New English version is enclosed due to changes in figures enclosed. Copenhagen Stock Exchange Herning, 28 June 2007 Preliminary announcement of the financial statements for 2006/07 for BoConcept Holding A/S Revenue has grown by DKK 17.4 per cent on last year and now amounts to DKK 1,046.6 million Profit before tax was DKK 61.7 million compared to DKK 26.7 million in 2005/2006 The operating margin was increased from 4.1 per cent last year to 6.6 per cent in 2006/2007 Cash flow before instalments on long-term debt was DKK 25.7 million in 2006/2007 42 new BoConcept Brand Stores have been opened and 12 have been closed down during the financial year, resulting in a net addition of 30 BoConcept Brand Stores During the financial year the net addition of BoConcept Studios was four In accordance with the strategy adopted, the upholstery production has been outsourced and the factory in Hornslet has been closed down The long-term strategic and financial targets are updated and adjusted upwards The forecast for the financial year 2007/2008 is a pre-tax profit of between DKK 85 and 95 million and a positive cash flow of at least DKK 35 million before instalments on long-term debt. Revenue is expected to grow by 15-20 per cent on 2006/2007 For further information, please contact President and CEO, Viggo Mølholm, or Vice President and CFO, Hans Barslund on telephone number: +45 7013 1366 Preliminary announcement of financial statements The annual report/financial statements for the financial year 01.05.2006 to 30.04.2007 were considered at the meeting of the supervisory board on 28 June 2007. The financial statements are hereby submitted to the general meeting for adoption. The financial ratios have been calculated in accordance with the ‘Recommendations & Financial Ratios 2005' issued by the Danish Society of Financial Analysts. Financial highlights and ratios for 2002/2003 and 2003/2004 have not been restated in accordance with the change in accounting policies on the transition to IFRS in connection with the annual report for 2005/2006. Financial ratios on which the share split as at 28 August 2006 have an impact have been adjusted so as to be calculated on the basis of shares in denominations of DKK 10. Financial review for 2006/2007 BoConcept Holding A/S, which now consists of the activities of BoConcept A/S only, produced revenue of DKK 1,046.6 million in the financial year 2006/2007, up DKK 154.6 million or 17.4 per cent on last year. Revenue growth is thus beyond expectation at the beginning of the year, but slightly below the upward adjustment to approximately 20 per cent made by BoConcept in connection with its third quarter announcement in March 2007, and this is primarily attributable to three factors. Firstly, the fact that the very steep increase in sales volume experienced in the fourth quarter of 2005/2006 was not fully repeated in the fourth quarter of 2006/2007, secondly the postponement of the opening of a few Brand Stores to the financial year 2007/2008, and thirdly, revenue growth on the US market below budget. In the other principal markets revenue growth has been satisfactory and in line with expectations. As a consequence of the divestment of the office furniture manufacturer Dencon A/S as at 1 May 2006 the income statement for 2005/2006 has been changed to include the result of Dencon A/S in the item 'Result for the year for discontinued activities'. All operating items are thus immediately comparable for the continuing company BoConcept. The strategy of concentrating sales through BoConcept Brand Stores and Studios implied that the vastly differencing levels of revenue growth in the individual sales channels continued on into 2006/2007. Sales to the BoConcept Stores have risen by more than 45 per cent compared to last year. Growth drivers are the 9 per cent increase in same-store-sales compared to 2005/2006 and the opening of new BoConcept Brand Stores. A net addition of 30 Brand Stores in 2006/2007 is the outcome of 42 new stores being opened and 12 existing stores being closed during the year. The net addition of Brand Stores coincides with the most recent forecast, which was published in March 2007. In 2006/2007 sales to BoConcept Studios have risen by 16 per cent on 2005/2006, and a total of 32 new Studios have been opened while 28 have been closed down. The limited net addition of four new Studios, which is just below the expected number of 5-10, should be seen in the light of a number of Studios having been converted into Brand Stores and the group's general focus on developing the franchise model. As was expected, sales to product customers have declined by 42 per cent on last year. The graph below shows the trends in revenue by channel of distribution: The company's dedication to BoConcept Brand Stores and Studios implies that total group revenue is mainly generated by these distribution channels. Revenue generated by product customers, which means wholesale distribution of individual products to furniture dealers, has declined from 20 per cent to 9 per cent of total revenue, and this figure will presumably be reduced even further in the year ahead in accordance with our strategy and the allocation of resources. The operating result for 2006/2007 was a profit of DKK 69.4 million compared to a profit of DKK 36.7 million in the previous financial year. The DKK 32.7 million improvement in the result on last year is primarily attributable to increased revenue since gross profit has fallen from 