Lindex three-month report

LINDEX THREE-MONTH REPORT 1 September 2000 - 30 November 2000 Mild weather and lower consumption reduces Lindex's profit for the first quarter * Profit for the first quarter of the 2000/01 financial year was affected by the mild autumn weather and reduced consumer readiness to buy. * Operating profit fell to SEK 11M (74) and profit after financial items to SEK 14M (79). Profit after financial items in the Nordic countries fell to SEK 51M (109). * Sales of autumn and winter garments were maintained with unusually large price reductions during October and November. * In the first three months of the financial year, Lindex's sales rose by 15.2 per cent to SEK 1,173M (1,019). Same-stores sales increased by 7.1 per cent (1.7). New stores contributed with a sales increase of 8.1 per cent (7.8). * Lindex continues to win market shares in all geographic markets. * In total, Lindex opened 12 (13) new stores during the first three months of the financial year of which 4 (5) are in Germany. * An action programme aimed at strengthening profitability started in the first quarter. It is expected to achieve its full impact during the fourth quarter. * Same-store sales in December were on a par with the previous year. However, the need for price reductions remained. Lindex is a retail chain with more than 340 stores, of which more than 310 are in the Nordic market and 31 in Germany. The Group's product segments are ladies' wear, lingerie/hosiery, children's clothing, and Lindex Care - cosmetics and body care products. For further information, please contact: Hans Johansson, President and CEO Telephone: +46 322-77702 Åsa Lindell-Byström, Head of Group Telephone: +46 322-74400 Communications & Investor Relations Mobile: +46 706-335979 Peter Andersson, Chief Financial Officer Telephone: +46-322-77850 Market and demand The quarter started with high demand and sales in September. During October and November, sales of both autumn and winter clothing were 1 affected by the very warm weather . During the period, the consumers' readiness to buy also fell significantly in general. One example of this is SBC's Consumer Confidence Indicator in Sweden which shows a 26 per cent fall between August and November. Signs of a slowdown in the economy have also been noticed in other sectors, such as sales of cars. This meant that the increase in demand in recent years did not continue in the first quarter. Sales increased by 15 per cent During the period September - November 2000, Lindex's sales increased by 15.2 per cent (9.5) to SEK 1,173M (1,019). Lindex's same-stores sales rose by 7.1 per cent (1.7). Excluding exchange rate fluctuations, the increase amounted to 6.7 per cent. New stores generated an increase of 8.1 per cent (7.8). Sales of autumn and winter garments were maintained with unusually large price reductions during October and November. The sales increase for same-stores exceeded growth in the respective market during the period. Lindex continues to win market share in all geographic markets and is the market leader in ladies' wear, lingerie/hosiery and children's clothing in Sweden and in ladies' wear and lingerie/hosiery in Norway. Profit significantly lower Operating profit in the first three months of the financial year amounted to SEK 11M (74). Profit after financial items fell to SEK 14M (79). Ahead of autumn 2000, demand was expected to be at a high level. The falling underlying demand therefore brought about increased inventories. In order to reduce the inventories, significantly larger than normal price reductions were implemented during the period. This enabled sales volumes to be maintained. However, the gross profit margin was affected and fell to 50.7 per cent (54.8). Profit after financial items for the first three months of the financial year in the Nordic countries fell to SEK 51M (109). The net charge (sales minus costs) for the establishment of stores in Germany amounted to SEK 37M (22) in the first three months of the financial year. As a significant proportion of the Group's purchases are made in USD or USD-linked currencies, Lindex is exposed to fluctuations in the USD rate. The rising rates of these currencies during the first quarter of the 2000/01 financial year had some negative effect on the gross profit margin. Lindex applies a hedging policy with contracts for a maximum period of six to eight months from date of order. Continued high USD rates will continue to affect the gross profit margin with other conditions remaining unchanged. However, Lindex is of the opinion that that the effect on the gross profit margin can be reduced through even more efficient purchasing operations. A higher USD rate also affects the market operators in a similar way in the long term, i.e. it is relatively competition-neutral. 1) In Sweden, October 2000 was the warmest October in the past 40 years, according to SMHI. November 2000 was the warmest November since SMHI began th recording in the 18 Century. The weather in Germany was also much warmer than normal. Autumn 2000 (September-November) was the third warmest th autumn in the 20 Century, with an average temperature of 10.2 degrees Celsisus. Financial income and expenses amounted to SEK 3M (5). During the first three months of the financial year, interest-bearing liabilities averaged SEK 550M (441) and interest expenses amounted to SEK 8M (5). Profit per share after full tax was SEK 0.60 (3.90) in the first three months of the financial year. Taxes Paid and deferred taxes amounted to SEK 6M (25) in the first three months of the financial year. The tax rate in Sweden and Norway was during the period 28 per cent, in Finland 29 per cent, in Germany 44 per cent and in Hong Kong 16 per cent. Deferred income taxes recoverable on accumulated losses carried forward in the German company are reported at SEK 62M, which reduced "Tax on the period's profit" by SEK 9M (6). New establishments - 12 new stores, of which four are in Germany During the first three months of the financial year, Lindex opened a total of 12 (13) new stores - one in Sweden, five in Norway, two in Finland and four in Germany. The store