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Björn Borg

Earnings Release Feb 13, 2008

3142_10-k_2008-02-13_6b50710d-3b23-4a5c-8997-4dee02f4d5f9.pdf

Earnings Release

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A YEAR WITH STRONG GROWTH AND SUBSTANTIALLY HIGHER PROFIT

New markets gradually advancing

October 1 – December 31, 2007

  • Brand sales* increased by 35 percent to SEK 651 million (483).
  • The Group's net sales rose by 29 percent to SEK 139.8 million (108.5).
  • The gross profit margin was 53.8 percent (52.8).
  • Operating profit rose by 21 percent to SEK 42.3 million (35.0).
  • Profit after tax increased by 25 percent to SEK 30.3 million (24.3).
  • Earnings per share increased by 16 percent to SEK 1.22 (1.05). Calculated after dilution, earnings per share amounted to SEK 1.22 (1.04).
  • The Board of Directors has recommended that the Annual General Meeting approve a dividend of SEK 1.50 per share (0.75).

January 1 – December 31, 2007

  • Brand sales* increased by 59 percent to SEK 2,237 million (1,404).
  • The Group's net sales rose by 53 percent to SEK 494.9 million (324.6).
  • The gross profit margin was 53.6 percent (50.7  ).
  • Operating profit rose by 74 percent to SEK 142.1 million (81.9).
  • Profit after tax increased by 75 percent to SEK 102.1 million (58.5).
  • Earnings per share increased by 64 percent to SEK 4.18 (2.55). Calculated after dilution, earnings per share amounted to SEK 4.17 (2.53).

Comment from the President

"We have completed another strong year with very good growth and profitability, despite that we are now growing from ever higher levels. I am also pleased to report a good fourth quarter in a tougher market. We will continue to focus on developing the new markets that will eventually account for a larger share of our growth," says Nils Vinberg, President of Björn Borg.

SEK Million Oct-Dec
2007
Oct-Dec
2006
Full-year
2007
Full-year
2006
Brand sales* 651 483 2,237 1,404
Net sales 139.8 108.5 494.9 324.6
Gross profit margin, % 53.8 52.8 53.6 50.7
Operating profit 42.3 35.0 142.1 81.9
Operating margin, % 30.2 32.2 28.7 25.2
Profit after tax 30.3 24.3 102.1 58.5
Earnings per share, SEK** 1.22 1.05 4.18 2.55
Earnings per share after dilution, SEK*** 1.22 1.04 4.17 2.53

* Estimated total sales of Björn Borg products at the consumer level, including VAT, based on reported wholesale sales.

** Earnings per share in relation to the weighted average number of shares during the period restated after the split on April 27, 2007.

*** Earnings per share adjusted for any dilution effect after the split on April 27, 2007.

President's comment

Björn Borg is pleased to report significant sales and profit growth once again this year. This was despite high comparative figures and a sluggish market late in 2007. During the fourth quarter sales for comparable concept stores rose by 9 percent and by 7 percent during holiday shopping in December. I am proud of this; it strengthens our self-confidence moving forward. But we also know there are tough challenges ahead, and realize that historical growth numbers are just that, historical.

In established markets, we continue to strengthen our position. Although we even grew substantially in the fourth quarter, we do not think it is reasonable to expect the same high growth rate there in the long term. There is a natural limit to how wide distribution can be in mature markets for our largest product group, underwear. At the same time, we see interesting opportunities to grow in men's wear, which is launching strong new collections in 2008.

It is only natural that new and recently established markets will eventually account for most of the growth we anticipate. In 2007 these countries still contributed marginally to brand sales, but volumes are gradually growing. During the fourth quarter England accounted for nearly one percent of brand sales, with a positive trend reported by more retailers. We are taking further steps in Germany, and during the quarter began sales at the fashion chain Peek & Cloppenburg, among other places. What is important, of course, is not how quickly we grow but that we are in the right places.

We also see positive signs in markets that introduced the brand in 2007, and are especially proud that we are now represented at Galeries Lafayette in Paris – an important indication that the brand is attracting attention in the French market. In 2008 we have plans to enter the U.S. market taking a structured approach, with an aim to launch sales during the year.

As a whole, I would say that we have developed according to plan. At the same time, we are impatient, of course, and want more – that our new markets will give the "old" ones a good match for the growth title.

