Quarterly Report • May 7, 2008
Quarterly Report
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BJÖRN BORG AB INTERIM REPORT FOR THE FIRST QUARTER JANUARY – MARCH 2008
"Like many others in the industry, we experienced generally tougher market conditions during the first quarter. That is why we are especially pleased to report double-digit growth, although lower than before, and continued high profitability. We see this as proof that we are doing the right things – by building the brand and developing the business," says President Nils Vinberg.
| SEK million | January-March 2008 |
January-March 2007 |
April 2007- March 2008 |
Full-year 2007 |
|---|---|---|---|---|
| Brand sales* | 689 | 513 | 2 ,416 | 2,237 |
| Net sales | 1 38.7 11 |
8.7 | 515.0 | 494.9 |
| Gross profit margin, % | 51.9 | 50.4 | 53.8 | 53.6 |
| Operating profit | 36.5 | 31.4 1 | 47.2 1 | 42.1 |
| Operating margin, % | 26.3 | 26.5 | 28.6 | 28.7 |
| Profit after tax | 26.8 | 22.6 1 | 06.2 1 | 02.1 |
| Earnings per share, SEK** | 1 .07 |
0.96 | 4.29 | 4.18 |
| Earnings per share after dilution, SEK*** | 1 .07 |
0.94 | 4.29 | 4.17 |
*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.
Our performance during the first quarter of the year largely confirms what I stressed in the year-end report: that our growth in mature markets will slow slightly. This is natural given our high penetration in these countries. In light of this, I am very pleased that we can report continued strong growth of 34 percent for the brand and 17 percent for the Group with profitability remaining very good.
Despite the slightly lower growth rate in our established markets, we see that the brand still has a very strong position. Our marketing efforts are important to this, not least our web campaigns, which have clearly had an impact with our target audiences and in the industry. Among mature markets, the Netherlands and Finland posted the strongest development during the quarter, with growth of around 50 percent. In Sweden, brand sales increased by a solid 20 percent.
In new markets, we continue to work with our distributors to accelerate growth. This has necessitated investments by the Group in the form of service and support to establish these operations as well as in initial marketing – investments we consider vital to create the best opportunities for Björn Borg to grow in these markets. Building new operations takes time, as it always does to bring a brand to a totally new market. But we are taking positive steps and believe strongly in Björn Borg's prospects. We see clear proof of this, including in England, where sales began to speed up in 2007 and have continued strongly this year. We are now working determinedly to achieve similar volumes in other new markets. In the U.S., preparations are progressing at a rapid pace: distribution has been arranged, sales staff has been recruited, a trade show in Las Vegas is planned in August and a showroom is being prepared to open in New York in the near future.
Recently we announced that we have recruited Martin Sjöström, previously president of Whyred, as Business Area Manager for our largest product area, clothing. Martin has an extensive background from senior positions at exciting fashion companies and will play an important role in our continued expansion internationally. I am very pleased to have him onboard.
*Estimated total sales of Björn Borg products at the consumer level, including VAT, based on reported wholesale 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 689 million (513) during the first quarter, an increase of 34 percent year-to-year.
Growth for the clothing product area was 33 percent during the quarter compared with the same period of the previous year. Sales in the footwear product area rose by 57 percent during the quarter as a result of substantial growth in export markets. The external product areas for bags, eyewear and fragrances noted strong growth during the first quarter, with a sales increase of approximately 25 percent.
Growth will still be generated almost entirely in established markets, at the same time that new markets are contributing a higher share of total brand sales. Among them, operations in England were especially strong during the quarter, with exponential sales growth in the last quarter. During the quarter Germany posted relatively weak development, while other new markets noted good growth.
No new concept stores were opened during the first quarter. At the end of the period there were 36 (26) concept stores, of which 10 (9) are Group-owned. The Dutch franchisee plans to open five new stores during the second quarter 2008.
The Group developed positively during the first quarter, with continued strong sales and profit growth.
