few days to take part in the opening.
I don’t like to miss the opening of a new store. It’s one of the most enjoyable things I know, says Mikael Dahnelius.
There’s a lot that has to fit and Kjell & Company has acquired invaluable routines over the years. Particularly with regard to stock and logistics. The product range comprises 7,000 items and about 2,000 of them will be out in the store. The remaining 5,000 go to the backroom.
“We started at lunchtime yesterday. We will be ready the day after tomorrow, when everything will be in place.
We have learnt some tricks. For example, the items are packed in our big new distribution center in Malmö in the same order in which we then unpack them in the store.”
His father Kjell founded the chain and the first store opened in 1990 in the Triangeln shopping center in Malmö. Mikael, then only 17, joined the company together with his older brothers Fredrik and Markus.
Not so long ago, Kjell & Company’s target was 40 stores by 2011. 12 stores were opened in 2007, one a month. This rate will continue in 2008.
“Then we will have already reached 41 stores. So the target now is 60 stores by 2010 at the latest.”
Kjell & Company’s business concept is to offer the most sought-after products within electronics accessories.
“We don’t just carry accessories to popular new prod- ucts, but also to older and more unusual ones. Things that other stores ran out of a long time ago.”
The bulging catalogue is a dream for the home elec- tronics enthusiast. It really does have everything – and that little bit more. Kjell & Company is also keen that more people than male technology enthusiasts in the 25–45 age group should discover the company.
“We want everyone to feel at home with us. In Skåne, everyone comes here – children, young people, women and men in all age groups. So far it’s not like that in the Stockholm area and our challenge is to broaden the target group here as well.”
At Kjell & Company no customer is made to look fool- ish. Knowledge for everyone is the starting point. This is why there are “Kjell facts” brief texts in the catalog and on the website that describe basic technical terms for people who need to know more. Service-minded staff with the right attitude are an even more important asset.
“Good employees are essential for success. Since
fall 2007 all new employees attend a two-week study
greater ethnic diversity is also a trend that creates new opportunities for retailers. In many countries immigrant house- holds account for the greatest population growth and it is within this group that purchasing power is increasing most.
the major technological breakthroughs over the last decade are among the key driving forces within retail both for consumers and companies. In addition to the internet becom- ing a natural outlet, retail companies are increasingly using business support systems. geopolitical events and changed social attitudes, such as terrorism and global warming, are other examples of external factors that act as catalysts and can radically change consumer behavior and accelerate development in a certain direction.
Consumers show the way
consumer behavior and demand do not differ to any great extent between the nordic countries. the Baltic retail markets, particularly estonia, have also moved fast in the same direc- tion as the rest of Western europe in recent years. today, more or less the same trends characterize retailing through- out the nordic region and, lagging slightly behind, the Baltic countries.
one of the clearest examples of general consumer-driven trends is the polarization of the retail market in recent years where the middle segment is fading fast. the previously so easily identified average consumer no longer exists. one and the same customer can in certain situations look for luxury and quality and in others prioritize low prices. this has not
only led to an increased need for specialization, where play- ers choose a premium or low-price focus, but has also driven the development of value-focused products.
today many products and services are designed to offer an experience and not merely a function. consumers’ demands are increasingly shifting from goods to services, from volume to individualization, from gadgets to solutions, from products to experiences, and so on. this trend is very much driven by younger generations and will therefore become increasingly important in the future.
Proximity and simplicity
the time aspect has become increasingly important for today’s consumer and is at the same time something of a paradox.
Despite the fact that many people spend less time at work and more people are using household services, many people are experiencing a growing “shortage of time”. one explana- tion is the changed way leisure is planned to include more and more activities. this has made proximity, simplicity and total solutions key criteria for today’s consumer.
the retail trade meets these needs among other ways by greater personalization, investments in convenience stores and increased flexibility by offering sales in many channels.
the aware and responsible consumer is a general desig- nation for some of the most recent and clearest trends within retail. Increased consumer awareness of both environmental and climate issues as well as of health and ecology really gained momentum in 2007. the same applied to interest in
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a wider social responsibility and demands for the unique and genuine.