network comprised 341 stores on 30 November 2000. During the 2000/01 financial year, the expansion rate is expected to amount to approximately 20 stores. The expansion rate will be lower than in the previous financial year. This is a part of the action programme which was initiated during the quarter and is aimed at strengthening profitability. Germany - the new store in Berlin is one of Lindex's largest During Lindex's initial year in Germany, the establishment of stores was concentrated on a homogenous region in Nordrhein-Westfalen in Western Germany. From 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 is situated in a prime location in Kurfürstendamm, in the well-known Kranzler Eck area. The store was opened at end-November 2000 and has a sales area of approximately 1,800 square metres. In a short period of time, the store has become one of the Group's largest stores from a sales perspective. Average purchases per customer in Germany continued to increase and are on a par with the other markets. The conversion ratio (number of customers as a percentage of number of visitors) also continued to increase, from approximately 16 per cent in autumn 1998 to more than 20 per cent in the first quarter of the 2000/01 financial year. The proportion of returning customers also increased significantly during the period. Same-stores sales increased by four per cent in the first quarter of the 2000/01 financial year. Two stores that Lindex has so far established in Germany achieved break- even (income exceeds expenditure) with regard to operating profit before depreciation. Lindex opened four (five) new stores and had 31 stores at the end of the first quarter. Profit in the German company is charged with the continued high rate of expansion. In addition, the growth rate during the first quarter was considerably lower than anticipated due to weaker demand. This resulted in large inventories. These have been reduced through significantly increased price reductions which have been charged to profit. In total, this generated a net charge for the first quarter of the year of SEK 37M (22). Lindex Care On 30 November 2000, Lindex Care - cosmetics and body care products - had been launched in a total of 95 stores in Sweden and 27 stores in Norway. Of these 14 (19) were added during the first three months of 2000/01 in Sweden and 14 (0) in Norway. During the period, a number of own brands were added in the business segment. Lindex Care reports a high gross profit per square metre of sales area and contributes to increasing the number of customers per store. During the remainder of the 2000/01 financial year, the product range will be launched in approximately five additional stores in Sweden and around five stores in Norway. Lindex Card increases rapidly - more than 800,000 cardholders Lindex is 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 Lindex Card is a privilege and loyalty card with payment and credit functions. Card customers spend a significantly higher amount on average on every purchase occasion compared with customers who pay cash. In addition, the proportion of ladies' wear garments, with higher average prices, is higher on purchases with the Lindex Card compared with cash purchases. At end November 2000, there were approximately 490,000 cardholders (385,000) in Sweden. In Norway there were around 195,000 cardholders (125,000). Lindex launched a card in Germany during autumn 1998. At end-November 2000, the number of cardholders amounted to approximately 120,000 (100,000). The German card is a simpler version of the Lindex Card without a credit function but with special offers and events. Inventories Inventories on 30 November 2000 amounted to SEK 1,006M compared with SEK 771M on 30 November 1999. The inventory value was affected by the lower demand rate during the autumn. A shortfall of products during autumn 1999 also affects the comparison between the years. On 30 November 2000, inventories were SEK 235M (45) higher than in the corresponding period during the previous year. New stores and new Lindex Care departments accounted for SEK 115M (96). Same-stores inventories increased by SEK 120M (-51). Excluding currency effects, the same-stores increase was SEK 112M (-36). The previous year's decrease in inventories of SEK 36M, which involved a shortfall of products, influences the comparison between the years. The year's increase in inventories includes brought forward inward deliveries of spring products amounting to SEK 25M. Logistics facility The sorting capacity for inward consignments has substantially increased since a new sorting facility came into operation at Schenker-BTL. It enables 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 new logistics system also includes 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 topped up. During the first quarter, the new logistics system was put into full-scale operation. However, the effects of this were smaller than anticipated due to the weaker demand. Global purchasing network Lindex has expanded its global network of purchasing offices by opening new purchasing offices in New Delhi, Seoul and Bucharest during 2000. 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 and price. The objective is also to be able to make purchases from markets which do not have limiting export quota regulations towards the EU. 