Group sales during the first quarter amounted to SEK 138.7 million (118.7), an increase of 17 percent due to continued strong sales in all business segments. The difference between the Group's growth and brand sales growth is due to exchange rate effects. A large share of consolidated sales is invoiced in U.S. dollar, while brand sales are invoiced in each distributor's domestic currency, i.e., euro, NOK, SEK and DKK.
The gross profit margin during the period increased to 51.9 percent (50.4), largely due to a weaker dollar, which affected the margin positively.
Operating profit amounted to SEK 36.5 million (31.4), with an operating margin of 26.3 percent (26.5). Profit before tax improved to SEK 37.3 million (31.4) during the period.
Operating expenses as a share of net sales increased to 25.5 percent, against 24.0 percent in the same period of 2007. The increase is largely due to measures that have been taken to strengthen the organization for further growth, mainly in the Group's newer markets, as well as in product development for clothing. This has entailed several new hires in the last year, in addition to startup costs in the U.S. and marketing efforts in other new markets.
The number of shares outstanding at the end of the period was 25,036,984. Earnings per share amounted to SEK 1.07 (0.96) for the period January-March. Earnings per share calculated after the exercise of outstanding warrants amounted to SEK 1.07 (0.94).
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.
Sales in the Brand and other segment primarily consist of royalty revenue, sales of services within the Björn Borg network and intra-Group services.
Net sales for the period reached SEK 31.0 million (26.3), an increase of 18 percent.
Operating profit amounted to SEK 13.1 million (10.8) for the period. Profit improved mainly as a result of the strong sales trend in the network.
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 75.9 million (80.6) during the period, a decrease of 6 percent.
The sales decrease is mainly due to a weaker dollar, as well as a slight decrease in inventories in the Swedish distribution operations.
Operating profit decreased to SEK 8.9 million (9.7) owing to lower sales volume.
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 58,7 million (49.4) for the period, or by 19 percent. Growth is mainly due to higher clothing sales, but is also a result of the acquisition of Anteros Lagerhantering AB.
Operating profit rose to SEK 14.8 million (10.6), mainly due to higher sales, though also to the lower U.S. dollar.
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 11.1 million (10.2) during the period, an increase of 9 percent. For comparable stores, sales decreased by 7 percent for the period. The operating loss amounted to SEK –0.3 million (0.4).
Intra-Group sales amounted to SEK 38.0 million (47.8) during the year.
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.
Cash flow from operating activities in the Group amounted to SEK 19.4 million (10.4) for the period. The changes in working capital are mainly due to an increase in accounts receivable.
Total investments in tangible and intangible non-current assets amounted to SEK 0.4 million (4.6) for the period, the large part of which is attributable to the reconstruction of concept stores.
The increase in cash & cash equivalents amounted to SEK 18.9 million (54.4) for the full year.
The Björn Borg Group's cash & cash equivalents (net cash balance) amounted to SEK 206.3 million (113.9) at the end of the period. In addition, the Group has unutilized bank overdraft facilities of SEK 127.5 million. The equity/assets ratio was 69.0 percent (61.1).
No changes were made with regard to pledged assets and contingent liabilities compared with December 31, 2007. For further information, see note 24 on page 48 of the annual report 2007.
The average number of employees in the Group for the period was 86 (55), of whom 58 are women. Of total number of employees twelve persons are a result of the acquisition of Anteros Lagerhantering AB.
There are no significant events to report following the balance sheet date.
The Annual General Meeting of Björn Borg on April 10, 2008 resolved to pay a dividend of SEK 37,555,476 or SEK 1.50 per share. The meeting also resolved to reelect Directors Fredrik Lövstedt, Vilhelm Schottenius, Mats H Nilsson, Håkan Roos, Michael Storåkers, Lottie Svedenstedt and Nils Vinberg, with Fredrik Lövstedt as Chairman of the Board.
To create a new incentive program mainly for persons employed by the Björn Borg Group who have not had the opportunity to participate in previous incentive programs, the Meeting resolved in accordance with the Board's proposal to issue 500,000 warrants, each entitling the holder to subscribe for one (1) new share in Björn Borg.