What these trends will mean for the retail trade remains to be seen. It is clear, however, that consumer behavior is driv- ing a growing part of retail development and that this behav- ior is constantly changing, which places high demands on retail players.
Multi-channel retailing
Interest in multi-channel retailing increased in 2007. the importance of the internet as a channel for purchasing, infor- mation and marketing is now having a growing influence on consumer behavior, which places new demands on tradi- tional stores and on trade as a whole.
retail players are beginning, regardless of sector, to examine the advantages of offering online shopping as one of several sales channels. today’s consumer wants to choose through which channel a product or service is purchased, preferences that can vary with each purchase.
Multi-channel retailing has matured as a phenomenon and today focuses to a greater extent on offering the customer a bigger perceived “value”. this may take the form of a different product range, price level or just an opportunity to choose how and where a purchase in made and the item is delivered.
Shopping via the internet and picking up in the store are becoming increasingly popular since the consumer avoids delivery charges and does not have to wait for the product to be delivered. For the retailer, multi-channel sales provide opportunities for both significant upselling, since the customer
is offered and accepts a product in a higher price category, as well as add-on sales as a result of the customer’s purchase being complemented with accessories. Market surveys in the u.S. show that 40% of customers who collect a product in a store make a complementary purchase. they also show that consumers who shop in several channels spend on average 14% more than those who only shop via one channel.
the sales growth rate within online retailing remains high compared with traditional retailing although the rate of increase slowed recently. a downward trend is a natural con- sequence of a maturing industry. the maturity level of online shopping is illustrated, among other things, by the fact that american online clothes sales have overtaken sales of comput- ers and home electronics. Development in Sweden shows sim- ilar tendencies. according to the Swedish retail Institute, huI, in its barometer for the third quarter of 2007 clothes were the third most sold category of goods after books and cDs/DVDs.
Price trends
For the retail sector as a whole 2007 was a year with nega- tive price development, primarily due to substantial price reductions within consumer electronics. In most industries prices were raised, however with the sharpest upturns within gold, building materials and clothes.
the food retail sector also noted rising prices which represents a trend reversal. rising demand from china, bad harvests and increased production of biofuel contributed to rising commodity prices which in turn affected food prices to a growing extent during the year. overall, food prices rose
–3 5 15 25 35
0
latvia
Bulgaria estonia cyprus u.K.
lithuania romania Denmark Belgium
hungar y
czech republic
Slovenia austria
turkey Spain Malta Slovakia poland
eurozone Sweden
greece Italy
Finland
luxembourg germany Iceland France
netherlands portugal
norway
Price trend for food in the eU
■ Food price increases 2005–2007
■ price level for food in December 2007 compared with December 2006
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by 5.1% during the year which represents a faster rate than inflation in 2007 which amounted to 3.5%. price increases mainly applied to dairy products, fruit and vegetables as well as bread and other grain products. prices of chemical techni- cal products and tobacco also rose.
the development of the u.S. dollar in relation to the Swedish krona and other european currencies is interesting from a price development aspect. today, the retail trade imports large parts of its product range from countries whose currencies are linked to the dollar, and a weakening of the u.S. dollar should in theory lead to lower consumer prices.
the trend, however, does not clearly point in that direction.
historical comparisons between changes in exchange rates and consumer prices indicate instead that exchange rate differences are more inclined to directly hit retailers’ margins.
Despite recent price increases, Sweden is among the european countries that has seen the lowest increases in food prices over the last two years. countries in eastern europe and the Baltic area have had the biggest price increases and at the same time shown a very strong sales trend. For example, food prices in latvia have risen by almost 35% since 2005.
Challenges facing retail
the importance of the internet for retailing is increasing fast.
