Lindex Year-End Report 2001/2002

YEAR-END REPORT 2001/2002 1 September 2001-31 August 2002 Profit more than doubled, focus on growth · Profit after financial items amounted to SEK 276M (100) and operating profit increased to SEK 240M (86). Historically, the Lindex chain reports a high profit level in the Nordic countries. · During the financial year, sales increased by 6.9 per cent (14.4) to SEK 5,031M (4,707). · The gross margin was significantly strengthened during the financial year and increased to 55.2 per cent (49.7). · Significantly improved cash flow from current operations of SEK 669M (117). · The cost savings from the action programme amounts to more than SEK 100M. · An additional six stores in Germany achieved break-even in the fourth quarter. The deficit continues to reduce. · The Board of Directors proposes that the Annual General Meeting sets a dividend of SEK 4,00 per share for the 2001/2002 financial year. The Lindex Group consists of two retail chains: Lindex with 316 stores in the Nordic market and 33 stores in Germany, and Twilfit with 58 stores in Sweden of which 10 are operated as franchise stores. The Group's product areas are Ladies' Wear, Lingerie and Children's Clothing. For further information, please contact: Jörgen Johansson, President and CEO Tel: +46 322-777 02 Mobile: +46 70-594 21 22 Peter Andersson, Chief Financial Tel: +46 322-778 50 Officer Mobile: +46 70-584 44 37 Ulrika Danielson, Manager of Tel: +46 322-744 00 Corporate Communications Mobile: +46 70-950 16 13 Market and demand Growth in the retail clothing markets in which Lindex operates weakened still further in the fourth quarter. During the financial year, the Swedish market weakened slightly whilst the Norwegian and Finnish markets reported positive growth figures. However, the German market continued to fall. The unusually warm end to the summer affected demand in the Nordic markets. This generated a weaker than anticipated sales growth during the fourth quarter. In total, the hot weather is expected to have affected sales by approximately SEK 40M and operating profit by approximately SEK 20M. Sales relating to the return to school were particularly affected. Sales and gross margin During the period September 2001-August 2002, Lindex's sales increased by 6.9 per cent (14.4) to SEK 5,031M (4,707). Lindex's same-stores sales fell by 0.7 per cent (+6.7). New stores generated an increase of 3.8 per cent (7.7). Excluding fluctuations in exchange rates, same-stores sales fell by 3.3 per cent (+3.6). Twilfit's sales increased by 3.9 per cent (0.0). In the fourth quarter of the financial year, sales rose by 2.7 per cent to SEK 1,237M (1,204). Same-stores sales fell by 6.6 per cent compared with the previous year. New stores generated an increase of 2.7 per cent and Twilfit increased the Lindex Group's sales by 6.8 per cent (0.0). Lindex continues to position and strengthen its brand name through the strategy initiated during spring 2002. Margins strengthened as a result of significantly fewer price campaigns. The gross margin was significantly strengthened throughout the financial year and increased to 55.2 per cent (49.7) and improved in all four geographic markets and all three business areas. Gross margins within business area Ladies' Wear and the German market developed especially positively during the year. The strengthening of the gross margin was partly due to a significantly better balance between product supply and demand, the successful phasing out of inventories and fewer price activities in the form of general discount offers. In addition, the logistics costs have been substantially reduced. The gross margin for the fourth quarter was strengthened and amounted to 53.4 per cent (48.1). 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. Lindex's hedging policy with contracts for a maximum period of three to six months from date of order reduces the currency risk. Profit after financial items rose to SEK 276M Profit after financial items rose to SEK 276M (100). Operating profit for the financial year amounted to SEK 240M (86). The adaption of costs has been implemented in accordance with the action programme and the savings amounted to more than SEK 100M. Consequently, the previously announced target, has been realised. Costs for organisational and supply chain projects, store concept development and repositioning brand names within Lindex and Twilfit were charged to the financial year as were closing down costs for two stores in Germany and one store in Finland. Profit is also charged with costs for opening 11 new Lindex stores and a large number of refurbishments. Twilfit affected net profit for the year. Profit after financial items in the Nordic countries increased to SEK 414M (270), which historically is the highest level for the Lindex chain. The profit margin in the Nordic countries amounted to 8.9 per cent. The net charge (sales minus costs) to the result from the German operation amounted to SEK 138M (170). Financial income and expenses amounted to SEK 36M (14). Interest expenses on interest-bearing liabilities, which averaged SEK 