41.4 per cent to 40.6 per cent. The relative distribution costs and administrative expenses have been cut as a result of economies of scale thus that the operating margin has increased from 4.1 per cent in 2005/2006 to 6.6 per cent in 2006/2007, slightly in excess of the expected operating margin of 6 per cent. The gross profit on the continuing business has been reduced from 41.4 per cent to 40.6 per cent since prices of raw materials, energy and labour have been increasing dramatically during the financial year 2006/2007. This development in costs has been compensated for in part by efficiency enhancements and savings from increased sourcing in China. However, since BoConcept's sales prices have been fixed until the next catalogue season begins in September 2007, it is not possible to pass on the increased costs to consumers until that time. No improvement in the gross profit is therefore to be expected until the second half of 2007/2008. In accordance with the strategy adopted concerning focus and cost efficiency enhancements considerable changes have been made to the company's own production process during the year. For instance, the upholstery manufacturing facilities in Hornslet have been closed down as at 30 April 2007, and BoConcept's wood component factory in Lithuania has been sold off. In connection with the closure in Hornslet 65 employees have been laid off, and production has been transferred to an existing Lithuanian supplier who will take care of the entire upholstery production for the European market in future. Closing down costs of DKK 3.5 million have been included in the item other operating expenses. Together with the DKK 2.2 million which was provided in the 2005/2006 financial statements, the total restructuring costs in connection with the closure of the upholstery manufacturing facilities are DKK 5.7 million. Under the new ownership, the wood component factory in Lithuania will primarily continue as a sub-contractor to the above mentioned upholstery manufacturing business in Lithuania. The final transfer of the wood component factory was completed as at 1 March 2007, and the sale has no extraordinary impact on the financial statements for 2006/2007. Net financials were negative in the amount of DKK 7.7 million compared to DKK 10.0 million last year. The improvement is primarily attributable to the considerable reduction in interest-bearing debt over the past two years. BoConcept's result before tax is thus a profit of DKK 61.7 million compared to a profit of DKK 26.7 million in the previous financial year. The realised result is in line with the most recent forecast of a pre-tax profit of between DKK 55 and 60 million and an improvement on the pre-tax profit of between DKK 50 and 55 million announced at the beginning of the financial year. Tax for the year amounted to DKK 19.4 million, corresponding to an effective tax rate of 31.4 per cent. The effective tax rate is therefore just below the previously announced rate of 30 to 35 per cent. The result for the year after tax was a profit of DKK 42.3 million compared to last year's profit of DKK 12.7 million. The result is considered satisfactory in view of the targets adopted. The balance sheet total of DKK 546.9 million has risen by DKK 47.6 million on last year. The development covers the acquisition of three Brand Stores in the USA in the first half of the year and an increase in inventories and receivables due to the increasing level of activity in BoConcept. Funds tied up in inventories have increased by DKK 21.8 million, partly due to increased sourcing in China, a generally increasing level of activity, lower inventories at the beginning of the year and a decision to increase buffer inventories by an additional DKK 10 million in order to improve our delivery service. Net investments for the year amount to DKK 20.3 million. Gross investments are made up of reinvestments in property, plant and equipment amounting to DKK 27.5 million and DKK 14.1 million in intangible assets in connection with the acquisition of the three Brand Stores in the USA. BoConcept intends to sell the said Brand Stores within the next one or two years, as it is not part of the company's strategy to own Brand Stores in the long run. Thus the Brand Stores owned by BoConcept are all for sale. The property in Poland was sold in April 2007, and Dencon A/S and the production unit in Lithuania have also been sold. A positive cash flow of DKK 25.7 million before repayment of non-current debt items has been realised. Due to the increased investments in own Brand Stores and the build-up of inventories, this is below the forecast made at the beginning of the year of a cash flow of at least DKK 30 million, but above the forecast published in March 2007. As at the balance sheet date the group's equity amounted to DKK 148.5 million, and the equity interest amounted to 27.2 per cent compared to 21.7 per cent last year. Distribution of profit The supervisory board of BoConcept Holding A/S recommends to the company in general meeting that the profit of DKK 42,429 ('000) is allocated as follows: Dividend for the year 5,200 Net revaluation in group enterprises 22,192 Profit carried forward 15,037 Total 42,429 Strategic status and forecast for 2007/2008 In 2006 the supervisory board of BoConcept Holding A/S adopted and implemented a strategy plan for the group in which they had outlined a number of objectives to be achieved in 2008/2009 and in 2010, focusing on the optimisation