It will therefore be even more important for companies to understand how consumers wish to shop in the future, in order to identify an overall strategy for how they can be met in all sales channels. exactly where the customer chooses to shop is less important than finding a smooth interplay between store and internet.
During 2007 the retail trade launched a number of initia- tives related to the environment and “responsible consumption”
in response to consumers’ growing interest in these matters.
to avoid losing the confidence of increasingly knowledgeable and aware consumers, it is very important to deliver in accor- dance with all commitments made relating to environmental and social responsibility. this places even greater demands on control mechanisms throughout the business.
Within some retail segments price pressure has gone so far that it is no longer a competitive advantage, it is a matter of survival. For players in these segments it will therefore be increasingly important to add other values to their brand in order to attract the consumer. employees and the service they provide, how customers are treated, and sales skills will thus become even more important competitive factors in future.
the homogenous average consumer does not exist.
Instead consumers are very much looking for the individual and unique. Despite increased customer segmentation and customization it is becoming more difficult to meet all unique
needs. one of the major future challenges for retail will there- fore be to try to create unique experiences for every customer.
Success will depend on the ability to think along new lines and develop new cross-border concepts.
Retail markets in the nordic and Baltic regions in 2007 economic conditions in the nordic and Baltic regions were favorable from a retail perspective. all countries were at the top, or close to the top, of an economic boom, which was reflected in optimistic households, strong private economies and new record levels for the retail trade.
From a more long-term perspective the nordic retail mar- ket as a whole showed very strong development compared with the rest of europe, apart from the powerful growth in the former eastern bloc. Development in each individual country was relatively similar. Sweden, however, has shown the stron- gest growth since the beginning of 2004, while the Danish retail trade has weakened and developed at a slower rate.
Development in the individual industry segments is similar in the nordic countries. the exception is food retail in Denmark, which showed lower growth than in the other countries.
Within consumer durables, the nordic consumers’ increased interest in the home led to strong growth figures for segments within homeware, hardware and building materials.
In the Baltic countries, the strong growth in homeware and electronics was only exceeded by textile and clothes sales. the growth rate in these segments was 30–40% which was considerably higher than the nordic countries.
Development in Sweden
Despite a very strong 2006, growth continued in the retail sector during 2007 although at a slightly slower rate.
Retail trade development in the nordic region, excluding Iceland
Source: eurostat 110 120 130 140 150 160
2004 2005 2006 2007
Sweden Norway Finland Denmark
TrE buTIKSKoNCEPT
• Rimi Supermarket finns där kunderna bor och arbetar, här gör man sina vardagsinköp.
• Rimi Hypermarket och Rimi Compact Hypermarket är stormarknader där man kan handla allt på ett ställe, både livsmedel och andra specialvaror. rimi Compact Hypermarket är något mindre till formatet.
• Supernetto och Säästumarket är lågprisbutiker. Säästu
market finns endast i Estland, Supernetto finns i Lettland och Litauen.
Baltic region
the smell of freshly baked bread greets us when we enter one of rimi Baltic’s hypermarkets in riga. the store is light, spacious and very well organized. the goods are placed in care-
fully designed “islands”
and the orderliness on the shelves is impressive.
T he fruit and vegetable counters are an explosion of color where every apple and tomato is placed exactly right. The product range at rimi Hyper- markets is broad. In addition to food there is also a wide selection of other goods such as clothes, books, house- hold utensils and makeup. The signs say LAbA CENA which means special offers.
The smell comes from the store’s own bakery. A woman in a checked apron is busy baking cinnamon buns. The bakery is part of the 30-meter long service counter. Here there is meat, cheese, fish, shellfish and ready-made meals prepared in the store’s own kitchen. Live carp are swim- ming in a large tank. Carp is extremely popular, particu- larly around Christmas and New Years.