416M (650) during the financial year, amounted to SEK 24M (36). Financial income and expenses were positively affected by interest income from the Lindex Card, Lindex Club. Profit per share after full tax was SEK 11.20 (4.40). Profit after financial items for the fourth quarter amounted to SEK 44M (34). Impact of action programme The action programme has made an impact in a number of areas. The implemented measures resulted in a sustained reduction in inventory levels and a better balance between product supply and demand. This has led to significant improvements in gross margins and a substantially improved cash flow. In total, the value of the cost savings amounts to more than SEK 100M. There is a potential for further savings. The logistics and handling costs have been significantly reduced. In addition, the number of hours worked in the store network has been reduced. Savings, especially within administrative support functions and head office functions, have also been implemented. Of the nine stores which are scheduled to be closed, seven stores were closed during the period. The structural costs, which totalled SEK 39M, were charged to the previous financial year. Germany - an additional six stores achieved break-even Sales in the retail clothing and outfit sector in Germany were 4.0 lower than in the previous financial year. Lindex's same-stores sales fell by 9.1 per cent (-1.2) during the period. In the fourth quarter, Lindex's sales were on a par with the market. During the period, Lindex succeeded in significantly increasing the gross margin and reducing costs, limiting the impact on the result of the weak sales trend. As a result, the same-stores deficits reduced. An additional six stores achieved break-even during the fourth quarter. A total of ten stores has now achieved break-even (income exceeds expenditure) with regard to operating profit before depreciation. The full-year result of the German operation was charged with costs for the closure of two stores and opening costs for three stores. In total, the net charge of the German operation amounted to SEK 138M (170) for the financial year. Net charge for the fourth quarter amounted to SEK 32M (49). Christian D. Lorentz, who has a long experience of the German retail clothing and outfit market and international retail clothing chains, has been appointed country manager in Germany. Proactive work with the store network During the financial year, Lindex opened a total of 11 (19) new Lindex stores - two in Sweden, two in Norway, three in Germany and four in Finland. Two Twilfit stores also opened during the year. The acquisition of Twilfit meant an addition of 61 stores, of which 13 are franchise stores. Nine Lindex stores and five Twilfit stores were closed during the financial year. Investment programme and continued growth The Board of Directors has decided to make significant investment in the Nordic markets over a two year period. The programme is aimed at increasing the growth rate and improving the results in existing stores; increasing the company's presence and market share; and strengthening Lindex's image in large cities. In total, 90 store locations are expected to be the subject of re-profiling or other measures. Lindex has also made a decision about continued investment to improve the infrastructure in product supply and IT systems. The investment will be implemented to support changes in working methods and flows throughout the supply chain. The investment in Germany continues. Over the next two year period, Lindex will invest in development activities in the existing stores as well as closures of stores. Lindex expects that the German operation will generate a positive cash flow within two years and a positive profit contribution within four years. Twilfit Lindex operates and develops Twilfit as an independent brand but is improving and co-ordinating its purchasing and logistics flows as well as the administrative functions with the other parts of the Lindex Group. Twilfit will launch a new store concept during October 2002. The product range will be relaunched with a new style and functional classification. The emphasis is on inspiration and customer experience, and better customer information. The objective is to strengthen Twilfit's position in large cities. Taxes Paid and deferred taxes amounted to SEK 122M (39) in the financial year. In Sweden, Norway and Finland the tax rate was 28 per cent, in Germany 38 per cent, and in Hong Kong 16 per cent. Deferred taxes recoverable on accumulated losses in the German company are reported at SEK 101M, which reduced tax on the year's profit by SEK 10M (42). Inventories Inventories on 31 August 2002 amounted to SEK 796M compared with SEK 954M on 31 August 2001 and amounted to 15.8 per cent of sales at the end of the financial year. The turnover rate amounted to 2.7 (2.2) times per annum. Shorter lead times and more flexible product supply Lindex has purchasing offices in Hong Kong, Shanghai, New Delhi, Dhaka, Istanbul and Bucharest. Through the purchasing networks, Lindex is getting closer to the suppliers in the respective