of the business model, organic growth via increased same-store-sales and a considerable scheduled net addition of BoConcept Brand Stores and Studios. These are the main points in the strategy plan: Increasing the number of BoConcept Brand Stores and Studios to bring the number up to a total of 500 in 2010 Steadily decreasing our commitment to product customers so as to phase these out in 2008/2009 Increased sourcing and productivity enhancements in our own production in order to maintain a high gross profit Good marginal earnings on increased sales (economies of scale) resulting in a higher operating margin Reinvestments in non-current assets on a par with annual depreciation and amortisation since growth is not capital-intensive, but merely calls for increased investments in working capital The purpose of implementing these strategic measures is to enable the group to achieve the following financial targets in 2008/2009: an operating margin of at least 10 per cent a return on capital employed of at least 20 per cent an annual cash flow before instalments on long-term debt which accounts for at least 4 per cent of group revenue Here at the end of the financial year 2006/2007 the supervisory board of BoConcept is pleased to note that the group is well on the way to realising these targets, and in the light of the company's results and favourable development, it has decided to concentrate even more on profitable growth in the years ahead. This implies that the company is planning to produce revenue of DKK 2 billion by the end of 2010/2011 - almost twice the revenue realised in 2006/2007 and still delivers an operating margin of 12 per cent and a 30 per cent return on capital employed. The aim is for the cash flow to account for at least 6 per cent of group revenue in 2010/2011. Revenue growth is set to be achieved through increased investments in the training of sales staff and a determined effort to perfect our store and product programmes so that the number of BoConcept Brand Stores will reach at least 350 in 2010 compared to the existing 300. This corresponds to net openings of between 30 to 50 Brand Stores annually in the years ahead, primarily in the ten principal markets. The number of Studios is expected to remain at approximately 150 in 2010/11. Long-term financial targets -------------------------------------------------------------------------------- | Targets | 2008/09 | 2010/11 | -------------------------------------------------------------------------------- | Group revenue | | Approx. 2 billion | -------------------------------------------------------------------------------- | BoConcept Brand Stores | | 350 | -------------------------------------------------------------------------------- | BoConcept Studios | | 150 | -------------------------------------------------------------------------------- | Operating margin min. | 10% | 12% | -------------------------------------------------------------------------------- | Return on net assets min. | 20% | 30% | -------------------------------------------------------------------------------- | Cash flow % of revenue | 4% | 6% | -------------------------------------------------------------------------------- In addition, BoConcept will continue its efforts to optimise production and supply chain management, and the introduction of best practise procedures is to ensure that the supply chain costs are flexible enough to match the demand. BoConcept will increase the capacity of the future warehousing and distribution structure by outsourcing inventories in all regions, wholly or in part. The objective is to establish a supply set-up, the costs of which vary according to requirements, and where long-term flexibility is ensured in step with changes in the future supply structure. The ratio of purchases from external manufacturers will presumably increase from the existing 60 per cent of total revenue to at least 70 per cent in 2010/2011. Forecast for 2007/2008 For the financial year 2007/2008 BoConcept expects a pre-tax operating profit of between DKK 85 to 95 million and an increase in revenue of between 15 and 20 per cent on the level prevailing in 2006/2007. The increase in revenue is based on organic growth due to the full-year effect of store openings in 2006/2007 and expectations of a net addition of 30 to 40 new BoConcept Brand Stores in 2007/2008. Also, a general increase in same-store-sales is expected as a result of activities launched to underpin and optimise the operation of BoConcept Brand Stores. As in previous years, the sale to product customers is expected to decline dramatically. The full-year effect of the changes implemented in the upholstery production and the closing down of the factory in Hornslet have resulted in savings on production costs. In like manner the projects launched to optimise the work routines relating to sales order flow and efficiency enhancements in the board furniture production will improve productivity. Overall, an 8 per cent improvement in the operating margin is expected. In the year ahead there are plans to make investments in non-current assets amounting to DKK 40-45 million, and this is considerably more than last year. Extraordinarily, in 2007/2008 investments of DKK 9 million will be allocated for office and canteen facilities in Ølgod. The overall target for the year ahead is a positive cash flow of at least DKK 35 million after the repayment of non-current debt items as well as any divestment of Brand