HL Display
annual report 2007
Contents
3 the year in brief 4 this is HL Display 6 statement by the Ceo
8 Business concept, goals 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 23 HL Display’s environmental activities
25 support processes 28 Customer case study 30 the share
32 Risk and sensitivity analysis 33 nine year summary 33 Definitions 34 Directors’ Report
the Group
36 Consolidated income statements 37 Consolidated balance sheets
38 Consolidated statement of changes in equity 38 Consolidated cash flow statements
the 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 Work of the Board of Directors during 2007 64 Board of Directors
65 senior executives 66 History
67 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.
tHe yeAR In BRIeF
the year in brief
net sales increased to MseK 1,571 (1,448).
Profit before tax was MseK 155 (92).
earnings per share after tax amounted to seK 13.95 (7.87).
equity per share amounted to seK 61.04 (50.10) as of 31 December 2007.
new long term financial goals: organic growth 5-10 percent and eBItA-margin of at least 12 percent.
Acquisitions of Display team and sooni.
Acquisitions during 2007
HL Display made two acquisitions during 2007, both in Finland.
in February HL Display acquired Display team, a leading supplier of shelf merchan- dising systems. the systems are primarily aimed at the Brand manufacturer customer segment. the acquisition strengthens HL Display’s offerings to Brand manufac- turers and is in line with the company’s increased efforts towards this customer segment. Display team’s net sales amounted to approximately MseK 60 for 2006.
in May HL Display acquired the business in sooni, a company that for the past 15 years has acted as HL Display’s distributor in Finland. the acquisition provides HL Display with an opportunity to strengthen relations with customers in the Finnish market. net sales in the acquired business amounted to approximately MseK 35 for 2006.
slimline™ is HL Display’s latest shelf edge strip, which makes it easy to place price labels next to each product.
Key ratios 2007 2006 2005
net sales, MseK 1,571 1,448 1,285
operating profit, MseK 161 107 63
profit before tax, MseK 155 92 62
profit after tax, MseK 108 62 35
earnings per share, seK 13.95 7.87 4.59
eBita-margin, % 10.3 7.4 4.9
eBt-margin, % 9.8 6.4 4.8
equity/assets, % 53.3 44.2 45.0
equity per share, seK 61.04 50.10 44.52
average number of employees 968 952 933
For key ratio definitions, refer to page 33.
tHIs Is HL DIsPLAy
this is HL Display
HL Display’s markets
the company has 31 sales companies in 30 countries in Western and eastern europe, and asia. the five largest markets are found in France, uK, sweden, russia and norway. Distributors are used in a further 15 countries.
HL Display’s customers
HL Display primarily aims at three customer segments:
– Food retail – non-food retail – Brand manufacturers
HL Display’s offerings To food and non-food retail:
optishop
– products and solutions that present goods to consumers in an attractive manner.
Well organised product display means optimal utilisation of shelf space which stimulates the consumer to purchase.
– products and solutions that provide the consumer with all necessary purchasing information and helps them to find items easily in the store.
To brand manufacturers:
Brandman
– products and solutions that ensure that brand manufacturers are able to exploit their space on store shelves in the most advantageous manner.
– products and solutions for merchandis- ing the brand manufacturer’s products in parts of the store other than the shelves, for example on floor stands.
some of HL Display’s largest customers Food retail Brand manufacturers ahold (incl iCa)
auchan Carrefour Casino Champion intermarché Metro systeme u tesco Wal-Mart (asDa)
Bat Danone Colgate Kraft L’oreal Masterfoods nestlé philip Morris procter & Gamble unilever
non-food retail Decathlon DsG retail Ltd iKea Müller sales Companies
austria Belgium China (Hong Kong) China (shanghai) Czech republic Finland France Germany Great Britain Hungary india indonesia Latvia Malaysia netherlands norway
poland romania russia serbia singapore slovakia slovenia spain south Korea sweden switzerland taiwan thailand turkey ukraine
Distributors australia Bulgaria Canada Denmark estonia Greece iceland ireland
israel italy Kazakhstan Lithuania new Zealand portugal
usa Net sales MSEK
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800
2007 2006 2005 2004 2003 1,129
1,249 1,285 1,448
1,571
Operating profit MSEK
-20 0 20 40 60 80 100 120 140 160 180
2007 2006 2005 2004 2003
-4 108
63 107
161
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 major supplier of products and solutions to brand manufacturers
for product display on shelves and in other parts of stores. HL Display was founded
in 1954. the company’s shares were listed in 1993 and are currently quoted on the
oMX nordic exchange’s small Cap list.
tHIs Is HL DIsPLAy
Benefits of HL Display solutions For food and non-food retail:
– Creates more clearly defined in-store communications which means that stores avoid lost sales due to consumers not locating the relevant goods, or their price, quickly enough.
– Displays goods in a manner that enables consumers to find all information necessary, as well as stimulating them to buy.
– streamlines activities in the stores which creates cost savings. one example is automatic forward feeding of products which decreases the time spent keeping the shelves in good order as well as speeding up the refilling process.
For brand manufacturers:
– Creates attractive merchandising that inspires the consumer to purchase and is easy to maintain.
– enables the best possible exploitation of shelf space available.
Average number of employees
900 920 940 960 980 1,000
2007 2006 2005 2004 2003
975 967
933 952
968
The Nordic countries 356 Western Europe 734 Eastern Europe 344 Asia and Australia 118 North America 19 Net sales per region MSEK
EBITA-margin %
-2 0 2 4 6 8 10 12 14
2007 2006 2005 2004 2003
9 Goal 12%
5 7
10
-1
HL Display’s production plants
sweden (four factories of which one is jointly owned)
uK (one factory) China (one factory)
usa (one factory, jointly owned)
HL Display’s solutions facilitate re-merchandising on the shelves.
stAteMent By tHe Ceo
and printing of plastic. other production is outsourced to sub-contractors in for example the Czech republic and poland.