Nils Vinberg President

Brand sales

Estimated brand sales, i.e., sales of Björn Borg products at the consumer level, including VAT, based on reported wholesale sales, amounted to SEK 651 million (483) during the fourth quarter, an increase of 35 percent year-to-year. For the full-year 2007 estimated brand sales amounted to SEK 2,237 million (1,404), an increase of 59 percent.

Growth for the clothing product area was 39 percent during the quarter compared with the same period of the previous year. Sales in the shoes product area grew strongly during the quarter. For the full year growth was 3 percent, in line with the trend for the Swedish footwear market. The external product areas for eyewear and fragrances also noted strong growth in the fourth quarter. The fragrance product area, which launched new product lines during the year, stood out with growth of 99 percent year-to-year.

Growth was generated almost entirely in established markets, with Netherlands growing the fastest. The share of exports rose during the year from 68 percent to 75 percent.

New markets

The launch of a new website in October was the most important communication activity for Björn Borg in 2007. The site, which plays a key role in brand building and our international expansion, has received a very positive response with growing visitor figures: in January 2008 we had around 130,000 unique visitors. In the French advertising contest Méribel, bjornborg.com won gold for the best e-commerce site and the Grand Prix award for the best European website.

Webshop sales have started on a small scale, mainly in recently established markets, after we decided not to sell in established export markets and the U.S., where the goal is to begin selling online in 2008.

Brand sales* of Björn Borg products January–December 2007. Total SEK 2,237 million (1,404)

*Estimated total sales of Björn Borg products at the consumer level, including VAT, based on reported wholesale sales.

Concept stores

The Dutch franchisee opened three new concept stores during the fourth quarter. At the end of the period there were 36 (24) concept stores, of which 10 (8) are Group-owned. The Dutch franchisee plans to open another new store during the first quarter 2008.

The Group's development

The Group developed positively during the fourth quarter, with continued strong sales and profit growth.

Quarterly net sales and operating profit

Sales

Fourth quarter, October-December 2007

Group sales during the fourth quarter amounted to SEK 139.8 million (108.5), an increase of 29 percent mainly due to continued strong sales growth in all business segments.

January–December 2007

Group sales during the year amounted to SEK 494.9 million (324.6), an increase of 53 percent.

Profit

Fourth quarter, October-December 2007

The gross profit margin in the fourth quarter increased to 53.8 percent (52.8). The acquisition of the trademark, though also a weaker U.S. dollar, positively affected the margin. For the fourth quarter the shoe operations reported higher export sales, which negatively affected the gross profit margin.

Operating profit amounted to SEK 42.3 million (35.0), with an operating margin of 30.2 percent (32.2). Profit before tax improved to SEK 42.7 million (34.1) during the fourth quarter. The improvement is mainly due to substantially higher sales in Sweden and internationally as well as a stronger gross profit margin.

January–December 2007

The gross profit margin during the period increased to 53.6 percent (50.7), largely due to the acquisition of the Björn Borg trademark, though also as a result of the weak U.S. dollar.

Operating profit amounted to SEK 142.1 million (81.9), with an operating margin of 28.7 percent (25.2). Profit before tax improved to SEK 142.2 million (81.4) during the period.

Operating expenses decreased as a share of sales to 24.9 percent, against 25.5 percent in the same period of 2006.

The number of shares outstanding at the end of the period was 25,036,984. Earnings per share amounted to SEK 4.18 (2.55) for the period January-December. Earnings per share calculated after the exercise of outstanding warrants amounted to SEK 4.17 (2.53).

Development by business segment

The Group comprises a number of companies that operate under the Björn Borg brand on every level, from product development to distribution and consumer sales in its own concept stores.

Brand and other

Sales in the Brand segment primarily consist of royalty revenue, sales of services within the Björn Borg network and intra-Group services.

Net sales for the year reached SEK 126.6 million (79.3), an increase of 60 percent.

Operating profit amounted to SEK 41.1 million (24.2) for the full year. Profit improved mainly as a result of the strong sales trend in the network, though also from the acquisition of the Björn Borg trademark.

Product development

The Group has global responsibility for development, design and production of clothing and shoes. A licensee for clothing operates in the Benelux market.