Stores. Business base, strategy and sales markets BoConcept, which was founded as a joiner's workshop involved in manufacturing furniture back in 1952, is today an international retailer and concept holder of furniture and lifestyle products for private homes. Having its core competences within design, branding, store management, optimisation of the sales model and supply chain management, the company now concentrates its focus on the development, support and supply of goods to its global franchise-based retail chain, which at 30 April 2007 consisted of 193 BoConcept Brand Stores and 148 BoConcept Studios in 45 countries. Design and production development Controlled from the headquarters in Denmark BoConcept's store and product concepts are undergoing constant development in order to ensure that its defined target group perceives the chain as attractive at all times. It is also from here that training and support for the Brand Stores worldwide is developed and managed. Creating a uniform and up-to-date store concept with store assistants who are able to offer the end-customer the best possible service in a way which is unique within the industry is an important part of BoConcept's mission. The group's dedication to the development of its designs and concepts is a key element in this strategy and an absolute prerequisite for the continued success of the BoConcept Brand Stores. Product Management is responsible for the development of a totally co-ordinated collection in close strategic co-operation with external designers. The design and concept development itself is based on a BoConcept Brand Store with a floorage of 1,000 sqm. In the development phase, regard is had not only to ensuring that the products have a high design content and are trendsetters; they also have to be commercially viable and affordable. The entire BoConcept range, featuring wall units, sofas, tables, chairs, beds, accessories etc. is completely coordinated as regards colours, wood types and design. During the past year a number of new products have been launched, including storage furniture, tables, chairs and sofas. All new products support BoConcept's strategy of obtaining a better positioning in the market. This is reflected in the choice of materials and higher design content. The new products have been well received by the BoConcept Brand Stores and Studios, and these new items will be implemented in the stores and studios in the beginning of the new financial year. The new products are expected to enhance the image of the chain and increase sales per sqm. In order to maintain our high reliability in delivery for the benefit of the end-customers of the BoConcept chain, the number of products in the collection must remain unchanged and thus the number of products to be discontinued corresponds to the number of new products. Due to the launch of new products during the year a total of approximately 20 per cent of the product range has therefore been replaced. Marketing strategy The global communications platform is managed centrally, and this ensures that the marketing process is effective and that we have the same design expression and point of departure no matter whether activities take place in Shanghai or New York. The marketing efforts of BoConcept target the urban-minded shopper and are based on the vision of becoming the 'no. 1 brand within urban interiors' and the focal point is the chain's new slogan - urban design. The objective of the international and centrally organised communications platform is to increase awareness of and concentrate the focus on BoConcept's design concept and thereby create traffic to the individual BoConcept Brand Store and ensure customer loyalty. For this reason a vast number of marketing materials have been created in support of BoConcept as a brand, its visibility on the individual markets and the sales volume of the individual BoConcept Brand Store. Two marketing materials have been assigned an especially high priority. Firstly, we have produced the ultimate furniture catalogue available in the industry, showing the latest trends in urban home interiors and presenting the BoConcept range in the best way possible, and secondly, we have perfected the graphics of our international website which now also contains an online edition of the product catalogue. We have also launched a new and contemporary BoConcept logo which has been implemented in all marketing materials in 2006/2007 and has become a key element in the development of the store concept. A vast number of the storefronts of the BoConcept Brand Stores have already been upgraded, and the aim is for the remaining storefronts to be upgraded by 1 September 2007. In addition, we have been perfecting our concept and added new elements in order for the stores to be perceived as modern, innovative and supportive of our focus on design. BoConcept inspiration Camp - BiC In December 2006 BoConcept sent out invitations for the BoConcept inspiration Camp in Herning for the second time, and future interior design trends, new products, strategic measures and the new brand architecture of the BoConcept chain was presented to the 800 BoConcept franchisees and employees from 42 countries present. In the course of three conference days and six fair days the attention was focused on the implementation of new concepts, collections, the communications platform and sharing of knowledge as regards a number of important day-to-day operations, such as opening new