Shopping in a food store and not in “the open market”
is a relatively new phenomenon in riga. This store opened two years ago and is popular. Approximately 50,000 cus- tomers shop here every week. The reason for frequent shopping is simple. In riga the apartments are often small with limited space to store food.
rimi Hypermarkets is one of the three store concepts built up by rimi baltic during its almost ten years in the region. Today there are a total of 215 stores and the brand is strong.
The President of rimi baltic, which is the parent com- pany for rimi Latvia, rimi Lietuva and rimi Eeesti, is the Portuguese Antonio Soares. He has every reason to be pleased with rimi baltic’s development. During 2007, store sales rose 19% to approximately Eur 1,156 M.
“When I became president in 2002, I realized that the potential in this market was enormous. but I could never have dreamt that it would be so successful,” he says.
Part of this success is due to a determination to ensure that the stores comply with the different basic concepts.
Adapting product range to location, customer base and specific wishes also played their part. but rimi baltic’s good results are not only about thoroughness, planning and good marketing.
“My aim is to create ‘the perfect store’. This means
that the store must be well-arranged, neat and have clear
price information. but also that it should convey enjoy-
ment and warmth purely visually, through light, color
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In total, the retail trade increased its sales by 6.5% in current prices, making 2007 the second-best year since the Swedish retail Institute, huI, started its measurements in 1990.
consumer durables rose by 7.4% and food retail was up 5.2%, measured in current prices. price pressure, primarily within electronics means, however, that volume growth for consumer durables was considerably higher and amounted to 10.2%. the trend in the food retail sector was the opposite – excluding price increases growth was 2.7%.
at sector level the book and paper trade and the jewelry trade were the major losers. these two segments were the only ones to lose volume compared with 2006. the contin- ued keen interest in home electronics, including flat screen televisions, put this sector at the top of the growth league with a volume growth of a full 24.2%. considerable price pressure, however, limited growth in current prices to 5.4%.
the forecast for 2008 is generally positive. Interest rate trends and the situation in the housing market will certainly remain uncertain factors, but households’ disposable income
is still expected to rise, something that benefits both the retail and service sectors. huI forecasts, among other things, that the total retail trade will grow by 5.0% in current prices, of which consumer durables by 5.5% and food retail by a con- tinued strong 4.5% 1) .
Development for interest rates and the housing market will probably affect consumption choices in the future. capital- intensive sectors, such as furniture, building materials and home electronics, can expect tougher times ahead while wage- based consumption of clothes, shoes and food is expected to continue to show good development.
Development in Norway
the norwegian economy and retail sector have shown strong development for very many years. this trend continued in 2007 when the total retail trade increased by over 8% in current prices. the strongest volume growth was noted in the It and home electronics, clothes, recreation and books segments.
Consumer trends
Polarization
goods and services that are neither luxury nor low-price do not attract and the average con- sumer is a dying breed. one and the same consumer can in one instant look for low-price and in the next buy goods in the premium and luxury segment.
Time
a growing number of people are finding that time is not sufficient and whether this is due to less leisure time or more activities is irrelevant. It is clear that consumers are seeking solutions and concepts that offer greater flexibility and effi- ciency in their everyday lives.
Control
consumers are seeking greater control over their purchasing situation. thanks to the internet it is possible to be well familiar with the functionality and price of a product which strengthens the bar- gaining position against the seller. customers are increasingly controlling when and how they buy – the store is not always the obvious channel.
Well-being
the search for increased well-being in all forms is spreading in today’s society. the older the consumer becomes, the greater the demand for products and services that increase well-being.
Awareness
environmental and health aspects combined with greater awareness and responsible consumption are placing new demands on retailers. the extent to which the aware consumer will reduce his consumption and/or choose quality and durabil- ity before “use and throw” items remains to be seen.
Individualization
consumers are demanding increasingly indi- vidualized goods and service and always looking for the unique. Interest in being involved in the design of clothes or shoes or finding that unique accessory in a secondhand store is growing.
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