Lindex's preliminary accounts report 1999/2000

PRELIMINARY ACCOUNTS REPORT 1999/2000 1 September 1999 - 31 August 2000 * Lindex's profit after financial items rose by 17 per cent * Profit after financial items rose by 17.5 per cent and amounted to SEK 313M (266), of which SEK 20M (0) refers to cancellation of surplus funds from SPP. Profit after financial items in the Nordic countries increased by 22.2 per cent and amounted to SEK 402M (329). * Lindex continues to take market shares on all geographic markets. * In the 1999/2000 financial year, Lindex's sales rose by 13.8 per cent to SEK 4,114M (3,615). Same-stores sales increased by 5.1 per cent (6.2). New stores contributed a sales increase of 8.7 per cent (6.4). * Sales rose by 13.2 per cent to SEK 1,053M (930) in the fourth quarter of the financial year. Same-stores sales increased by 4.1 per cent (3.1). * Same-stores sales increase in Germany in the 1999/2000 financial year amounted to 18 per cent. * In total Lindex opened 34 (24) new stores during the financial year of which 16 (7) in Germany. * High sales of the autumn collection in all markets during September 2000. Thereafter, demand fell at the beginning of October. * The Board of Directors has decided to propose to the Annual General Meeting that the dividend for the 1999/2000 financial year is raised by 25 per cent from SEK 4.00 to SEK 5.00 per share. Lindex is a retail chain with 334 stores, of which 305 are in the Nordic market and 29 stores in Germany. The Group's product segments are ladies' wear, lingerie, children's clothing, and Lindex Care - cosmetics and bodycare products. For further information, please contact: Hans Johansson, President and CEO Telephone: +46 322 777 02 Leif Larsson, Executive Vice President Telephone: +46 322 777 34 Market and sales The market was very weak during the beginning of the first quarter of the financial year. In September 1999, when sales of autumn clothing are normally strong, the weather was extremely hot. However, the market developed positively during October and November. The second quarter of the financial year began with very satisfactory Christmas trading. Demand slowed down slightly during January 2000 but rose again during February. During the third quarter of the financial year, demand in the market was high during May and June, whereas demand in April was relatively unchanged compared with the same month in the previous financial year. In the summer months, demand in the Nordic countries was high during July and August and during August in Germany. Demand was weaker during June in the Nordic countries and during June and July in Germany. Lindex's sales development in the Nordic countries exceeded the market trend, especially during October and December 1999 and February, May and August 2000. The Finnish market was weak throughout the financial year, whereas Lindex in Finland enjoyed a strong sales trend, especially during the period February - August 2000. In Germany, Lindex's sales development clearly exceeded the market trend throughout the period November 1999 - August 2000. Sales increased by 14 per cent During the financial year, Lindex's sales increased by 13.8 per cent (12.6) to SEK 4,114M (3,615). Lindex's same-stores sales rose by 5.1 per cent (6.2). Excluding exchange rate fluctuations, the increase amounted to 6.8 per cent (5.6). New stores generated an increase of 8.7 per cent (6.4). The sales increase for same-stores exceeded growth in the respective market during the whole of the financial year. Lindex continues to win market shares in all geographic markets and is the market leader in ladies' wear, lingerie and children's clothing in Sweden and in ladies' wear and lingerie in Norway. Information on sales by product segment and sales by market is reported on page 8. Sales of the autumn collection started positively in all markets during September 2000. Thereafter, demand fell at the beginning of October. Profit rose by 17 per cent During the financial year, operating profit amounted to SEK 287M (255). Profit after financial items rose by 17.5 per cent to SEK 313M (266). The net charge (sales minus costs) for the establishment in Germany amounted to SEK 110M (72) in the financial year. The dissolution of the liability for synthetic options increased profit after financial items by SEK 1M (9). The gross profit margin amounted to 52.5 (52.5) per cent. The first quarter of the financial year was affected by weak sales during September 1999. However, the sound sales trend in the second quarter brought about an increase in the gross profit margin compared with the same period in the previous financial year. The gross profit margin in the third quarter was unchanged compared with the same quarter in the previous year. During the fourth quarter, the gross profit margin fell slightly compared with the same quarter in the previous year. The large proportion of clearance sales products held by several of Lindex's competitors squeezed sales prices in all markets during the period June- August. The profit was affected by a refund of Lindex's share of SPP's overconsolidation reserve in the pension scheme of SEK 20.5M (discounted current value). Profit after financial items for the 1999/2000 financial year in the Nordic countries, before the effect on profit of the synthetic options and the refund from SPP, rose by 22.2 per cent to SEK 402M (329). As