stores, interior design and upgrading of Brand Stores as well as the exploitation of potential sales increases. In addition, special attention was given to the training of staff in service and sales functions, for instance, through BoConcept University. With the big support and enthusiasm of the participants, whose number had doubled from the first BiC in January 2006, the BoConcept inspiration Camp was a great success and provided the perfect basis for future endeavours to translate BoConcept's concepts and values into the sale of urban interiors to end-customers. We have decided to make BiC an annually recurring event and are therefore planning to hold the third BoConcept inspiration Camp in December 2007. Production and supply chain management BoConcept has progressed from furniture manufacturer to concept holder and international distributor of a complete range of branded lifestyle products for BoConcept Brand Stores with BoConcept as the sole supplier. This trend implies, among other things, that BoConcept places greater focus on sourcing, cost efficient production and the optimisation of the company's supply chain. Product range and sourcing In order to ensure that our collection is always up-to-date and that we satisfy the customer target group's expectations to BoConcept's product range, we replace 20 to 25 per cent of the range a year, and this calls for great capacity for change and flexibility throughout the value chain. The products, which include board furniture, chairs, upholstered furniture, accessories and shop fixtures, are co-ordinated within the range as to design, colours and finishes. In order to ensure that the construction and quality of the individual elements in the product ranges satisfy BoConcept's high requirements and are independent of production location, BoConcept is working closely with suppliers and own production facilities in the development and creation of new collections. BoConcept's manufacturing and sourcing strategy is to maintain a competitive own production output in core production areas while other products are purchased from our few sub-contractors. BoConcept endeavours to develop meaningful and close trading relationships with suppliers in order to secure a critical mass, and for this reason close integration is of interest to all the parties involved. By adopting this strategy BoConcept expects to be able to attain the group's supply and quality objectives and provide a flexible and cost effective supply set-up as a basis for future growth and expansion without having to invest more heavily in capacity increases etc. Following the divestment of the wood component factory in Lithuania as at 1 March 2007 and the divestment of the upholstery factory in Hornslet as at 30 April 2007 BoConcept's only own production facilities are the two board furniture factories in Ølgod and Herning. Within the existing building framework we will continue to invest in technology and organisation in the group's own board furniture factories in order to maintain our competitiveness, ensure a flexible supply chain and increase capacity as the number of Brand Stores and group revenue increase. At the end of 2006/2007 slightly more than 60 per cent of total revenues were generated by external suppliers. As BoConcept's revenue increases, an ever increasing share of the product range will be sourced from suppliers in the Far East and Eastern Europe who are very competitive indeed as regards price, quality and delivery times. It is therefore expected that more than 65 per cent of BoConcept's revenues will be generated by external suppliers in 2007/2008, and that figure will increase to just over 70 per cent in 2010/2011. BoConcept's sourcing organisation is placed close to the strategic suppliers. For instance, the 12-staff Chinese organisation under Danish management focuses on the development of supplier relations in Asia while the Danish-based organisation handles the contact to other suppliers, most of whom are located in Europe. Distribution BoConcept Brand Stores and Studios function as shop windows vis-à-vis the end-customer. It is here that the product range inspires the customer to place his or her order inside the store. It is BoConcept's declared objective to complete the delivery of 95 per cent of all orders at the confirmed time. This delivery service is an important asset to Brand Stores and Studios which are able to offer their customers the fastest delivery times in the industry without being stockholders, and instead they can allocate resources for and focus on selling and servicing the end-customer. BoConcept A/S handles the delivery of complete customer orders to the delivery hubs of Brand Stores and Studios. The Brand Stores and Studios handle the last stage of the distribution to the end-customer as well as after-sale service themselves. We will soon draft guidelines for these areas in accordance with a code of best practise which must be incorporated into the business concept. As a result of the considerable increase in the sale of accessories, efforts are currently being made to perfect the logistics of getting goods from suppliers to stores since this product area is expected to grow considerably in the years ahead as the product range is enhanced. Having introduced a simplified, more effective and less cost-intensive distribution structure in 2005, BoConcept Brand Stores and Studios are today serviced by the distribution centres in Ølgod (Denmark), Bayonne, New Jersey (USA) and