For example, at the plant in Falun we have outsourced 20 percent of the production to sub-contractors. at the same time, we are increasing investments in Falun in order to become even more efficient within printing.
the plant in suzhou, China, has been in operation for a little over a year and has been extremely successful. therefore, we have expanded the operation with addi- tional production lines. in total, there are now six extrusion lines and three injection- moulding lines in operation in suzhou.
We are also planning to start a produc- tion facility in russia for the russian mar- ket. this should mean that we could avoid import customs, and through that, further strengthen our competitive power in russia.
Profitable environmental work
one area that we are actively working with right now is the recycling of waste materials from our production. the goal is to recycle all materials. this is important for two rea- sons. the first is that the majority of our environmental impact comes from waste materials. secondly, an increased degree of recycling will create cost savings, espe- cially in view of the prevailing high cost of raw materials.
the plant in suzhou has come a long way in this work and all waste materials are reused. they are used in our own produc- tion or sold to other producers.
this is part of our increased environmen- tal efforts that will be a prioritised area for 2008. We are currently in the process of creating an environmental chart to inform customers about our approach, including long-term goals, choice of materials and recycling of old products. We will also initiate studies together with selected customers to evaluate procedures for a more environ- mentally sustainable cooperation.
through the efficiency improvements that have been carried out at the plants, we have been able to counteract the negative profit effects of high raw material prices.
However, there are substantial price differ- ences for raw materials between europe and asia, which means that we will increase
Continued profit
improvement for HL Display
During 2007, we have had the pleasure of seeing a continued profit improvement for HL Display. operating profit totalled MseK 161, a 50-percent increase compared to last year. there are two primary reasons for this development. Firstly, we continue to achieve noticeable profit effects from pro- duction rationalisation. increased speciali- sation and automation combined with out- sourcing of non-core production means that we are increasing our overall production efficiency. secondly, we have been suc- cessful in reducing operating expenses in relation to net sales. although there remains work to be done, a pronounced focus on costs in the sales companies and the parent company has led to improved resource utilisation throughout the group.
sales increased by 8 percent during the year to MseK 1,571 and organic growth was 4 percent. the remaining 4 percent comes from the acquired operations in
Display team and sooni. i am satisfied with sales growth in view of the fact that we car- ried out major reorganisations in the sales companies in Germany and Great Britain during the year; two of our larger markets.
the actions were mainly directed towards re-establishing stable profitability in these sales companies and meant that growth had to temporarily take a backseat, which was in accordance with the plan. now, we have the organisations in place to take advantage of the potential that exists in these markets in a better way.
Growth markets increasingly more important in growth markets such as russia and asia, growth is also this year at very high levels. We are also showing strong growth in certain mature markets such as norway and sweden. in norway, growth totalled 33 percent for the year.
the increases in sales that we have expe- rienced in the growth markets during recent years means that their importance to the group’s total sales and profits is increasing.
this is positive since it contributes to equal- ising the differences in turnover between the regions, where the nordic region and Western europe currently account for the largest percentage. through that, we will become less sensitive to market develop- ments in individual regions.
at the same time, risks in these markets are somewhat higher. to reduce these risks we are working to ensure that we have a high level of competence among personnel and that the procedures and structures are the best in the entire group. We also hedge important trade currencies such as euro, British pounds, and the singapore dollar.
Production
Gross margin increased during the year to 47 percent (46 percent) despite the fact that raw material prices are still at a high level. the rea- son is, as i mentioned earlier, that we have achieved an additional positive impact on profit as a result of our comprehensive ration- alisation work in production in recent years.
We are continuing with the specialisa- tion of our production to become even stronger within our prioritised production technologies, extrusion, injection moulding,
through the acquisition of Display team,HL Display has reinforced its offering with the established and successful Brandman range. this widens the company’s offering to the brand manufacturers, which is a prioritised customer segment for HL Display.
stAteMent By tHe Ceo
the percentage of materials that are pur- chased from asia.
Focus on profitability
an important part of the work during the year has been to turn the profitability trend around in the sales companies that showed a loss previous years. We have managed to take all of these companies very close to break-even for 2007, some are even report- ing small profits. the work is now continuing to create conditions for profitability in line with the group as a whole.
another important area to increase prof- itability involves centralising the sales com- panies’ functions for warehousing and administration. this is a central part in our new logistics structure, which is based on service centres located in strategic places around the world. today, we have a service centre for Western europe in France, a serv- ice centre for asia in singapore and a serv- ice centre for the nordic and Baltic regions in sweden. the service centre in sweden is located in Falkenberg along with a global centre for the products that the group pur- chases. analysis and preparation work is underway for establishing service centre for central and eastern europe. this work is highly prioritised since it will not only result in cost reductions but also create a struc- ture that will support continued growth.
successful acquisitions
the two acquisitions that were carried out in Finland during the year are now fully inte- grated in the group, and with hindsight we can say that the work has been extremely successful. through the acquisition of Display team, our offer to the customer segment, brand manufacturers, was strengthened, a segment where we assess future potential to be very good. the prod- ucts have been well received, both by our sales companies and our customers. sales of Display team’s products have increased by approximately 30 percent compared with how things looked before we acquired the company, which illustrates the strength of our global sales organisation.
We also acquired our Finnish distributor, sooni, during the year. together with parts of Display team, they now make up HL Display suomi, an operation that has positively contributed to the group’s profits from the very beginning.
new financial goals
in the interim report for the period, January- september 2007, the board communicated
new financial goals for HL Display. the financial goal was previously an eBt-margin of 10 percent. since the majority of public companies today are measured at the eBita-level, the board decided to change to an eBita-based goal. at the same time, the goal was raised, to an eBita-margin of 12 percent. our profit for 2007 corresponds to an eBt-margin of 9.8 percent and an eBita- margin of 10.3 percent.
in addition, the board decided to reintro- duce a growth goal for HL Display. the goal is organic growth of between 5 and 10 percent.