In accordance to the Board's proposal, the Annual General Meeting authorized the Board, on one or more occasions until the next Annual General Meeting, with or without deviating from the shareholders' preferential rights, to decide on new issues of shares, warrants or convertibles. Total amount of shares will at the most increase by 1,250,000 shares.
The Annual General Meeting authorized the Board, on one or more occasions until the next Annual General Meeting, to resolve to acquire the company's own shares to the extent that its shareholding after such acquisitions does not exceed ten percent of the total number of shares in the company. Further, the Meeting authorized the Board, on one or more occasions until the next Annual General Meeting, to resolve to transfer shares in the company to third parties. Transfers are limited to the maximum of shares held by the company at any given time.
The Meeting adopted the Board's proposed guidelines for remuneration to senior executives, comprising the President and the seven other members of Senior Management.
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 first quarter 2008 amounted to SEK 7.6 million (6.3) and largely related to intra-Group activities. The loss before tax amounted to SEK –5.1 million (–4.8) for the first quarter.
Cash & cash equivalents amounted to SEK 11.1 million (43.3). For the full year investments in tangible and intangible non-current assets amounted to SEK 0.2 million (0.3).
In its operations, the Björn Borg Group is exposed to risks and uncertainties, which are described in the annual report for 2007. For further information, refer to pages 33–34 in the annual report. No additional risk factors have been identified other than those described there.
During the period transactions were executed on market terms with Klockaren Fastighetsförvaltning i Varberg AB. For more detailed information, see note 11 on page 45 of the annual report 2007.
This interim 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 2007, as described on pages 40–42 of the annual report 2007. The interim report is abbreviated and does not contain all the information and disclosures in the annual report 2007. The interim report should therefore be read together with the annual report 2007.
It is not the Company's policy to issue earnings forecasts.
This interim report has not been reviewed by the Company's auditors.
| January-March | January-March | April 2007- | Full-year | |
|---|---|---|---|---|
| SEK thousands Net sales |
2008 138,748 |
2007 118,650 |
March 2008 514,984 |
2007 494,886 |
| Cost of goods sold | -66,803 | -58,791 | -237,853 | -229,841 |
| Gross profit | 71,946 | 59,859 | 277,132 | 265,045 |
| Distribution expenses | -23,460 | -18,042 | -86,912 | -81,493 |
| Administrative expenses | -8,993 | -7,632 | -31,979 | -30,619 |
| Development expenses | -2,972 | -2,794 | -11,035 | -10,858 |
| Operating profit | 36,521 | 31,390 | 147,205 | 142,075 |
| Net financial items | 737 | 58 | 831 1 | 52 |
| Profit before tax | 37,258 | 31,448 | 148,037 | 142,227 |
| Tax | -10,432 | -8,806 | -41,763 | -40,136 |
| Profit for the period | 26,826 | 22,643 | 106,274 | 102,091 |
| Profit attributable to minority interests | -6 | 0 | -35 | -29 |
| Profit attributable to Parent Company's shareholders | 26,820 | 22,643 | 106,238 | 102,062 |
| Earnings per share, SEK | 1.07 | 0.96 | 4.29 | 4.18 |
| Earnings per share after dilution, SEK | 1.07 | 0.94 | 4.29 | 4.17 |
| Number of shares | 25,036,984 | 24,321,584 | 25,036,984 | 25,036,984 |
| Weighted average number of shares | 25,036,984 | 23,578,780 | 24,771,251 | 24,406,699 |
| Effect of dilution* | 69,355 1 | 45,457 | 7,359 | 83,461 |
| Weighted average number of shares after full dilution | 25,106,339 | 23,724,237 | 24,778,609 | 24,490,160 |
* 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 45 of the annual report 2007.