The segment's net sales amounted to SEK 300.7 million (204.6) during the year, an increase of 47 percent.

The main reason for the significant growth is the substantial increase in exports in the clothing product area. The Netherlands, Denmark and Norway are the markets that grew the most. Sweden also reported strong growth.

Operating profit rose to SEK 43.4 million (23.0) owing to the volume increase.

Distribution

The Björn Borg Group is the exclusive distributor in the clothing product area as well as the shoe product area in the Swedish market.

Net sales in the Distribution segment rose to SEK 184.7 million (134.8) for the full year, or by 37 percent. Growth is mainly due to substantially higher sales in the clothing product area.

Operating profit rose to SEK 39.6 million (21.4), mainly due to higher sales, though also to the weak U.S. dollar.

Retail

The Björn Borg Group owns and operates eight concept stores in the Swedish market that sell clothing, shoes, bags and fragrances. Moreover, Björn Borg operates two factory outlets.

Net sales in the Retail segment amounted to SEK 60.3 million (42.3) during the year, an increase of 42 percent. The increase for comparable stores was 15 percent for the full year and 9 percent for the fourth quarter. Operating profit amounted to SEK 17.9 million (13.3).

Intra-Group sales

Intra-Group sales amounted to SEK 177.4 million (136.3) during the year.

Seasonal variations

The Björn Borg Group is active in an industry with seasonal variations. Sales and earnings vary by quarter. With the current product mix, the second quarter is generally the weakest in terms of profit. See the figure on quarterly net sales and operating profit on page 3.

Investments and cash flow

Cash flow from operating activities in the Group amounted to SEK 107.7 million (68.5) for the full year. The changes in working capital are mainly due to an increase in accounts receivable resulting from strong growth.

Total investments in tangible and intangible non-current assets amounted to SEK 15.5 million (194.0) for the full year, the large part of which is attributable to the construction and renovation of concept stores as well as a new headquarters in Stockholm.

Changes in financing activities are mainly due to new share issues, the dividend and the repayment of loans. The increase in cash & cash equivalents amounted to SEK 127.9 million (1.5) for the full year.

Financial position and liquidity

The Björn Borg Group's cash & cash equivalents (net cash balance) amounted to SEK 187.4 million (59.5) at the end of the year. In addition, the Group has unutilized bank overdraft facilities of SEK 130.0 million. The equity/assets ratio was 67.3 percent (39.6).

Licensed product groups

The agreements for the licensed product groups bags, eyewear and fragrances expire on December 31, 2010. The agreements are under renegotiation.

Commitments and contingent liabilities

Due to the repayment of loans, pledged assets have decreased by the equivalent of SEK 60.2 million compared with December 31, 2006. For further information, see note 24 on page 47 of the annual report 2006.

Personnel

The average number of employees in the Group for the full year was 76 (52), of whom 48 are women.

Events after the balance sheet date

There are no significant events to report following the balance sheet date.

Annual General Meeting

The Annual General Meeting of Björn Borg will be held on Thursday, April 10, 2008 at 5:00 p.m. (CET) in Stockholm. The location will be announced in the notice of the meeting.

Parent Company

Björn Borg AB (publ) is primarily engaged in intra-Group activities. In addition, the Company owns 100 percent of the shares in Björn Borg Brands AB and Björn Borg Footwear Holding AB.

The Parent Company's net sales for the fourth quarter 2007 amounted to SEK 22.5 million (11.0) and largely related to intra-Group activities. For the full year the Parent Company's net sales amounted to SEK 44.6 million (29.2). Profit before tax amounted to SEK 10.6 million (6.4) for the fourth quarter and SEK –5.6 million (1.2) for the full year.

Cash & cash equivalents amounted to SEK 180.3 million (36.2). For the full year investments in tangible and intangible non-current assets amounted to SEK 6.8 million (0.4) and largely related to the renovation of new office space.

Significant risks and uncertainties

In its operations, the Björn Borg Group is exposed to risks and uncertainties, which are described in the listing prospectus for the Björn Borg share on the OMX Nordic Exchange dated April 23, 2007. For further information, refer to pages 4-5 in the prospectus (available in Swedish only). No additional risk factors besides those described there have been identified.