How are we going to work to achieve the goals?
in recent years we have primarily concen- trated on rationalisation measures in pro- duction to ensure a good gross margin, and also efficiency measures in the rest of the organisation to reduce operating expenses. this has been totally necessary to achieve profitability that is close to our long-term profitability goals. We will con- tinue our rationalisation work in production to become even more efficient. operating expenses have decreased substantially in relation to net sales, but we believe that there are additional savings to be made.
During 2007 we had quite a large amount on non-recurring expenses, a consequence of out sourcing production and moving ware- houses. We estimate that these non-recurring expenses will decrease during the next year.
We will now complement our efficiency work with actions that can create conditions
for increased growth. We shall strengthen our sales work, in part by improving our work- ing methods and procedures, and in part through continued geographic expansion.
We shall also direct our efforts within product development towards increased innovation which is central in creating addi- tional growth. We are currently planning several major product launches for 2008.
today, we are investing more than anyone in the industry in development and shall retain our position as an innovator and trendsetter. at the same time, it is impor- tant that product development provides visible results. We have a very strong market focus in development and place distinct requirements. those products that we invest in shall have support among our customers and the final price shall be competitive.
as a complement to this, we plan to continue strengthening our range and our market presence through acquisitions.
i would like to take this opportunity to thank all employees who have worked so hard to implement the changes and achieve results in 2007. their continued commit- ment is the single-most important factor in enabling us to successfully be able to develop the operation and reach our financial goals.
stockholm February, 2008
Gérard Dubuy, Managing Director and Ceo
Comments regarding the new profitability goal and goal achievement HL Display has had a financial goal of an eBt-margin (earnings before taxes) of 10 percent for some time now. since the majority of public companies are currently measured at the eBita-level, the board of HL Display has decided that henceforth, the profitability goal will be set at an eBita-level.
During 2007, the eBt-margin totalled 9.8 percent, and the eBita-margin 10.3 percent. this means that the company now delivers results on par with the previous profitability goal. therefore, the board has decided, parallel with changing the meas- urement point to the eBita-level, to raise the goal to an eBita-margin of 12 percent.
the single most important reason for the improved profit margin in 2007 is the com- pany’s successful work with reducing oper- ating expenses in relation to net sales.
this, in combination with good efficiency in production and sales growth of 8 percent, has created conditions for increased profits.
BusIness ConCePt, GoALs AnD stRAteGIes
new financial goals for HL Display
Growth with profitability is one of the cornerstones in HL Display’s operation.
In recent years, the company’s work has clearly been focused on creating and improving profitability in the operation. today, HL Display is characterised by a higher level of cost-efficiency than before and the profitability focus will be complemented by measures to facilitate strengthened growth.
Business concept
HL Display’s business concept is to increase its customers’ profitability by offering the retail sector and brand manufacturers cost- efficient products and solutions for in-store communication and merchandising. Focus is to make the products and solutions adap- tive to the customers’ specific needs.
new financial goals
in connection with the interim report for the period, January-september 2007, HL Display presented new, long-term finan- cial goals for the group. However, the com- prehensive business objective remains unchanged. HL Display shall be a market- leading growth company with good profit- ability and value growth for shareholders.
profitability shall be prioritised.
– the new profitability goal is an eBita- margin (earnings before interest, taxes and amortizations) of at least 12 percent.
– the new growth goal is an organic growth of between 5-10 percent.
EBITA-margin %
-2 0 2 4 6 8 10 12 14
2007 2006 2005 2004 2003
9 Goal 12%
5 7
10
-1 EBT-margin 1) %
-1 0 1 2 3 4 5 6 7 8 9 10
2007 2006 2005 2004 2003
-1
5 Goal 10%
6 10
7
Organic growth %
-4 -2 0 2 4 6 8 10 12 14
2007 2006 2005 2004 2003
11 Goal for organic
growth 5-10%
Acquisition Organic growth 3
13
8
-2
HL Display’s long-term goals With Jegab, price information can be displayed
in a simple manner next to the products in the refrigerated cabinets.
BusIness ConCePt, GoALs AnD stRAteGIes
prerequisites for achieving the profitability goal
HL Display is actively working with three parameters in order to achieve its profitability goal – gross margin, operating expenses and sales growth. the collective effects of sales growth, maintained/
in creased gross margin and further reduced operating expenses is what should make it possible for HL Display to achieve the profitability goal.
Gross margin – in recent years, HL Display
has carried out comprehensive measures to make production more efficient – an effort that will continue in the future. With more efficient production and reduced fixed pro- duction costs, the possibility to withstand price increases in raw materials is created, and makes the company less sensitive during periods where there is a weaker market climate. For example, the measures of recent years have resulted in an improved gross margin despite significant price in creases in raw materials.
Operating expenses – HL Display has
actively worked to improve resource utilisa- tion in order to reduce operating expenses.
this work will be strengthened. one exam- ple of measures to reduce operating expenses is the logistics centres where administration and warehousing are com- bined for several sales companies. today, such centres are located in singapore, France and sweden. these will be complemented with logistics centres for the countries in central and eastern europe. the company’s policy is that operating expenses are allowed to increase by a maximum of 50 percent of the sales growth.
Sales growth – HL Display’s goal is to
grow organically by 5-10 percent per year.
in addition, sales growth can also be achieved through acquisitions.
Efficiency measures in production – maintained/
improved gross margin
Efficiency measures in the operation – reduced operating expenses
Sales growth Goal for organic growth:
5-10 percent/year
Improved EBITA-margin Goal: 12 percent Reinforced
sales focus
Product development
IT
strategies
With the aim of achieving the group’s financial goals, HL Display operates based on the following strategies.