country. This means significant opportunities to direct the purchases to the markets that have the best quality, price, speed and export quota regulations. A strong local presence also means shorter lead times and increased flexibility in both the production and purchasing processes. This is a prerequisite for ensuring production at the right time. Products are also purchased as close to the season as possible to optimise the accuracy of both collections and product supply. During the financial year, Lindex initiated a project, which will secure an optimal distribution of the products through the support of a new business system. In the new product flow, the top-up of basic fashion products will be handled from a new pick-up inventory. Product allocation is governed by the demand of each store. The implementation of the new business system was initiated on a small scale in September 2002. During 2003, the system will handle the majority of basic fashion and fashion products. Investment The Group's net investment in fixed assets amounted to SEK 247M (210) for the financial year. Most of this is related to the acquisition of Twilfit, investment in new stores, refurbishment of stores and the new business system. Cash flow from current operations SEK 669M The improved profit, lower inventory level and reduced expansion rate generated a significant strengthening of the cash flow from current operations of SEK 669M (117). The cash flow was also influenced by increased trade debtors which amounted to SEK 315M (308) on 31 August 2002. Of total trade debtors, the Lindex Club trade debtors amounted to SEK 315M (300). During the period, Lindex signed an agreement with Ikanobanken in Sweden and IKANO Finans in Norway. The agreement means that Lindex will transfer its customer portfolio for the Lindex credit card which consists of approximately 700,000 credit customers. Through the deal Lindex will receive a capital contribution of approximately SEK 250M which will make an impact on the cash flow during the first quarter of the 2002/2003 financial year. Lindex will continue to own the card concept and will still use the card as an important marketing channel. The cash flow after investment amounted to SEK 448M (-143). Financing and liquidity On 31 August 2002, liquid funds amounted to SEK 212M compared with SEK 186M on 31 August 2001. On 31 August 2002, net borrowing was SEK 188M compared with SEK 540M on 31 August 2001, a fall of SEK 352M. During the period, the net debt/equity ratio fell from 55.6 per cent to 17.3 per cent and the equity ratio amounted to 45.3 (40.1) per cent. Personnel The number of full-time employees during the financial year amounted to 3,130 compared with 2,950 during the 2000/2001 financial year. The increase is mainly due to the acquisition of Twilfit and recruitment by the newly-opened Lindex stores. In order to get closer to the customer and fashion trends, and to increase its attractiveness as an employer, Lindex decided in September 2002 to move its head office to Gothenburg. The company will move into its new premises in the city centre during October 2003. Incentive scheme The Annual General Meeting on 18 January 2001 resolved to implement a new incentive scheme for senior executives. The scheme is based on issuing warrants. The Annual General Meeting on 17 January 2002 resolved to continue this scheme relating to the period 1 September 2001-31 August 2002. The Board of Directors has decided to recommend that the Annual General Meeting in January 2003 should renew the scheme. Parent company Sales fell by SEK 20M, equivalent to 0.7 per cent, to SEK 2 662M (2,682). Profit after financial items increased to SEK 214M (208). Net investment in fixed assets was made of SEK 303M (327). Profit after tax increased to SEK 71M (99). Net borrowing by the parent company amounted to SEK 228M (547) on 31 August 2002. Accounting principles This year-end report has been prepared in acordance with the Swedish Financial Accounting Standards Council's recommendation RR 20 Interim Reporting. The same accounting principles and calculation methods have been applied in this Interim Report as in the latest Annual Report. Dividend The Board of Directors has decided to recommend that the Annual General Meeting sets a dividend of SEK 6.00 per share for the 2001/2002 financial year, equivalent to a total of SEK 83M (41). Annual General Meeting The Annual General Meeting will be held in Alströmergymnasiets aula, Teatergatan, Alingsås, on Thursday 16 January 2003 at 4 pm. Future information dates The Annual Report will be published and distributed to the shareholders on 6 December 2002.The Annual Report will be available at head office in Kristineholmsvägen 14-16 in Alingsås and on www.lindex.com. Interim Report for the first quarter of the 2002/2003 financial year will be published on 16 January 2002. Alingsås, 17 October 2002 AB Lindex (publ) Board of Directors ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/10/17/20021017BIT01080/wkr0001.doc The full report http://www.waymaker.net/bitonline/2002/10/17/20021017BIT01080/wkr0002.pdf The full report