Transactions with related parties

During the period transactions were executed on market terms with the former associated company Anteros Lagerhantering AB (now a Group company) and Klockaren Fastighetsförvaltning i Varberg AB. For more detailed information, see note 11 on page 42 of the annual report 2006.

Accounting principles

This year-end report has been prepared in accordance with the Annual Accounts Act and IAS 34. The accounting principles applied during the period are the same as in 2006, as described on pages 35–38 of the annual report 2006. The year-end report is abbreviated and does not contain all the information and disclosures in the annual report. The year-end report should therefore be read together with the annual report 2006.

Outlook 2008

It is not the Company's policy to issue earnings forecasts.

Audit report

This interim report has been reviewed by the Company's auditors. Their review report can be found on page 9.

Income statement

The Group in summary

SEK thousands Oct-Dec
2007
Oct-Dec
2006
Full-year
2007
Full-year
2006
Net sales 139,795 108,537 494,886 324,555
Cost of goods sold -64,527 -51,235 -229,841 -160,068
Gross profit 75,268 57,302 265,045 164,487
Distribution expenses -23,009 -13,938 -81,493 -52,024
Administrative expenses -7,290 -6,413 -30,619 -22,388
Development expenses -2,711 -1,957 -10,858 -8,211
Operating profit 42,258 34,994 142,075 81,864
Net financial items 461 -847 152 -464
Profit before tax 42,719 34,147 142,227 81,400
Tax -12,386 -9,852 -40,136 -22,915
Profit for the period 30,333 24,295 102,091 58,485
Profit attributable to minority interests -29 -29
Profit attributable to Parent Company's shareholders 30,304 24,295 102,062 58,485
Earnings per share, SEK 1.22 1.05 4.18 2.55
Earnings per share after dilution, SEK 1.22 1.04 4.17 2.53
Number of shares 25,036,984 23,207,376 25,036,984 23,207,376
Weighted average number of shares 24,841,651 23,042,308 24,406,699 22,954,076
Effect of dilution* 86,397 396,016 83,461 127,524
Weighted average number of shares after full dilution 24,928,048 23,438,324 24,490,160 23,081,600

* Björn Borg has three outstanding incentive programs based on warrants in Björn Borg AB: option schemes 2005, 2006:1 and 2006:2. For more detailed information, see page 41 of the annual report 2006.

Balance sheet

The Group in summary

December 31 December 31
SEK thousands 2007 2006
Non-current assets
Goodwill 13,944 13,944
Trademarks 187,532 187,532
Other intangible assets 941 950
Tangible non-current assets 17,817 6,331
Financial non-current assets 45
Total non-current assets 220,234 208,802
Current assets
Inventories 24,640 22,036
Current receivables 77,093 58,194
Cash & cash equivalents 187,423 59,544
Total current assets 289,156 139,774
Total assets 509,390 348,576
Equity and liabilities
Equity 342,943 138,054
Non-current liabilities 81,123 112,606
Accounts payable 23,140 20,691
Short-term provisions 2,900
Other current liabilities 62,184 74,325
Total equity and liabilities 509,390 348,576

Change in equity

The Group in summary

Full-year Full-year
SEK thousands 2007 2006
Opening balance 138,054 82,851
Incentive programs 22,480 1,804
New share issue 98,500 2,069
Dividend -18 ,241 -7,155
Minority interest in equity 88
Profit for the year 102,062 58,485
Closing balance 342,943 138,054

Cash flow statement

The Group in summary

Oct-Dec Oct-Dec Full-year Full-year
SEK thousands 2007 2006 2007 2006
Cash flow from operating activities
Before change in working capital 42,099 37,688 130,311 83,192
Change in working capital 2,364 -496 -22,610 -14,689
Cash flow from operating activities 44,463 37,192 107,701 68,503
Cash flow from investing activities -1,756 -110,092 -15,560 -113,758
Dividend -18,241 -7,155
Incentive programs/new share issue 9,742 1,649 120,979 3,874
Change in loans 50,000 -67,000 50,000
Cash flow from financing activities 9,742 51,649 35,738 46,719
Cash flow for the period 52,449 -21,251 127,879 1,464
Cash & cash equivalents at beginning of period 134,974 80,796 59,544 58,080
Cash & cash equivalents at end of period 187,423 59,544 187,423 59,544