HL Display shall:
– focus on the company’s core processes and products
– be perceived as a natural cooperative partner by the world’s leading retail companies and brand manufacturers – focus on design and innovation for the
purpose of setting new standards
– continually make the organisation more efficient and adapt it in accordance with the market’s requirements and needs – preserve the corporate culture and its
focus on profitable growth
– actively investigate the possibilities to strengthen offers and market position
through acquisitions. »
Operating expenses, excluding freight, in relation to net sales %
0 5 10 15 20 25 30 35 40 45
2007 2006 2005 2004 2003
39.2
34.3 35.4 33.5 31.5
the shelf divider system optimal™ with automatic pusher or gravity feed system ensures that the shelves always appear attractive and properly merchandised.
BusIness ConCePt, GoALs AnD stRAteGIes
outlook for 2008
For 2008 the organic growth is expected to reach the interval of 5-10 percent which is the company’s long-term goal. Like in latest years, profitability will be prioritized.
Further cost reduction is planned.
HL Display plans to strengthen the company’s offering and market position through further acquisitions. a detailed forecast will, as usual, be presented in the nine-month interim report.
Follow-up on 2007 and focus for 2008
in the annual report for 2006, HL Display reported a number of focus areas for 2007.
in the table below, a follow-up of these is given as well as a description of how the work will be further developed in 2008.
Focus areas for 2007 Result 2007 Focus areas for 2008
intensified product range evaluation with the aim of reinforcing the positive effects achieved in 2006. a second phase of product range ration- alisation was initiated on January 1, 2007. the measures are expected to have effect on profits in the second quarter of 2007 at the earliest.
phase two of the product range rationalisation has been implemented and has provided the desired result effects. the greatest benefit has been created in production. Larger order sizes and fewer retoolings have meant that HL Display has freed-up production capacity despite increased volumes.
the work with the product range is today firmly anchored in the organisation and will be a natural component in the operations.
Continued efforts to limit operating expenses throughout the Group and to ensure best possible resource utilisation. in addition, HL Display will further increase focus on profitability issues in sales companies that are currently making a loss. the aim is to at least reach break even in these companies in 2007.
the work with limiting operating expenses has pro- vided the expected result effects. strengthened work with profitability in the sales companies that showed a loss last year has had an obvious effect. these com- panies are now close to break-even, some are even reporting profits.
the work with operating expenses will be strengthened. the goal is that the operating expenses, excluding freight, in time should be below 30 percent of net sales.
Continued efforts to evaluate and streamline the sales process and the sales companies.
a new CrM-system is being implemented to improve customer relations and allow cost savings through more efficient routines. in addition, a sales Manager has been appointed to further strengthen the execution and follow-up of the sales work.
administration and warehousing is currently being increasingly centralised compared to the way things were previously, which is concentrating the sales companies’ work with sales. the CrM-system is implemented gradually and is currently in operation in six companies.
the implementation of the CrM system will continue according to plan.
Continued work with production development concerning technology and materials, as well as relocation and outsourcing opportunities.
HL Display will continue to invest in the Chinese factory in order to increase production capacity.
the plant in China has proven to be very efficient.
therefore, new investments in production capacity are being carried out. new sub-contractors have been added in russia and the slovak republic. production at the plant in Falkenberg and parts of the production at the plant in Falun has been outsourced.
Continued work to further increase efficiency in production. increased co-ordination between the production facilities will improve utilization of capacity and shorten lead times. the plan is to establish a new factory in russia during 2008 as well as investigate further needs for local production.
HL Display will implement a total review and reorganisation of its logistics function.
a supply Chain Director was recruited in January 2007. the supply Chain Director will design the new logistics function for imple- mentation during the fourth quarter of 2007.
During the year, HL Display has improved handling at the logistics centre in France. a new logistics centre for the nordic region has been established in Falkenberg and also functions as a global centre for the products that HL Display purchases. the analysis work prior to the establishment of logistics centres for central and eastern europe has been initiated.
the establishment of logistics centres for central and eastern europe is a high priority for HL Display.
new focus: Focus efforts within product development on increased innovation.
new focus area: increased efforts within environmental issues, for example increased recycling of waste material in HL Display’s own production process.
new focus area: HL Display is planning to continue to strengthen the range and market presence through acquisitions.
»
HL DIsPLAy oPeRAtIons
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 and Financial administration IT
Human Resources
HL Display operations
HL Display has defined the business processes that manage its core operations as three core processes. these are complemented by corporate support processes.
HL Display’s operations consist of three central business processes known as core processes.
Core process 1 concerns all activities,
planning and operative activities connected with sales and customer relations. read more on pages 12-16.
Core process 2 concerns all activities
connected to HL Display’s products and solutions, from product range development and launch to product range management and phasing out. read more on pages 17-20.
Core process 3 concerns everything to do
with production, purchasing and logistics.
read more on pages 21-24.
as a complement to this, HL Display runs three processes that support operations in the core processes. these are:
– Finance and Financial administration – it
– Human resources.
read more on pages 25-27.
HL Display offers complete solutions for the exposure of Health & Beauty products.
within the food retail and non-food retail segments in spite of the fact that these companies operate in a large number of countries.
Within the brand manufacturers segment, the proportion of global or regional con- tracts is higher. Consequently HL Display’s sales activities within this segment show a more global emphasis and direction.
Direct sales primary channel
sales primarily occur through direct sales from the sales companies. it is, however, HL Display’s intention to increase the volume of catalogue and internet sales.
as part of this process HL Display’s exten- sive product catalogue has been revamped.
there are currently locally adapted cata- logues for each market containing the basic range offered to all as well as the “plus”
range specific to each market. there are also pilot projects currently underway con- cerning e-commerce in poland, russia and Great Britain. the results of these projects will form the basis of HL Display’s future investments within this field.
strong focus on sales
the sales companies’ efforts must be channelled into sales only. this is one of the basic concepts behind HL Display’s new logistics structure that includes regional service centres to gather together stock management and administration for sales companies in several countries.
sales activities are carefully followed up.
all sales companies are allocated clearly defined goals that are stated in terms of key ratios which are reported on a continu- ous basis. any deviation from forecast is dealt with immediately. six area Managers bear full budget and earnings accountability for their countries and are responsible for planning, coordination and controlling of all operations in the countries of their region.