Tokyo (JP) respectively, and customer service for the respective regions is also centralised here. In order to maintain our high reliability of delivery as the sourcing ratio increases, we found it necessary to increase investments in inventories by DKK 22 million in 2006/2007. BoConcept will increase the capacity in the future warehousing and distribution structure by outsourcing stocks in all regions, wholly or in part. The objective is to establish a warehousing structure, the costs of which vary according to demand and where long-term flexibility is ensured in step with changes in the future supply set-up. With its constant focus on the optimisation of business processes, for instance, as regards inventory control and the introduction and phasing out of products, BoConcept has for many years been able to considerably reduce obsolete stocks. Together with increasing sales the introduction of such processes has facilitated continuous improvements in the rate of inventory turnover, and in future we expect to marginally improve that rate which is currently four times a year for the group's total inventories. BoConcept's channels of distribution and franchise concept The group's products are mainly sold through BoConcept Brand Stores and Studios. A declining share of the group's revenue is also generated by sales to product customers, but this share is on the decline due to the strategy adopted by the company. Brand Stores are individually run franchise stores, typically with a floorage of between 400 and 800 sqm, while Studios typically are shop-in-shop units with a floorage of between 100 and 400 sqm located in well-established furniture stores, where the brands and products of BoConcept and those of the local furniture chain complement each other. BoConcept's franchise model BoConcept bases its franchise model on a well-tested concept, and close screening, evaluation and selection from among many potential franchisees takes place at group level, taking into consideration factors such as the individual skills and competences of the franchisee, and assessing and approving the business plan of that particular unit, its location as well as its operating and financing budgets. A key condition in BoConcept's selection of franchisees is also that a genuine foundation for a close trading relationship is established with the franchisee through the mutual commitment to and acceptance of the concept, trading terms and focus on earnings in the Brand Stores. Where a franchise agreement is concluded between BoConcept and an applicant, the implementation of the individual project plan will commence and proceed according to a set procedure. The agreement, which typically has a term of five years with the option of renewal, implies, among other things, a set-up fee, regular franchise payments to BoConcept, and the revenue contribution of the products sold and a marketing agreement between the parties. In addition, it is the franchisee's obligation to invest in setting up a Brand Store in accordance with guidelines dictated by BoConcept. The franchisee holds the lease. BoConcept's franchise model is very attractive indeed, and this is supported by the fact that more and more of our existing franchisees are planning to open additional stores. One of the reasons for this is that the stores have a positive cash flow from day one as customers make prepayments for goods sold, and the franchisees are granted credit on shipments from BoConcept. The typical store will break even in its first year of having been set up, and it will generate a profit in its second year. It is the objective of BoConcept for 90 per cent of the stores to achieve an operating margin of 10 per cent after the third year, and we support this objective by having in place a large support organisation for franchisees which is concentrated on the group's Retail Operation Managers (ROM), of whom there is one for every five to eight stores. Number of Brand Stores and Studios 42 Brand Stores and 32 Studios have been opened in the financial year 2006/2007 while 12 Brand Stores and 28 Studios have been closed down. The change in the number of Studios should be seen in the light of the fact that more franchisees decide to convert their Studios into Brand Stores. As at 30 April 2007 the chain therefore consisted of 193 Brand Stores and 148 Studios, and of this number 17 Brand Stores were owned by BoConcept itself. Brand Stores and Studios taken together are expected to account for 95 per cent of group revenue in 2007/2008. The total floorage of Brand Stores in terms of sqm has risen from 77,788 sqm to 93,288 sqm, corresponding to an average floorage of 483 sqm per Brand Store. In 2007/2008 the target is a net addition of 30 to 40 BoConcept Brand Stores and an unchanged number of Studios. This objective will primarily be attained on the four selected growth markets: the USA, Japan, Spain and Germany as well as in Denmark and France. In the years ahead the group expects store openings of between 30 and 50 net per year and an unchanged number of Studios. The trend of existing franchisees opening new stores is set to continue, and the group's target is to have 500 sales outlets in 2010/2011, at least 350 of which will be Brand Stores. Growth is generated by franchisees since the number of own stores is expected to decline in the years ahead as, in principle, all own stores are up for sale. Sales optimisation and sales training In the stores BoConcept's primary focus