Key figures

Group
Oct-Dec Oct-Dec Full-year Full-year
SEK thousands 2007 2006 2007 2006
Gross profit margin, % 53.8 52.8 53.6 50.7
Operating margin, % 30.2 32.2 28.7 25.2
Profit margin, % 30.6 31.5 28.7 25.1
Return on capital employed, % 12.3 19.7 40.9 48.6
Return on average equity, % 12.6 22.0 42.4 53.0
Net profit for the period 30,304 24,295 102,062 58,485
Earnings per share, SEK* 1.22 1.05 4.18 2.55
Earnings per share after dilution, SEK** 1.22 1.04 4.17 2.53
Number of shares 25,036,984 23,207,376 25,036,984 23,207,376
Weighted average number of shares** 24,841,651 23,042,308 24,406,699 22 954 076
Effect of dilution 86,397 396,016 83,461 127 524
Weighted average number of shares after dilution 24,928,048 23,438,324 24,490,160 23,081,600
Equity/assets ratio, % 67.3 39.6 67.3 39.6
Equity per share, SEK 13.70 5.95 13.70 5.95
Investments in intangible assets 0 187,531 225 188,531
Investments in tangible assets 1,756 2,877 15,290 5,542
Depreciation for the period -1,258 -495 -4,121 -1,329
Average number of employees 76 52 76 52

* Earnings per share in relation to the weighted average number of shares during the period restated after the split on April 27, 2007.

** Earnings per share adjusted for any dilution effect after the split on April 27, 2007

Summary by segment

Group
SEK thousands Oct-Dec
2007
Oct-Dec
2006
Full-year
2007
Full-year
2006
Net sales
Brand and other
External sales 14,217 5,944 51,529 26,673
Internal sales 30,410 18,800 75,113 52,604
44,627 24,744 126,642 79,277
Product development
External sales 62,296 48,672 225,371 136,403
Internal sales 24,167 25,159 75,291 68,166
86,463 73,831 300,662 204,569
Distribution
External sales 44,276 38,595 157,774 119,216
Internal sales 7,141 6,320 26,877 15,574
51,417 44 ,915 184,651 134,790
Retail
External sales 19,006 15,326 60,212 42,263
IInternal sales 111 111
19,117 15,326 60,323 42,263
Eliminations -61,829 -50,279 -177,392 -136,344
Net sales 139,795 108,537 494,886 324,555
Operating profit
Brand and other 14,276 12,482 41,145 24,175
Product development 9,354 7,616 43,371 23,006
Distribution 10,594 9,541 39,626 21,353
Retail 8,034 5,355 17,933 13,330
Operating profit 42,258 34,994 142,075 81,864

Quarterly data

Group

SEK thousands Q4
2007
Q3
2007
Q2
2007
Q1
2007
Q4
2006
Q3
2006
Q2
2006
Q1
2006
Brand sales 650,862 659,120 414,058 513,345 483,273 409,305 217,998 292,643
Net sales 139,795 148,597 87,844 118,650 108,537 93,442 43,368 74,209
Gross profit margin, % 53.8 54.6 55.6 50.4 52.8 46.9 56.8 48.3
Operating profit 42,258 49,238 19,188 31,390 34,994 23,991 7,874 15,005
Operating margin, % 30.2 33.1 21.8 26.5 32.2 25.7 16.3 20.2
Profit after financial items 42,719 48,920 19,139 31,448 34,147 24,010 8,145 15,098
Profit margin, % 30.6 32.9 21.8 26.5 31.5 25.7 16.8 20.3
Earnings per share, SEK 1.22 1.42 0.57 0.96 1.06 0.75 0.26 0.47
Earnings per share after dilution, SEK 1.22 1.41 0.56 0.94 1.04 0.74 0.26 0.47
Number of concept stores at end of period 36 33 29 26 24 21 18 17
of which own stores 10 10 9 9 8 7 6 6

Income statement

Parent Company in summary

Oct-Dec Oct-Dec Full-year Full-year
2007 2006 2007 2006
22,522 11,016 44,595 29,217
-1,621 -919 -4,707 -4,280
20,901 10,097 39,888 24,937
-6,884 -2,285 -29,563 -15,320
-2,648 -878 -11,370 -5,892
-1,059 -352 -4,548 -2,357
10,310 6,582 -5,593 1,368
290 -172 12 -170
10,600 6,410 -5,581 1,198
-4,045 -1,959 486 -500
6,555 4,451 -5,095 698