CoRe PRoCess 1 MarKet, saLes anD CustoMer reLations
Market and sales
HL Display is currently operating on all the important markets in Western europe, eastern europe and Asia. sales are carried out via 31 of the Group’s own sales companies. these are complemented by distributors who work in another 15 countries.
HL Display’s business strategy is based on a strong local presence in the form of wholly owned subsidiaries on all the impor- tant markets. these are complemented by distributors on another 15 markets.
the reason for this strong local opera- tional emphasis is that purchasing of the products and solutions offered by HL Display primarily occurs locally in each country. a strong relationship with custom- ers on the local market is decisive for suc- cess. this is especially true for customers
oPeRAtIonAL eMPHAses FoR 2007
– improved cost control in sales companies.– integration of the newly acquired companies Display team and sooni.
– implementation of CrM system in the sales companies.
– introduction of locally adapted catalogues with mail order possibility.
CoRe PRoCess 1 MarKet, saLes anD CustoMer reLations
HL Display’s customers
HL Display’s prioritised customer segments are food retail and non-food retail, plus brand manufacturers who deliver the goods bought in stores. the customer stock includes most of the world’s largest food retail chains, non-food retail chains and brand manufacturers.
HL Display’s competitors
HL Display meets a fragmented competition situation, as concerns both markets and products. the company has no competitor with the same global presence or with such a broad range of products. as far as turn over is concerned, HL Display is most often con- siderably larger than its competitors. there are large companies in the usa which oper- ate in competition with HL Display. these, however, are not present on the european market to any greater degree.
Competition is, however, tough within each product area. HL Display meets differ- ent competitors on different markets and for different products. Consequently the number of competitors is considerable. around 150 more or less direct competitors, of extremely varying size, can be identified.
in order to be able to give a comprehen- sive picture, HL Display has divided its competitors into three groups (see below).
Sales per customer segment MSEK
Retail food 616 Brand manufacturers 293 Retail non-food 272 Shop-fitters 144 Distributors 115 Other 131 some of HL Display’s largest customers
Food retail Brand manufacturers ahold (incl iCa)
auchan Carrefour Casino Champion intermarché Metro systeme u tesco Wal-Mart (asDa)
Bat Danone Colgate Kraft L’oreal Masterfoods nestlé philip Morris procter & Gamble unilever non-food retail
Decathlon DsG retail Ltd iKea Müller
1. International actors (operate on > 5 markets)
2. Regional actors (operate on 2-4 markets)
3. Local actors (operate on one market) example Checkpoint systems (usa)
oechsle (Germany)
Kleerex (ireland) Wilson & Brown (poland)
aL-Display (Germany) ppe (england) Visioplast (France) strengths – Well developed product range
within its niche.
– efficient production process.
– Low price levels.
– often family firms with low overheads.
– Flexible production processes for short series.
– Good contacts with customers in the region.
– Good customer contacts.
– High degree of individual customer adaptation.
HL Display’s competitive advantages
– Full range of products that answer all customer needs.
– offers complete category solutions.
– Considerable investment in product development which gives leading position.
– Good relationships with end customer in contrast to competitors who often work through agents and distributors.
– Full range of products that answer to all customer needs.
– offers complete category solutions.
– through its global presence, HL Display is able to follow its large scale customers when they expand and can therefore become a preferred supplier.
– Large-scale, global retail companies and brand manufacturers value a supplier who can help them on many markets.
– Considerable investment in product development which gives leading position.
–
CoRe PRoCess 1 MarKet, saLes anD CustoMer reLations
General factors affecting demand
– HL Display’s establishment on
new markets.
– product development.
Factors that affect demand on mature markets
– implementation of new store concepts/
re-profiling of stores.
– new trends within store design.
– shifts in technology, for example the introduction of electronic price labelling.
– Campaigns on the part of brand manufacturers aimed at strengthening their brands.
Factors that affect demand on growth markets
– establishment of new stores.
– Campaigns on the part of brand manufacturers aimed at strengthening their brands.
after-market sales form an important element of HL Display’s total sales. Demand within this field is generally stable and consists of spare parts and additional sales as stores carry out renovation and remodelling on a regular basis.
HL Display’s market
HL Display offers products and solutions aimed at creating an attractive, selling in-store environment on an international market. the development of the market is closely connected to the development of HL Display’s customers. Consequently global and regional developments within the retail sector form a central factor affecting demand for HL Display’s products and solu- tions. a number of other factors also impact demand for the company’s products.
Developments in the retail sector
the retail sector in europe has been charac- terised by rapid consolidation during the last ten year period. one strong driving force has been opportunities to achieve econo- mies of scale. Greater volumes bring lower costs per unit sold, logistical benefits and opportunities for increased profitability.
the consolidation trend has shown strongest within the food retail sector with Western european chains acting as the driving force of the process. in many european countries, for example sweden and Great Britain, it is common that three or four major chains dominate the market.
overall it can be observed that the 30 largest food retail chains own a market share of approximately 60 percent of modern retail in europe.
in pace with the decrease in expansion
opportunities on home markets – a result
of both market saturation and restrictions
from authorities – chains have turned their
expansion plans on new, relatively frag-
mented markets in eastern europe and asia. »
CoRe PRoCess 1 MarKet, saLes anD CustoMer reLations
Development per region sales Companies Distributors
nordic countries net sales MseK 356
HL Display enjoys an extremely strong market position in the nordic countries. the company is the leading supplier of products and solutions for store communications and merchandising to both the retail sector and to brand manufacturers. sales development has also continued strongly in 2007. in spite of already owning a high market share HL Display has increased sales by 30 percent (18).
primarily sales in norway have developed in a positive direction with 33 percent growth.