continues to be on the optimisation and growth in same-store-sales. Revenue growth is driven by the traffic to the stores, the hit rate and order size. It is BoConcept's declared objective to increase same-store-sales for the entire group by at least 5 per cent annually. In recent years BoConcept has also committed itself to strengthening the decentralised organisation and have roles adjusted thus that national organisations are ready for future growth. The process of expanding BoConcept University and the increased focus on the training and retention of employees is proceeding according to plan, and with this in mind the BoConcept University organisation has been strengthened with two coaches and one co-ordinator in recent months so that the central training team now consists of a total of four coaches and one co-ordinator. The main focus of BoConcept University is on management, product , sales and service courses as well as new courses in recruitment and employee development and interior design courses for store managers and assistants. In the financial year 2006/2007 a total of 18 courses with 303 participants was held under the auspices of BoConcept University. It was primarily franchisees, store managers and market organisations who received training in store management and sales techniques. In addition, the group provided product and sales training for all store assistants in the chain from May to September 2006. Moreover, BoConcept is committed to improving end-customers' experience in the stores. Mystery shopping tests, which were performed in 134 stores in 13 countries during 2006/2007, is one method being used. The tests show an increasing level of service and quality, and we expect the overall international average to continue to improve in future. Another method is to conduct actual customer surveys. During the past year two international customer surveys have been conducted, one focusing on quality, delivery and assembly service, while the other highlighted the purchasing process and customer defection on receiving a price quotation. The findings of the said surveys provide a basis for creating an improved customer experience in the BoConcept stores and, as a result, generating improved earnings. More than 130 Brand Stores spread across 13 countries today use the ERP-system of the BoConcept chain, Axapta. The system went live in 2001 and is now fully integrated with the other IT tools of BoConcept, and this facilitates order flow control and follow up on same-store-sales. BoConcept's focus markets In terms of design BoConcept's product range is the most commercial and best co-ordinated on the market. With its clearly urban profile, which is in line with worldwide mega trends, the group's furniture is sold to a target group consisting of brand-oriented trendsetters demanding affordable design furniture. Today BoConcept Brand Stores and Studios can be found in 45 countries, but expansion is focused on 10 selected A markets, four of which are A+ markets. A+ markets are markets where resources have been allocated for an active search for franchisees. Market diversification ensures that sales are only sensitive to regional market fluctuations to a limited degree. -------------------------------------------------------------------------------- | Market distribution | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | | | Stores | Studios | Sales | -------------------------------------------------------------------------------- | USA | + | 20 | 21 | 12% | -------------------------------------------------------------------------------- | Germany | + | 14 | 12 | 11% | -------------------------------------------------------------------------------- | Spain | + | 35 | 3 | 10% | -------------------------------------------------------------------------------- | Japan | + | 19 | | 7% | -------------------------------------------------------------------------------- | France | | 14 | | 10% | -------------------------------------------------------------------------------- | Denmark | | 11 | 8 | 9% | -------------------------------------------------------------------------------- | Norway | | | 41 | 6% | -------------------------------------------------------------------------------- | England | | 6 | 3 | 5% | -------------------------------------------------------------------------------- | Sweden | | 4 | 1 | 4% | -------------------------------------------------------------------------------- | China | | 10 | | 2% | -------------------------------------------------------------------------------- | | | -------- | -------- | -------- | -------------------------------------------------------------------------------- | A markets total | 133 | 89 | 76% | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | B & C markets | 60 | 59 | 24% | -------------------------------------------------------------------------------- | | | -------- | -------- | -------- | -------------------------------------------------------------------------------- | Total | | 193 | 148 | 100% | -------------------------------------------------------------------------------- Developments in the ten principal markets On BoConcept's largest single market, the USA, a total of eight new stores have been opened in 2006/2007, primarily on the east coast and all of them relatively late in the reporting period. The net addition is seven stores since one has been closed down. Sales to the American BoConcept Brand Stores have increased by 9 per cent