| SEK thousands | March 31 2008 |
March 31 2007 |
December 31 2007 |
|---|---|---|---|
| Non-current assets | |||
| Goodwill | 1 3,944 1 |
3,944 1 | 3,944 |
| Trademarks | 1 87,532 1 |
87,532 1 | 87,532 |
| Other intangible assets | 880 | 900 | 941 |
| Tangible non-current assets | 17,170 1 | 0,391 1 | 7,817 |
| Financial non-current assets | – | 45 | – |
| Total non-current assets | 219,526 | 212,812 | 220,234 |
| Current assets | |||
| Inventories | 23,398 | 29,690 | 24,640 |
| Current receivables | 87,007 | 67,771 | 77,093 |
| Cash & cash equivalents | 206,348 11 | 3,920 1 | 87,423 |
| Total current assets | 316,753 | 211,381 | 289,156 |
| Total assets | 536,279 | 424,193 | 509,390 |
| Equity and liabilities | |||
| Equity | 369,769 | 259,198 | 342,943 |
| Non-current liabilities | 82,864 | 73,048 | 81,123 |
| Accounts payable | 26,559 | 23,157 | 23,140 |
| Other current liabilities | 57,087 | 68,789 | 62,184 |
| Total equity and liabilities | 536,279 | 424,193 | 509,390 |
| SEK thousands | January-March 2008 |
January-March 2007 |
Full-year 2007 |
|---|---|---|---|
| Opening balance | 342,943 1 | 38,054 1 | 38,054 |
| Incentive programs | – | – | 22,480 |
| New share issue | – | 98,500 | 98,500 |
| Dividend | – | – | -18,241 |
| Minority interest in equity | 6 | – | 88 |
| Profit for the period | 26,820 | 22,643 1 | 02,062 |
| Closing balance | 369,769 | 259,198 | 342,943 |
| January-March | January-March | Full-year | |
|---|---|---|---|
| SEK thousands | 2008 | 2007 | 2007 |
| Cash flow from operating activities | |||
| Before change in working capital | 23,331 | 22,862 1 | 30,311 |
| Change in working capital | -3,956 | -12,425 | -22,610 |
| Cash flow from operating activities | 19,374 | 10,437 | 107,701 |
| Cash flow from investing activities | -449 | -4,561 | -15,560 |
| Dividend | – | – | -18,241 |
| Incentive programs/new share issues | – | 98,500 1 | 20,980 |
| Change in loans | – | -50,000 | -67,001 |
| Cash flow from financing activities | – | 48,500 | 35,738 |
| Cash flow for the period | 18,925 | 54,376 | 127,879 |
| Cash & cash equivalents at beginning of period | 1 87,423 |
59,544 | 59,544 |
| Cash & cash equivalents at end of period | 206,348 | 113,920 | 187,423 |
* 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.
| Group | ||||
|---|---|---|---|---|
| January-March | January-March | April 2007- | Full-year | |
| SEK thousands | 2008 | 2007 | March 2008 | 2007 |
| Operating revenue | ||||
| Brand and other | ||||
| External sales | 15,029 11 | ,664 | 54,894 | 51,529 |
| Internal sales | 16,005 1 | 4,608 | 76,510 | 75,113 |
| 31,034 | 26,272 | 131,404 | 126,642 | |
| Product development | ||||
| External sales | 60,279 | 52,904 | 232,745 | 225,371 |
| Internal sales | 15,612 | 27,672 | 63,232 | 75,291 |
| 75,891 | 80,576 | 295,977 | 300,662 | |
| Distribution | ||||
| External sales | 52,301 | 43,842 1 | 66,233 1 | 57,774 |
| Internal sales | 6,410 | 5,532 | 27,755 | 26,877 |
| 58,701 | 49,374 | 193,988 | 184,651 | |
| Retail | ||||
| External sales | 11,140 1 | 0,239 | 61,113 | 60,212 |
| Internal sales | – | – | 111 111 | |
| 11,140 | 10,239 | 61,223 | 60,323 | |
| Eliminations | -38,027 | -47,812 | -167,608 | -177,392 |