Finland norway sweden
Denmark iceland
Western europe net sales MseK 734
Just as in the nordic countries, HL Display enjoys a strong market position in Western europe. the company supplies around 95 per- cent of the largest retail sector companies and is a leading supplier to brand manufacturers. Western europe is a mature market that is characterised by stiff competition within practically all HL Display’s product areas. the streamlining measures recently completed in HL Display operations, combined with strong offerings and local presence, makes HL Display a competitive actor on the market.
sales in the region decreased by 4 percent during the year, com- pared with an increase by 3 percent 2006.
austria Belgium France Germany Great Britain netherlands spain switzerland
Greece ireland italy portugal
eastern europe net sales MseK 344
HL Display is currently a leading supplier to the food retail sector and to brand manufacturers in eastern europe with a local pres- ence on all the important markets. the company has established operations in many countries in the region at a very early stage of their development. this has been extremely important in russia where HL Display’s early presence on the market has been a deci- sive factor for success. Growth differs from country to country as retail sectors are at different stages of maturity. total sales growth in the region has also this year been considerable and amounted to 22 (29) percent. this strong growth, not least in russia, means that the region’s importance to the Group as a whole continues to increase.
Czech republic Hungary Latvia poland romania russia serbia slovakia slovenia turkey ukraine
Bulgaria estonia israel Kazakhstan Lithuania
Asia/Australia net sales MseK 118
HL Display’s market position has been strengthened in asia. in that HL Display currently runs production in the region, costs have decreased considerably which has resulted in an enhanced com- petitive edge as concerns prices. as in eastern europe, the pace of growth varies between the countries in the region. HL Display currently runs operations on all the major markets and has estab- lished itself very early in China and india – countries which are gen- erally considered to belong to the most important growth countries for the retail sector in the near future. operations in the region have developed extremely well during the course of the year. total sales in the region increased by 25 (39) percent in 2007.
China (Hong Kong) China (shanghai) india
indonesia Malaysia singapore south Korea taiwan thailand
australia new Zealand
north America net sales MseK 19
trion industries is responsible for sales operations on the american market. sales are currently aimed exclusively at retail sector companies. sales on the north american market amounted to MseK 19 (32) in 2007.
Canada usa
CoRe PRoCess 1 MarKet, saLes anD CustoMer reLations
Rapid expansion on growth markets the retail sector in growth markets such as eastern europe, asia, Latin america and the Middle east are currently experiencing forceful change as a result of the rapid expansion of the international chains.
interest in these markets is based on considerable economic growth in several countries with stronger purchasing power as a result. at the same time these markets are fragmented and consequently offer good expansion opportunities. For example the one hundred largest retail companies in China have a market share of approximately 10 percent only.
the liberalisation of potentially lucrative markets such as China and india has attracted great interest from the global chains. China and india, together with russia, are generally regarded as the most attractive countries of the retail sector markets to expand into just now.
the retail sector in China is expected to grow by approximately 14 percent annually and the major chains, such as Wal-Mart, Carrefour and tesco, have already estab- lished stores in the larger cities. expansion will now continue to the middle-sized cities in the country. at the same time local chains are also expanding rapidly in order to capture a market position before the global chains strengthen their position on the market.
strong growth in Russia
the russian retail sector is also expanding by more than 10 percent annually, sup- ported by a growing economy and annual income increases of 10 percent. in pace with big city markets such as Moscow or st petersburg becoming increasingly saturated, expansion then progresses into other towns.
it is primarily the domestic chains that are driving this expansion, but also international chains such as auchan and iKea are starting up in towns all over the country.
in india the element of “modern retail sector” according to the western model is still extremely small and amounts to
company’s assessment is that the Shelf
Ready Packaging trend is now beginning toslow down. today it is used mostly within certain specific categories that are well suited to this method such as flour and sugar. For other categories, stores choose to invest in order to create attractive expo- sure of goods, for example within health and beauty products. Chains are well aware that display is vital in order to create a clearly- defined concept as far as the consumer is concerned. product display is, together with the service level in the store, one of the two essential methods for chains to create their own store profile.
Within non-food retail stores appearance and product presentation are important parts of differentiating companies on the market. Here, solutions unique to each chain are in demand. HL Display is a natu- ral partner as concerns the development of customer-specific solutions.
the cross merchandising trend that has developed within the food retail sector dur- ing the last two years has been reinforced in 2007. Cross merchandising involves goods that are closely connected to each other being displayed together, for example ice cream and sprinkles. the larger chains are working consistently with this method as a way to increase sales. For HL Display’s part this means increased demand for solutions within this field.
»
the most attractive growth markets (based on the variables country risk, market attractiveness, market saturation and time pressure.)
1. india 2. russia 3. China 4. Vietnam 5. ukraine
source: the a.t. Kearney 2007 Global retail Development index™
HL Display offers a large number of accessories to draw the attention to selected products, for example in connection with a launch.
only around 3 percent of the total retail sector. the modern retail sector is, how- ever, expected to expand by up to 40 percent annually. one serious constraint on establishment on this market is the coun- try’s legislation which limits opportunities for foreign direct investments in the coun- try. Consequently the international chains are now attempting to establish themselves with the help of joint ventures or based on the franchise model together with local companies. at the same time there is sub- stantial expansion from local chains who wish to acquire a strong market position as the legislation on foreign investment may be relaxed in the future.
Increased retail sector sales
2007 has been yet another year of positive development within the world economy.
this has also laid the foundation for pos- itive development for the retail sector during the year. according to forecasts from planet retail, global retail sector sales are expected to amount to BusD 12,329 in 2007, a growth of 8 percent on the pre- vious year. Global food retail sales are expected to amount to BusD 5,031, growth of 9 percent on 2006.
trends affecting HL Display
For a number of years the food retail sec-
tor has been characterised by an unambig-
uous cost-conscious approach. one impor-
tant cause of this attitude is the success
of the hard discount chains on the mar-
ket, which can be observed very clearly in
Western europe. as a part of this trend,
many major chains began to look at solu-
tions for Shelf Ready Packaging, i.e. solu-
tions where boxes are taken straight from
the transport to the shelf. this trend has
had a negative impact on HL Display. the
CoRe PRoCess 2 DeVeLopMent, LaunCH anD proDuCt ranGe ManaGeMent
HL Display’s offerings
During the year HL Display has initiated the restructuring of its offerings to customers. offerings to the retail sector (food and non-food retail) are collected together under the brand name optishop and offerings to brand manufacturers under the name Brandman.
oPeRAtIonAL eMPHAses FoR 2007
– emphasis on solutions for rapidly-growing customer segments with the aim of becoming an even more self-evident partner for brand manufacturers and non-food retailers.