Lindex hedges the majority of its product purchases when the orders are placed, the effect of exchange rate fluctuations on the gross profit margin is delayed. Purchases in USD-linked currencies are contracted 6-8 months before payment is made. In addition, it has been possible to counteract the effects of a rising USD rate through even more efficient purchasing operations and some increase in product prices. It is anticipated that it will also be possible to reduce the negative effects of the strong USD in the future. A higher USD rate also affects the market operators in a similar way in the long term, i.e. it is relatively competition-neutral. Financial income and expenses improved to SEK 26M (11), which is mainly due to increased lending activities on the Lindex Card. During the financial year, interest-bearing liabilities averaged SEK 338M and interest expenses amounted to SEK 17M. Profit per share after full tax was SEK 16.00 (14.40) in the financial year. Fourth quarter profit rose by 13 per cent Lindex's sales in the fourth quarter of the financial year (June - Aug) rose by 13.2 per cent to SEK 1,053M (930). Same-stores sales increased by 4.1 per cent compared with the same period in the previous financial year. Excluding exchange rate fluctuations, same-stores sales rose by 5.6 per cent. New stores generated a sales increase of 9.1 per cent. The gross profit margin was lower compared with the fourth quarter in the previous financial year and amounted to 49.0 per cent (49.6). The weak market at the beginning of the quarter, especially during June, had a negative effect on the gross profit margin. The large proportion of clearance sales products held by Lindex's competitors also squeezed sales prices in all markets during the whole period June - August. In the three-month period, operating profit amounted to SEK 73M (60) and profit after financial items increased by 20.4 per cent to SEK 79M (65). The profit was influenced by a refund of Lindex's share of SPP's overconsolidation reserve in the pension system of SEK 20.5M (discounted current value). Profit after financial items for the fourth quarter of the financial year in the Nordic countries, before the effect on profit of synthetic options and the refund from SPP, increased by 18.2 per cent to SEK 92M (77). Set up costs in Germany affected the quarter's profit by SEK 36M (18), partly because three stores were established during the last week of the quarter. Profit was negatively affected by dissolution of the liability for synthetic options of SEK 3M (6). Taxes Paid and deferred taxes amounted to SEK 92M (69) in the financial year. The tax rate in Sweden and Norway is 28 per cent, in Finland 29 per cent, in Germany 44 per cent and in Hong Kong 16 per cent. Paid taxes were influenced by an estimated tax effect for synthetic options of 28 per cent on the change in provision for the options. Deferred income taxes recoverable on accumulated loss carried forward in the German company are reported at SEK 52M, which reduced "Tax on the period's profit" by SEK 27M (25). High rate of establishment - 34 new stores, of which 16 in Germany During the financial year, Lindex opened a total of 34 (24) new stores - nine in Sweden, seven in Norway, two in Finland and 16 in Germany. In addition, three stores were closed during the financial year, one in Sweden and two in Finland. The store network comprised 329 stores on 31 August 2000. During the 2000/01 financial year, the expansion rate is expected to amount to approximately 30 stores, 15-20 stores in the Nordic countries and 10-15 stores in Germany. The expansion rate in Germany during the 2001/02 financial year is expected to amount to approximately 15 stores. Competition for prime office locations in Germany has increased. However, Lindex's well-developed contact network relating to store premises means that the expansion rate can remain high for the company in Germany. The stores that Lindex will open during the 2000/01 financial year in, for example Berlin and Trier, which have a significantly larger sales area, are expected to generate higher profits per store, but will require larger establishment resources than previously opened stores in Germany. Germany - 18 per cent same-stores sales increase during the fourth quarter During Lindex's initial year in Germany, the establishment of stores has been concentrated on a homogeneous region in Nordrhein-Westfalen in Western Germany. During the 2000/01 financial year, this region will be expanded to include the region south-east of Nordrhein-Westfalen. In addition, Lindex will open stores in and around Berlin. The first store in Berlin will be situated in a prime location in Kurfürstendamm, in the well-known Kranzler Eck area. It is planned to open at the end of November 2000. The sales area will be more than 1,800 square metres. Average purchases per customer continued to increase and are on a par with the level in the Nordic countries. The conversion ratio (number of paying customers as a percentage of number of visitors) also continued to increase significantly, from approximately 16 per cent during autumn 1998 to more than 20 per cent on average during the 1999/2000 financial year. The proportion of returning customers also rose significantly during the year. Same-stores sales increased throughout the financial year as during the fourth quarter by 18 per cent. Two of the