| Operating revenue | 138,748 | 118,650 | 514,984 | 494,886 |
| Operating profit | ||||
| Brand and other | 13,115 1 | 0,779 | 48,481 | 46,145 |
| Product development | 8,876 | 9,672 | 37,575 | 38,371 |
| Distribution | 14,816 1 | 0,574 | 43,867 | 39,626 |
| Retail | -286 | 364 1 | 7,282 1 | 7,933 |
| Operating profit | 36,521 | 31,390 | 147,205 | 142,075 |
| Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | |
|---|---|---|---|---|---|---|---|---|
| SEK thousands | 2008 | 2007 | 2007 | 2007 | 2007 | 2006 | 2006 | 2006 |
| Brand sales | 688,828 | 650,862 | 659,120 | 414,058 | 513,345 | 483,273 | 409,305 | 217,998 |
| Net sales 1 |
38,748 1 | 39,795 1 | 48,597 | 87,844 11 | 8,650 1 | 08,537 | 93,442 | 43,368 |
| Gross profit margin, % | 51.9 | 53.8 | 54.6 | 55.6 | 50.4 | 52.8 | 46.9 | 56.8 |
| Operating profit | 36,521 | 42,258 | 49,238 1 | 9,188 | 31,390 | 34,994 | 23,991 | 7,874 |
| Operating margin, % | 26.3 | 30.2 | 33.1 | 21.8 | 26.5 | 32.2 | 25.7 1 | 6.3 |
| Profit after financial items | 37,258 | 42,719 | 48,920 1 | 9,139 | 31,448 | 34,147 | 24,010 | 8,145 |
| Profit margin, % | 26.9 | 30.6 | 32.9 | 21.8 | 26.5 | 31.5 | 25.7 1 | 6.8 |
| Earnings per share, SEK 1 |
.07 1 | .22 1 | .42 | 0.57 | 0.96 1 | .06 | 0.75 | 0.26 |
| Earnings per share after dilution, SEK 1 | .07 1 | .22 1 | .41 | 0.56 | 0.94 1 | .04 | 0.74 | 0.26 |
| Number of concept stores at end of period | 36 | 36 | 33 | 29 | 26 | 24 | 21 1 | 8 |
| of which own concept stores 1 |
0 1 | 0 | 10 | 9 | 9 | 8 | 7 | 6 |
| January-March | January-March | April 2007- | Full-year | |
|---|---|---|---|---|
| SEK thousands | 2008 | 2007 | March 2008 | 2007 |
| Net sales | 7,645 | 6,340 | 45,901 | 44,595 |
| Cost of goods sold | -376 | -1,148 | -3,934 | -4,707 |
| Gross profit | 7,270 | 5,192 | 41,967 | 39,888 |
| Distribution expenses | -8,128 | -6,220 | -31,471 | -29,563 |
| Administrative expenses | -3,126 | -2,392 | -12,104 | -11,370 |
| Development expenses | -1,251 | -957 | -4,842 | -4,548 |
| Operating profit | -5,235 | -4,378 | -6,450 | -5,593 |
| Net financial items | 135 | -471 | 618 | 12 |
| Profit before tax | -5,100 | -4,849 | -5,832 | -5,581 |
| Tax | 1,428 | 1,358 | 556 | 486 |
| Profit for the period | -3,672 | -3,491 | -5,275 | -5,095 |
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 part of the Group or are 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 in 2007, with 79 employees. The Björn Borg share is listed on the OMX Nordic Exchange, Mid Cap list since May 7, 2007.
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.
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 in relation to the weighted average number of shares during the period.
Earnings per share adjusted for any dilution effect.
Estimated total sales of Björn Borg products at the consumer level, including VAT, based on reported wholesale sales.
Björn Borg AB (publ)
Stockholm, May 7, 2008
Nils Vinberg CEO
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. The year-end report for 2008 will be released on February 18, 2009.
Nils Vinberg, President and CEO Tel: +46 8 506 33 700 or +46 708 631101 [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 May 7, 2008 at 7:30 a.m.
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