– improvement and rationalisation of existing solutions.
– exploit the benefits of the company’s size and geographical range in order to identify the correct cooperation partners for the different stages of the development process – everything from strategic partnerships with suppliers for the manufacture of certain products to certifying toolmakers in various parts of the world in order to establish a broader supplier base.
in 2007, HL Display has initiated the restructuring of its product and solution range offered to customers. the intention has been to clearly define the strengths of HL Display offerings to each of the three prioritised customer segments – food retail, non-food retail and brand manufacturers.
this is in line with the company’s strategy to
increase focus on the brand manufacturer
segment in which HL Display assesses that
future potential is strong. in addition, the
products and solutions included in the acqui-
sition of Display team this year have rein-
forced offerings to brand manufacturers.
CoRe PRoCess 2 DeVeLopMent, LaunCH anD proDuCt ranGe ManaGeMent
optishoptM
HL Display’s offerings to the retail sector are to be found under the brand name optishop. this range includes individual products and complete solutions within in- store communication and merchandising.
Merchandising – presents the goods to the
consumer in an attractive manner. through well organised merchandising, shelf space is utilised in an optimal fashion and the con- sumer is tempted to buy. HL Display’s prod- ucts also allow cost savings by streamlining the work of the store. one example of this is the automatic forward feeding of products, which means that the time necessary to keep the shelves well organised and shelf filling time is decreased.
Kund Products and solutions for
in-store communication and merchandising
Retail (food and non-food retail)
Making the most out of your selling space
IT Personal
In-store communication – provide con-
sumers with all the necessary purchasing information and help them to find what they want in the store quickly. through well organised in-store communication busi- nesses avoid losing sales because the consumers cannot find what they want or what it costs quickly enough.
Positioning of offerings
HL Display is to be the natural cooperating partner for the retail sector and for brand manufacturers as concerns enhancing the consumer’s shopping experience. the com- pany differentiates itself from its competi- tors primarily as concerns:
Degree of innovation – HL Display’s
investment in product development is without equal in the business.
Quality – the quality of its products may
never need to be questioned.
Competence – With more than 50 years’
experience, HL Display has built up a major pool of expertise as concerns displaying products in stores.
Customer focus – HL Display’s local market
presence creates proximity to customers and enables a high level of service.
HL Display’s solutions for sales of goods by weight are simple to use and allow the customers themselves to choose the amount.
CoRe PRoCess 2 DeVeLopMent, LaunCH anD proDuCt ranGe ManaGeMent
BrandmantM
the Brandman brand includes HL Display’s offerings to brand manufacturers. one important part of offerings to this cus- tomer segment is the successful range of products included in the acquisition of Display team. Here individual products as well as complete solutions are provided for primary placement and secondary placement.
Primary Placement – HL Display offers
products and solutions that ensure that brand manufacturers are able to utilise their space in the store’s shelves to their best possible advantage. the solutions create an attractive product display that is easy to maintain. this is combined with products to, for example, provide custom- ers with information related to the product or solutions that support the launching of new products.
Kund Products and solutions for
Primary Placement Secondary Placement
Brand manufacturers
Bring your brand to life
IT Personal
Increased production
efficiency
Eliminates short series in production with associated long turnaround times
Increased average size of orders results in longer
production series Phasing out
Price differentiation
Secondary Placement – HL Display offers
products and solutions for display of brand manufacturers’ goods in other parts of the store as well as on the shelf. one example of this is a floor display specifically adapted to individual customers as well as solutions for cross merchandising, i.e. that products whose use is closely related to each other are displayed together in order to create added sales.
»
Continuous range improvements
HL Display’s total product range amounts to almost 40,000 items. Continuous review of range and analysis of demand for individual products is consequently a vital part of the work of creating increased profitability.
products for which demand is low mean short production series and extend turna- round time in the factories, which affect profitability negatively. in order to coun- teract this, HL Display works actively to identify and phase out these products.
Price differentiation
HL Display has also introduced clear price differentiation in its range. the company’s products are divided into three groups:
– standard
– modified standard (for example a stand- ard product in a special colour) – specially adapted products
price levels of these products follow their degree of specialisation.
the results of this process have meant considerable increases in average order size, average sales per article and sales of standard products.
Continuous review of product range creates increased production efficiency which,
in turn, provides the preconditions for increased profitability.
CoRe PRoCess 2 DeVeLopMent, LaunCH anD proDuCt ranGe ManaGeMent
Concept Engineering Tooling Industrialisation Market launch
Product specification Market analysis Project approval
Drawings and technical specifications Design review Tenders for tooling invited Investment is approved
Tool order Tooling design approved Final acceptance of tooling
Tooling validated Product samples produced Production parameters validated
Launch material Full scale launch
» Product range development
HL Display’s expressed ambition is to become the leading innovator and trend- setter within the business. this requires continuous development of the company’s offerings to customers. there are three major methods of developing HL Display’s product range. the most important is the company’s in-house product develop- ment (please refer to the description of HL Display’s product development process above).
product range can also be expanded with attractive products through cooperation with other producers. one example of this is the cooperation with the american company trade Fixtures and their solutions for sales of goods by weight – Bulk Bins.
HL Display owns exclusive rights to sell
this product range on the european market.
a third method is to strengthen the com- pany’s product range through acquisition.
By acquiring the Finnish company Display team, HL Display’s offerings to the brand manufacturer customer segment have been strengthened with a shelf tray range.