stores that Lindex has opened in Germany achieved break-even result (income exceeds expenditure) during the financial year in respect of operating profit before depreciation. Lindex opened 16 (7) new stores and at the end of the financial year had a total of 27 stores in Germany (which is equivalent to 19 full-year stores). Lindex's company in Germany is thus approaching the degree of store density which it is aiming at in order to realise the full benefit of its marketing activities. As planned, the investment in rapid growth involved a net charge to profit of SEK 110M (72). The awareness of the Lindex brandname in the cities in which the Group has established stores has increased significantly since the opening of the first stores in 1998. Polls during spring 2000 show more than 60 per cent of the women who are included in Lindex's target group are aware of the brandname. Lindex Care launched in Norway On 31 August 2000, Lindex Care - cosmetics and bodycare products - had been launched in a total of 81 stores in Sweden, of which 36 were added during the 1999/2000 financial year. During spring 2000, Lindex Care was also launched in 13 stores in Norway. Lindex Care reports a high gross profit per square metre of sales area and, at the same time, contributes to increasing the number of customers per store. Lindex Care is gradually being launched in most existing stores and in all new stores in Sweden. During the 2000/01 financial year, the product range will be established in approximately 30 additional stores in Sweden and around 25 stores in Norway. Lindex Card increases rapidly - more than 750,000 card holders The launch of the Lindex Card has led to increased sales volumes and improved profitability. Lindex is now strengthening its marketing activities by using the Lindex Card more systematically to develop its customer relations and improve the data for market analyses and segmentation. The profitability will also be strengthened through more efficient administration of the Lindex Card. At end-August 2000, there are approximately 460,000 cardholders (345,000) in Sweden. The card was launched in Norway in September 1997 and at end- August 2000 there are approximately 190,000 cardholders (110,000). The Lindex Card is a benefit and loyalty card with payment and credit functions. Card customers spend twice as much on average on every purchase occasion compared with customers who pay cash. In addition, the proportion of ladies' wear garments is larger on purchases with the Lindex Card than on cash purchases. Lindex launched a card in Germany during autumn 1998. At end-August 2000, the number of cardholders amounted to approximately 115,000 (50,000). The German card is a simpler version of the Lindex Card without a credit function but with special offers and events. A payment and credit card will be launched in Germany. Existing cardholders will be offered the opportunity to upgrade their card. Inventories Inventories on 31 August 2000 amounted to SEK 945M compared with SEK 752M on 31 August 1999. The inventory turnover rate increased to 2.6 (2.3). New stores and new Lindex Care departments accounted for SEK 129M of inventory value on 31 August 2000. In addition, inventories compared with 31 August 1999 increased by approximately SEK 70M due to brought forward inward deliveries of autumn merchandise, to meet an anticipated increase in sales at the start of the first quarter of the 2000/01 financial year. The value of "Goods in transit", which is included in the inventory value, was approximately SEK 28M higher on 31 August 2000 than the value on 31 August 1999. Logistics facility A profitability-improving logistics project is being carried out in collaboration with the forwarding company, Schenker-BTL. At the end of January 2000, a new sorting facility was set up in the forwarding company, which has substantially increased the sorting capacity for inward consignments. It makes possible an efficient top-up inventory function, i.e. a certain quantity of an order for fashion products is kept in an inventory for a few weeks before final distribution is made to the stores that have sold most of the respective products. The sorting facility also facilitates a service inventory function, i.e. a small inventory of base products to ensure that inventories in the stores that have almost sold out a product are always maintained. The effect of these inventory functions is expected to be lower price reductions through a smaller first inventory top-up in the stores which sell small quantities of a specific product. In addition, the risk of a specific product selling out is reduced. However, in the future Lindex's main flow of products will also go direct from the manufacturer to the respective store via the forwarding company without any interim storage in a central warehouse. Global purchasing network Lindex has expanded its global network of purchasing offices by opening new purchasing offices in New Delhi in India and Seoul in South Korea during the summer. These offices give Lindex the opportunity to get closer to the respective purchasing markets and the suppliers in these countries. The purchasing offices improve the opportunities for routing the purchases to the markets which offer the best criteria for achieving an optimum combination of quality, price, and shorter lead times. The objective is also to be able to make purchases