QUARTERLY REPORT July - September 2006
SUCCESSFUL LAUNCH OF NEW BRIO PRODUCTS – MORE LACKLUSTRE PERFORMANCE BY SCANDITOY THAN EXPECTED
REPORT PERIOD JULY-SEPTEMBER 2006
• Net sales were SEK 242.3 million (326.5 m)
• The operating loss was SEK 5.6 million (+20.5 m)
• The loss after tax was SEK 12.1 million (+12.5 m)
• EPS (not taking new issue into account) was SEK -2.16 (+2.23)
REPORT PERIOD JANUARY-SEPTEMBER 2006
• Net sales were SEK 739.3 million (858.4 m)
• The operating loss was SEK 117.8 (-41.3 m)
• The operating loss adjusted for one-off items was SEK 81.4 million (-41.3)
• The loss after tax was SEK 139.4 million (-64.3 m)
• EPS (not taking new issue into account) was SEK -24.89 (-11.48)
SIGNIFICANT EVENTS DURING THE QUARTER AND AFTER THE REPORTING PERIOD
• Positive response for BRIO Network products and “My first”, launched in September. In the middle of October BRIO Network was awarded “Overall Best Toy for 3+” in the UK. In the US the retailer Target has decided to sell the new BRIO products with effect from December.
• The distribution agreement for Dorel, including the “Maxi Cosi” and “Quinny” brands, expired during the reporting period, which will mean an annual sales loss of around SEK 30 million.
• Johan Engström became the new CEO in August of the business area Scanditoy, the Group’s distributor of toys in the Nordic region. Johan joins the company from Egmont Kärnan AB where he was the business area manager for the toy company Kärnan.
• A new share issue and a subordinated loan were carried out in September totalling SEK 224 million with preferential rights for the company’s shareholders. The issue means that BRIO, after repaying a loan of SEK 44 million taken out during the acquisition of European Nursery Group AS at the beginning of 2005, will raise SEK 180 million before deductions for issue costs.
CEO’s STATEMENT
There is intense activity in all parts of BRIO as we continue the major repositioning process, which means that we are urgently cutting costs and carrying out measures to improve efficiency. We are also working to redirect the business towards greater consumer focus. The “BRIO 2008” action plan was announced a year ago to improve efficiency and profitability. I am pleased to say that nearly all the measures have now been implemented, which means that savings of SEK 80 million compared to 2004’s level are expected to provide full effect in 2007.
After focusing on reversing the downward trend for the BRIO business area it is now time to intensify efforts in the Scanditoy business area, which continued to perform poorly in Q3. A comprehensive action plan has been developed aimed at Scanditoy generating growth, increase efficiency and be the leading toy distributor in the Nordic region. Johan Engström was recruited during the quarter as Scanditoy’s new CEO in order to implement necessary measures and changes.
Work continued during the quarter to pave the way for new products. The Scanditoy range will be cut from 8,000 to 4,000 items during the year and in the short-term the cut has had a negative impact on sales volumes and coverage ratio. Efforts aimed at creating a less comprehensive, yet broader product range will continue at Scanditoy.
An action plan has also been established to develop BRIO’s “BRIO Partner” franchise business to become a more independent and successful business within the BRIO Group. To be more competitive the store concept needs improving and we also need to invest in a stronger offer.
The BRIO business area reported a weaker than expected sales trend for prams and children’s car seats. One reason is the loss of the distribution contract with Maxi Cosi and Quinny, which means a sales loss of SEK 30 million per year. A number of new children’s car seats and prams will be launched at the beginning of next year under the BRIO brand, which in the long-term is expected to compensate for the sales loss.
Our extra efforts in product development resulted in the launch of BRIO Network in September, which is the biggest product launch at BRIO for 20 years. The launch was held in Stockholm, Paris, London and Berlin, and the small figures will soon be available on sale in more than 50 countries around the world. New toys in the “My first” range also began being sold in stores during the autumn. It feels really exciting seeing the results of the new product developments reaching the shelves and further toy concepts will be launched next year.
The US retailer Target will begin selling BRIO’s new products from December, which is a very good sign. The traditional BRIO range continued to lose volume, which once again confirms that the market is demanding a renewal of BRIO.
BRIO is prepared for Christmas sales and thereby the year’s most important quarter. The expectations at BRIO are major and the commitment levels are high. This is true of all employees and our consumers, customers, sales representatives and suppliers. Shareholders are also placing major demands on us to succeed with the transformation underway at BRIO. The raising of capital performed in September providing the company with SEK 180 million will make our job a lot easier to ensure BRIO doesn’t just develop as a modern company, but also into a company for the future.
Thomas Bräutigam
President and CEO, BRIO