expressed in the local currency relative to last year. This is slightly below the expected level, but this should be seen in the context of the general decline in the level of spending by American consumers. However, the continued shedding of product customers has resulted in a 4 per cent decline in total on the American market. In the year ahead the group expects to open eight to ten new stores in the USA, some of these in new regions. The continued development of the organisation and all routines is therefore necessary to ensure the support for both new and existing stores. Total growth on the American market is expected to account for at least 20 per cent expressed in the local currency in 2007/2008. In Germany five new stores have been opened during the year, two by existing franchisees, two by a former studio partner and one by a total newcomer. The total revenue growth of 25 per cent is made up of dramatic growth in same-store-sales in BoConcept Brand Stores and the continued shedding of small product customers who are not part of the future strategy. In 2007/2008 the group expects to open four or five new BoConcept Brand Stores in Germany. In Spain where five new stores were opened during the year, representing a net addition of three, the total number of BoConcept sales outlets in operation is 38. At the same time same-store-sales have grown, which has generated total growth of 19 per cent, spread over the year. In 2007/2008 growth is expected to remain at the same level. In Japan revenue expressed in the local currency has risen by 17 per cent despite a decline in revenue to one large product customer who has closed down completely during the year. In October a new store opened in the famous Ginza area. In total three new Brand Stores in Japan have been opened and two have been closed down with a view to obtaining better locations. In 2007/2008 the group expects two new store openings on the Japanese market. In 2006/2007 BoConcept's revenue in France grew by 101 per cent as a result of the opening of four new sales outlets and the full-year effect of the Brand Stores opened during the past year. As at 30 April 2007 a total of 14 stores are in operation, and this number is expected to be expanded as a result of the opening of eight new stores in the year ahead. During the past year France has thus grown to become BoConcept's third largest single market. In Denmark six new BoConcept stores have been opened, and this. combined with satisfactory growth in same-store-sales, has generated satisfactory revenue growth of 23 per cent. BoConcept continues to attract great interest from new and existing franchisees who wish to open more Brand Stores, and by year-end 2006/2007 we had thus already executed agreements to open four new Danish Brand Stores in 2007/2008. The migration from Studios to Brand Stores continues at a high level, and in 2006/2007 we have therefore closed down a total of 13 Studios, among other things, due to the changed co-operation with IDEmøbler. Despite the fact that the total number of sales outlets is thereby on the decline, this development will have a favourable impact on BoConcept's revenue. Norway has grown by as much as 23 per cent due to the opening of a number of Studios with our partner, Skeidar, so that 41 Studios are now in operation. Norway is therefore strictly a Studio market, and there are no plans to open any Brand Stores. The UK has experienced satisfactory growth in the same-store-sales of all five existing stores. In 2006/2007 a new Brand Store opened in the famous department store Harrods in London and this brings the total number of UK stores up to six. Revenue growth in the UK is as much as 44 per cent. In Sweden total revenue has grown by 15 per cent due to a favourable development in the same-store-sales of the existing Brand Stores. No new Brand Stores have been opened during the year on the Swedish market, but we expect to open some in 2007/2008. Revenue to one large product customer in Sweden continues, albeit at a lower level. The 6 per cent growth in China is the result of two new store openings, closing down five Brand Stores and the relocation of Brand Stores. However, overall the newly opened Brand Stores have far greater potential than the older outlets. Post-balance-sheet events Apart from the events mentioned above, the supervisory board is aware of no events after 30 April 2007, which would materially influence the financial position of the group. Resolutions of the supervisory board and motions to be tabled at the annual general meeting The supervisory board has decided to table the following motions for consideration by the company in general meeting: 1. Dividend DKK 2 per share will be distributed for the financial year 2006/2007 2. Authorisation of the supervisory board to acquire up to 10 per cent of the company's share capital before the next annual general meeting with reference to section 48 of the Danish Companies Act. 3. Authorisation of the supervisory board to set up a subscription rights scheme for executives and a general employee share scheme. General meeting The annual general meeting will be held on the company's premises at Herning on 28 August 2007 at 4pm. Annual report The published annual report is expected to be available in early August 2007. Best regards BoConcept Holding A/S Svend Sigaard Viggo Mølholm Bestyrelsesformand Koncernchef
CORRECTION: Annual Financial Statement 2006/07 for BoConcept Holding A/S
| Source: BoConcept Holding