from markets which do not have limiting export quota regulations towards the EU, or have sufficiently generous export quotas which ensure that they do not constitute a limitation in practice. The new purchasing offices create opportunities for reduced purchase prices. In addition, Lindex's opportunities for quality control and control of how the suppliers comply with the Lindex Code of Conduct in these countries are strengthened still further. Lindex has decided to open a purchasing office in Shanghai in China at the beginning of 2001. The purpose of this office is to increase the supplier contacts on the large purchasing market, China. Lindex has also decided to open a purchasing office in Bucharest in Rumania which will work the purchasing markets, Rumania, Bulgaria and Ukraine. Investments The Group's net investments in fixed assets amounted to SEK 236M (118) during the financial year. As before, most of this related to investments in new stores and refurbishment of existing stores. Cash flow Cash flow after investments amounted to SEK -67M (100) during the financial year. The increase in inventories of SEK 193M, of which SEK 70M relates to brought forward inward deliveries of autumn products, affected the cash flow from the current operations. The payment of SEK 18M, which relates to the completed synthetic options programme for senior executives in the Lindex Group, also affected the cash flow from the current operations as did trade debtors which increased by SEK 54M. The latter increase was due to a significant increase in the number of Lindex Cards. Of total trade debtors of SEK 232M (178), trade debtors for the Lindex Card amounted to SEK 230M (172). Financing and liquidity On 31 August 2000, liquid funds amounted to SEK 104M compared with SEK 147M on 31 August 1999. On 31 August 2000, net borrowing was SEK 321M compared with SEK 198M on 31 August 1999, an increase of SEK 123M. During the period, the net debt/equity ratio increased from 25.0 per cent to 33.6 per cent and the equity ratio fell to 44.2 per cent compared with 44.3 per cent on 31 August 1999. Personnel The number of full-time employees during the financial year amounted to 2,678 compared with 2,344 during the 1998/99 financial year. The increase is mainly the result of recruitment by the newly-opened stores. From autumn 1998, a profit bonus system is being applied for all staff. Incentive programme The synthetic option programme, which was launched for senior executives in the Lindex Group during 1995, was completed in accordance with the option terms on 22 August 2000. The total effect on profit of the incentive programme from the start of the programme amounts to SEK 21.3M before tax. The effect on profit of the incentive programme during the 1999/2000 financial year was positive with SEK 0.5M before tax, which consisted of a dissolution of previous provisions with the same amount. The Board of Directors of AB Lindex intends to present a new incentive programme with call options for the company's own shares to the Annual General Meeting in January 2001. The programme is directed at senior executives in the Lindex Group. Environmental Policy and Code of Conduct Lindex's environmental work is aimed at contributing to an increased focus on recycling and improved resource economy. For many years, the Group has also had a clearly defined Code of Conduct. This is a collection of rules for Lindex's suppliers which places strict demands on how the working environment should be designed and which working conditions should prevail. Parent Company Sales increased by SEK 280M, equivalent to 12.4 per cent, to SEK 2,539M (2,259). Profit after financial items rose to SEK 311M (219). Net investments in fixed assets were made of SEK 208M (201). Dividend The Board of Directors has decided to recommend that the Annual General Meeting resolves to raise the dividend by 25 per cent from SEK 4.00 to SEK 5.00 per share for the 1999/2000 financial year, equivalent to a total of SEK 69M (55). Nomination Committee The Annual General Meeting on 19 January 2000 appointed the following persons as Members of the Nomination Committee: Birgitta Johansson-Hedberg Chairwoman of AB Lindex and President and CEO of FöreningsSparbanken Tel: +46 8-767 18 70. Björn Lind President of SEB Fondförvaltning AB Tel: +46 8-788 62 34. Ramsay Brufer Head of ownership matters in SPP Tel: +46 8-441 92 62. Ola Uhre President of Swiss Branch and Head of Investments in Orkla ASA, Norway. Tel: +41 52 632 02 70. The task of the Nomination Committee is to put forward proposals for election of Members and remuneration at the following Annual General Meeting. Annual General Meeting The Annual General Meeting will be held in Alströmergymnasiets aula, Teatergatan, Alingsås, on Thursday 18 January 2001 at 4 pm. Future information dates The complete Annual Report will be available from the November/December turn of the month 2000 on Lindex's premises at Kristineholmsvägen 14 - 16 in Alingsås. It will simultaneously be distributed to the shareholders. Interim Report for the first quarter of the 2000/01 financial year will be published on 18 January 2001. Alingsås, 16 October 2000 AB Lindex (publ) Board of Directors ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2000/10/16/20001016BIT00520/bit0001.doc The full report http://www.bit.se/bitonline/2000/10/16/20001016BIT00520/bit0002.pdf The full report