In-house product development HL Display’s product development is market controlled and applies clearly defined requirements for development projects.
these projects must be supported by one or more of the company’s customers. put simply, the company must know that there is a demand for the product that is to be developed. a clearly defined cost focus is integrated into all HL Display’s product development. the aim is to optimise quality
based on the operational area of the prod- uct and a competitive price is an absolute requirement for all new products.
HL Display has concentrated its product development to products manufactured by the extrusion or injection moulding processes – two production techniques in which HL Display possesses leading edge competence. the final responsibility for the company’s development strategy and deci- sions on new products to be developed lies with a market council which includes mem- bers of HL Display’s management team. a market unit consisting of product managers at HL Display is responsible for identifying and initiating development projects.
product managers also bear the overall responsibility for these projects over the entire development period.
in 2007, HL Display had 40 develop ment projects underway. 40 projects were suc- cessfully completed during the year and 10 projects were assessed as not fulfilling stated requirements and were closed down.
over the course of the year MseK 38 was invested in product development, which is the equivalent of 2 (3) percent of turnover.
Patent and design protection
HL Display’s patent strategy is primarily aimed at protecting its best selling products developed within the prioritised production areas extrusion and injection moulding.
at the end of the year HL Display owned 80 (70) registered patents and 21 (50) patent applications were under processing. the number of new patents in 2007 amounted to 10 (6). the number of registered designs amounted to 88 (104) and 3 (11) applica- tions were in the pipeline. total costs for patent and design protection in 2007 was MseK 2 (2).
HL Display’s product development process
CoRe PRoCess 3 proDuCtion anD DeLiVery oF GooDs anD serViCes
Continued specialisation in production
HL Display operates seven production plants of which four are located in sweden. Production is concentrated to the three strategically important production methods – extrusion, injection moulding and printing on plastic (please refer to explanation of production methods on page 23). the company’s production maintains leading edge quality and efficiency within all these methods. Production outside these prioritised production methods is outsourced to sub-contractors. Currently HL Display is working with sub-contractors in sweden, eastern europe and Asia. Approximately 80 percent of the products are manufactured in HL Display’s own factories.
Continued specialisation and increased coordination have been the key concepts within HL Display’s production during the past year. the factories in sundsvall and Karlskoga have continued their speciali- sation towards automated production and all labour intensive production has been moved to the factory in suzhou, China.
Consequently the suzhou factory is not only producing for the asian market but also partially for europe.
this year HL Display increased the share of production that is outsourced to selected sub-contractors. Consequently the produc- tion plant in Falkenberg has been closed and cutbacks of production staff have been carried out at the factory in Falun.
Coordination of production has increased during the year. HL Display has, however, the intention of making more improvements to this aspect. the goal of this coordina- tion process is to create cost advantages by being able to rapidly shift production between the different factories according to where there is free capacity and where the total cost is most beneficial to the company.
Investments during the year
investments in production at suzhou in China have been very successful and results have exceeded company expectations. the factory is technically well advanced and delivers high quality products. Consequently HL Display has continued its expansion in 2007. three new extrusion production lines have been commissioned and injection moulding production has started up. By the end of 2007 there were six extrusion pro- duction lines and three injection moulding lines in operation at suzhou.
HL Display has also continued its invest- ment programme at the factory in Falun with the aim of becoming “top of the class”
within printing on plastic.
in total, Group investments in production
plant amounted to MseK 31 (24), of which the majority of the funding was spent on tooling for extrusion and injection moulding.
Future changes
in 2007 HL Display initiated analysis and preparatory activities aimed at starting up production in russia. through local pro- duction, competitiveness on the russian market would be improved considerably as there is currently a 20 percent customs levy on imported goods. the company’s ambition is to begin production in russia during the course of 2008.
supply Chain Management
Logistics and warehouse management have been one of the most important develop- ment areas for HL Display in 2007 and will continue to enjoy high priority in 2008. the
reason for these efforts is that the com- plexity of operations has increased over the last few years. HL Display uses produc- tion sub-contractors to a greater degree and more products are purchased from other suppliers. in addition, the Group now has 31 sales companies and 15 distributors all around the world that must be supplied with products. taken together, this situation requires much of supply chain management within the company.
HL Display’s new logistics structure is based on regional service centres at strategic locations around the world. these service centres house functions for stock management and freight as well as admin- istration of the sales companies in the region concerned. the new structure has created several advantages for HL Display.
Firstly, costs are decreased and secondly, »
oPeRAtIonAL eMPHAses FoR 2007
– Closure of production within the pictoria product group in Falkenberg. in the future, this range of products is to be manufactured by external suppliers.
– Manufacturing of labour-intensive simpler plastic products at the factory in Falun was outsourced for production in eastern europe.
– expansion of production at the factory in suzhou.
– specialisation of production at the factory in Karlskoga.
CoRe PRoCess 3 proDuCtion anD DeLiVery oF GooDs anD serViCes
Quality
HL Display’s quality activities are run locally at each production plant. the quality sys- tem established at each factory is con- structed in accordance with the iso 9001 international quality standard. Detailed quality goals are followed up each month.
the factories in Falun, Karlskoga and sundsvall are certified in accordance with iso 9001.
Lead time (in days)
Average lead time from order to delivery
Production facility target Result 2007 Result 2006
sundsvall 11 11 13
Falun 12 14 11
Karlskoga 7 9 7
Delivery performance (as a percentage)
Defines the proportion delivered within the agreed delivery time
Production facility target Result 2007 Result 2006
sundsvall 98.0 96.1 95.0
Falun 97.0 95.6 97.0
Karlskoga 98.0 97.4 98.0
Proportion of complaints (as a percentage)
Refers to the number of complaints in relation to the total number of orders
Production facility target Result 2007 Result 2006
sundsvall 0.3 0.4 0.5
Falun 0.6 0.7 0.7
Karlskoga 0.3 0.3 0.2