Balance sheet

Parent Company in summary

SEK thousands December 31
2007
December 31
2006
Non-current assets
Tangible non-current assets 6,460 465
Shares in Group companies 54,497 54,497
Total non-current assets 60,957 54,962
Current assets
Receivables from Group companies 39,913 115,402
Current receivables 8,766 1,170
Cash & cash equivalents 180,269 36,167
Total current assets 228,948 152,739
Total assets 289,905 207,701
Equity and liabilities
Equity 187,477 85,243
Untaxed reserves 7,254 5,955
Non-current liabilities, credit institutions 40,000
Due to Group companies 81,807 51,961
Accounts payable 5,694 3,885
Other current liabilities 7,673 20,657
Total equity and liabilities 289,905 207,701

About the Björn Borg Group

The Group owns the Björn Borg trademark and has operations in five product areas: clothing, shoes, bags, eyewear and fragrances. Björn Borg products are sold in over ten markets, of which Sweden and the Netherlands are the largest. Operations are managed through a network of product and distribution companies that are either formally part of the Group or independent companies with licenses for product areas and geographical markets. The Björn Borg Group has operations at every level from branding to consumer sales in its own concept stores. Total sales of Björn Borg products in 2007 amounted to approximately SEK 2.2 billion at the consumer level. Group net sales amounted to SEK 495 million as per December 31, 2007, with 79 employees. Björn Borg is listed on the OMX Nordic Exchange Mid Cap list.

Definitions

Gross profit margin Net sales less cost of goods sold divided by net sales.

Operating margin Operating profit as a percentage of net sales.

Profit margin Profit before tax as a percentage of net sales.

Equity/assets ratio Equity as a percentage of total assets.

Return on capital employed Profit after financial items plus financial expenses as a percentage of average capital employed.

Return on equity

Net profit according to the income statement as a percentage of average equity. Average equity is calculated by adding equity at January 1 to equity at December 31 and dividing by two.

Earnings per share

Earnings per share in relation to the weighted average number of shares during the period.

Earnings per share after dilution

Earnings per share adjusted for any dilution effect.

Brand sales

Estimated total sales of Björn Borg products at the consumer level, including VAT, based on reported wholesale sales.

Björn Borg AB (publ)

Stockholm, February 13, 2008

Nils Vinberg Member of the Board, President and CEO

Auditors' review report

Introduction

We have reviewed the interim report for Björn Borg AB (publ) for the period January 1 – December 31, 2007. The Board of Directors and the President are responsible for the preparation and presentation of this interim report in accordance with IAS 34 and the Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.

Focus and scope of the review

We conducted our review in accordance with the Standard on Review Engagements SÖG 2410, Review of Interim Financial Information Performed by the Independent Auditors of the Entity. A review consists of making inquiries, primarily to persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review has a different focus and is substantially less in scope than an audit conducted in accordance with Standards on Auditing in Sweden RS and other generally accepted auditing practices in Sweden. The procedures performed in a review do not enable us to obtain a level of assurance that would make us aware of all significant matters that might be identified in an audit. Therefore, the conclusion expressed based on a review does not give the same level of assurance as a conclusion expressed on the basis of an audit.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the year-end9 report is not, in all material respects, prepared in accordance with IAS 34 and the Annual Accounts Act for the Group and in accordance with the Annual Accounts Act for the Parent Company.

Stockholm February 13, 2008 Deloitte AB

Håkan Pettersson Tommy Mårtensson Authorized Public Accountant Authorized Public Accountantr

Upcoming information dates

The interim report January–March 2008 will be released on May 7, 2008. The interim report January–June 2008 will be released on August 20, 2008. The interim report January–September 2008 will be released on November 12, 2008.

For further information, please contact:

Nils Vinberg, President and CEO Tel: +46 8 506 33 700 or +46 708 63 11 01 [email protected]

Björn Borg AB Götgatan 78 SE-118 30 Stockholm, Sweden www.bjornborg.com

Björn Borg is required to make public the information in this report in accordance with the Securities Market Act. The information was released for publication on February 13 at 7:30 a.m. (CET).

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