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 are strengthened still further. During the period, Lindex developed further its concept for the acquisition of textiles. This means that Lindex selects the textiles, which are then purchased by the manufacturer, or by Lindex. This "integration backwards" provides for reduced purchasing prices, improved quality control and an opportunity to expand into more purchasing markets. A further expansion of Lindex's global purchasing network took place in January 2001 when a purchasing office was opened in Shanghai. The main purpose of this office is to increase supplier contacts in Northern China. Investments The Group's net investments in fixed assets amounted to SEK 108M (49) in the first quarter of the financial year. Most of this related to investments in new stores, in which the strategy to increase the size of the stores influenced the investment amount per store. The launch of the Care concept in Norway increased investments in existing stores. Investments were also influenced by IT investments as well as an expansion of the head office. Cash flow Cash flow after investments amounted to SEK -220M (-80) in the first three months of the financial year. The increase in inventories, compared with 31 August 2000, of SEK 61M (19), and trade debtors, SEK 49 (30) has affected the cash flow from the current operations. The increased trade debtors is due to a significant increase in the number of Lindex Cards. Of total trade debtors of SEK 281M (208), trade debtors for the Lindex Card amounted to SEK 275M (200). The cash flow after investments has also been affected by an increased negative cash flow from the investment operations of SEK -124M (-52). Financing and liquidity On 30 November 2000, liquid funds amounted to SEK 50M compared with SEK 104M on 31 August 2000. On 30 November 2000, net borrowing was SEK 542M compared with SEK 321M on 31 August 2000, an increase of SEK 221M. During the period, the net debt/equity ratio increased from 33.6 per cent to 55.6 per cent and the equity ratio fell to 43.1 per cent compared with 44.2 per cent on 31 August 2000. Personnel The number of full-time employees during the latest 12-month period (December 1999 - November 2000) amounted to 2,781 compared with 2,678 during the 1999/2000 financial year. The increase is mainly the result of recruitment by the newly-opened stores. Incentive scheme At the Annual General Meeting on 18 January 2001, the Board of Directors of will present a new proposal for an incentive scheme for senior executives in the Lindex Group as well as resultant acquisitions and transfers of the company´s own shares. The intention is to launch a scheme which will further strengthen the executives' commitment and stimulate competence development by increasing the value of Lindex in the long term. In addition, the programme will lead to greater opportunities for keeping and recruiting competent staff. The scheme is based on issuing warrants for Lindex shares. To secure the value of the issued warrants cost-efficiently, AB Lindex intends to buy back own shares in order to have access to shares when the warrant holders wish to exercise their warrants. The proposed incentive scheme relates to the period 1 September 2000 - 31 August 2001. It is proposed thar the warrants have a duration of three years from date of issue and may not be exercised until two years after that date. The full proposal is reported in the advertised notice of the Annual General Meeting. Parent Company Sales increased by SEK 68M, equivalent to 10.8 per cent, to SEK 705M (637). Profit after financial items rose to SEK 64M (53). Net investments in fixed assets were made of SEK 33M (27). Action programme In addition to the strong effect of the weather during autumn 2000, we noted a slow-down in the economy which brought about significantly lower demand. Following new statistics from forecasting institutions, our evaluation - that this lower demand level will continue - has been strengthened. During the autumn, this weaker demand, in addition to lower profitability, also brought about increased inventories. An action programme aimed at reducing inventories and adapting purchasing volumes as well as investments and expenses to the new market prerequisites has therefore been initiated. An adaptation of the purchasing volumes started during the autumn. In spite of the sector's long lead times, measures such as reduced repeat purchases and postponement of inward deliveries will make an impact as early as during the third quarter. A full impact of the adaptations will be achieved during the fourth quarter of the financial year. In addition, the sales activities are being strengthened with the objective of reducing the current inventories. The measures will make an impact during the second quarter. During spring, increased sales activities will be implemented aimed at stimulating the weaker demand. One example is to strengthen marketing activities directed at customers with Lindex Cards. The adaptation of costs and investments to the new market prerequisites does influence the expansion rate in the current year. In total, approximately 20 new stores are planned during the financial year. Christmas trading The mild autumn weather and the reduced readiness to buy also affected demand during December. The need for price reductions therefore remained which led to a negative effect on the gross profit margin. Lindex's sales during December 2000 were equivalent to same-stores sales during December 1999. In this connection it should be noted that Lindex's and the sector's sales in December 1999 were the largest ever. However, expectations of an increased growth in sales during December 2000 could not be met. Future information dates Interim Report for the first six months of the 2000/01 financial year will be published on 29 March 2001. Interim Report for the first nine months of the 2000/01 financial year will be published on 28 June 2001. Preliminary Accounts Report 2000/2001 will be published on 11 October 2001. Alingsås, 18 January 2001 AB Lindex (publ) Board of Directors Detailed Audit Report for AB Lindex relating to Interim Report 1 September 2000 - 30 November 2000 In our capacity as Auditors of AB Lindex, we have carried out a review of this Interim Report and in so doing followed the recommendation issued by the Swedish Institute of Authorised Public Accountants, FAR. A review is considerably restricted compared to an audit. Nothing has emerged which indicates that the Interim Report does not comply with the requirements stipulated in the Stockmarket and Annual Accounts Acts. 18 January 2001 Öhrlings PricewaterhouseCoopers AB Robert Barnden Hasse Lundin Authorised Public Accountant Authorised Public Accountant ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/01/18/20010118BIT00730/bit0001.doc The full report http://www.bit.se/bitonline/2001/01/18/20010118BIT00730/bit0002.pdf The full report