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
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| Targets | 2008/09 | 2010/11 |
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| Group revenue | | Approx. 2 billion |
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| BoConcept Brand Stores | | 350 |
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| BoConcept Studios | | 150 |
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| Operating margin min. | 10% | 12% |
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| Return on net assets min. | 20% | 30% |
--------------------------------------------------------------------------------
| Cash flow % of revenue | 4% | 6% |
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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.
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| Market distribution | | |
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| | | Stores | Studios | Sales |
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| USA | + | 20 | 21 | 12% |
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| Germany | + | 14 | 12 | 11% |
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| Spain | + | 35 | 3 | 10% |
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| Japan | + | 19 | | 7% |
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| France | | 14 | | 10% |
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| Denmark | | 11 | 8 | 9% |
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| Norway | | | 41 | 6% |
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| England | | 6 | 3 | 5% |
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| Sweden | | 4 | 1 | 4% |
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| China | | 10 | | 2% |
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| | | -------- | -------- | -------- |
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| A markets total | 133 | 89 | 76% |
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| B & C markets | 60 | 59 | 24% |
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| | | -------- | -------- | -------- |
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| Total | | 193 | 148 | 100% |
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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
