Transcript Document

Danske Markets
Small/MidCap Seminar
December 2008
Agenda
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Introduction to BoConcept
BoConcept's franchise model
Latest financial development – 1H 2008/09
Targets, strategy and short term actions
Q&As
Contact:
Hans Barslund, EVP & CFO
E-mail: [email protected]
INTRODUCTION TO BOCONCEPT
:
OUR VISION
what we want to achieve
TO MAKE BOCONCEPT
NO. 1 BRAND
WITHIN URBAN INTERIORS
®
BoConcept anno 2008
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International retail-oriented concept holder within furniture and lifestyle products
for private homes
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Focuses on development, support and supply to global franchise based retail
chain, BoConcept, which operates in 47 countries
– 239 BoConcept Brand Stores
• Most important sales channel
• 400-800 sqm individual operated franchise stores on high-traffic
locations
• BoConcept products exclusively
– 114 BoConcept Studios
• 100-400 sqm shop-in-shops
• BoConcept's products supplements other brands
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BoConcept core competencies:
– Design and branding
– 'Best practice' in store management
– Supply Chain Management and sourcing
– Production of board furniture
BoConcept's market position
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BoConcept's concept is truly global
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BoConcept's products are the most
commercial and coordinated on
the market in terms of design
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Collection divided into three
product lines positioned in high
end of mid market to reduce
exposure to price competition
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BoConcept's primary target group
consists of brand-oriented trend
spotters who are too smart to
excessive prices for designer
furniture
Solid financial development
Profit before tax (DKKm)
Revenue (DKKm) and growth
1.200
1.000
800
600
400
200
0
20%
15%
80
60
40
10%
2003/04
2004/05
2005/06
2006/07
20
5%
0
0%
-20
2007/08
-40
2003/04
Operating margin
2005/06
2006/07
2007/08
Equity and interest bearing debt (DKKm)
Operating margin and ROCE
20%
2004/05
300
ROCE
15%
10%
200
5%
100
0%
Interest bearing debt
-5%
2003/04
2004/05
2005/06
2006/07
2007/08
Equity
0
2003/04
2004/05
2005/06
2006/07
207/08
Diversified shareholder base
Share price performance (-2Y)
700
600
500
400
300
200
100
0
Nov/06
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•
•
•
Feb/07
May/07
Aug/07
Nov/07
Feb/08
May/08
Aug/08
240.000 A-shares / 2.383.745 B-shares
– 1300+ registered shareholders
– Free float approx. 75%
Listed on OMX Copenhagen since 1984 – member of SmallCap+
Employee shareholder program in November 2007
Incentive programme (warrants) for senior management launched in
2007/08
Nov/08
BOCONCEPT'S FRANCHISE MODEL
:
OUR MISSION
what we do to achieve our vision
THROUGH PASSIONATE AND
PERSISTENT PERFORMANCE WE MAKE
CUSTOMISED AND COORDINATED
DESIGN FURNITURE AND
ACCESSORIES AFFORDABLE TO
THE URBAN-MINDED SHOPPER
Award winning franchise model
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BoConcept's franchise model is based
on a proven concept which has been
in place since 1999
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Strong focus on growth in number of
Brand Stores since 2004
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Today, 145 franchisees run 239
Brand Stores – an increasing number
of franchisees are opening Brand
Store no. 2 and 3
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Average turnover in Brand Stores is
EUR 1.5m p.a. (significant spread)
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BoConcept offers franchisees massive
support to increase same store sales
by optimising performance
Deliverables from BoConcept to franchisee
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Coordinated product and accessories program with centralized warehouse
handling offering millions of product combinations to customers
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Centralized branding and marketing platform
– Catalogue and web-site (decoration and trend inspiration)
– Store design and planning
– Events and campaigns
– Ads and newsletters
– PR and communication platform
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Yearly retail conference (BiC) with introduction of new product range, new
concepts, marketing activities, workshops etc.
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Continued training and education of sales staff via BoConcept University
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Full IT platform
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Dedicated local Retail Operation Manager (ROM) to ensure ongoing optimal
operational performance (store report, budgeting, action plans, best practice
sharing)
Pipeline to developing a BC Franchisee
Phase 1
Phase 2
Phase 3
Making the
contact
Exchange of
information
Execution of
contract
• Potential franchisee
fills out an
application form on
www.boconcept.com
• Application evaluated
by BC HQ
• Local Master or ROM
meet with potential
franchisee for a
further talk
• Confidentiality
agreement
• Structured interview,
presentation of
BoConcept and
personality test of
franchisee
• Intent to proceed fee
is paid
• Local Master/BC HQ
and potential
franchisee decide
Go/No-Go
Few weeks to
months
Few weeks to
months
• Preparation of
business plan
• Selection of location
and preparation of
project plan
• Budgets approved
• Lease signed,
agreement signed
and entrance fee
paid
• Completion of
opening check list
• Opening
16 weeks
Main terms and investments
Franchise agreement
Franchise entrance fee
Intent to proceed deposit
Investment – store build up
5 years, renewable for further 5
EUR 25,000 (ex. VAT)
EUR 2,500 with letter of intent
EUR 350,000-600,000
Marketing spending
Delivery terms
Payment terms
At least 5% of gross turnover
Ex works
30 days (with guarantee on opening order)
Axapta, entrance and license fee
Catalogues and other marketing
at cost
at cost
Attractive business model for franchisees
BoConcept Brand Stores
Total sales
Contribution margin
Contribution ratio
Normal +10% +20% +30%
store
100.0 110.0 120.0 130.0
44.6
49.1
53.5
58.0
44.6% 44.6% 44.6% 44.6%
Personnel and marketing variable
Tenancy lease and other overheads
15.0
26.3
16.5
26.3
18.0
26.3
19.5
26.3
Result before tax
EBT %
3.3
26.3
6.3
5.7%
9.2
7.7%
12.2
9.4%
Total sales
Balance sheet
Rate of turnover
7,500
2,500
3.0
8,250
2,600
3.2
9,000
2,704
3.3
9,750
2,812
3.5
Return on net assets
9.9% 18.1% 25.6% 32.5%
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Growth driven
earnings
High turnover
rate
Fast track to
positive cash
flows
Creating a unique franchise offering
Advantages for
BoConcept
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Advantages for
franchisee
Full control with concept and product
offering
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Proven and certified franchise concept
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Local supporting market organisation
Economies of scale by utilising core
competences within sourcing and supply
chain management
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Brand and traffic-generating marketing
kit
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A full product collection offering
coordinated and affordable design
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Franchisee carries risk on store lease
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Franchisee to finance the investment in
store build up and showroom
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No inventory (handled centrally by
BoConcept)
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Franchisee as employer of sales staff
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Franchisee as primary stakeholder in
value creation
Positive cash flow from day one– normal
credit from BoConcept A/S and
prepayments from customer
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Access to BoConcept University
department creating the educational
platform for sales staff
LATEST FINANCIAL DEVELOPMENT
1H 2008/09
:
OUR CORE VALUES
how we always act
RESPECT – always show you care
THINK SMARTER – always look for the better solution
PLAY THE TEAM – always use your freedom responsibly
LOVE CITY LIVE – always know what’s going on
Same-store-sales influenced by unfavourable
development in global economic climate
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Revenue at DKK 562.8m - down 5% YoY
– Most importantly due to phasing out of
product customers and Studios
– Revenue generated by Brand Stores at
par with last year (all Stores)
– Same-store-sales reduced by 10%
(YoY)
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Revenue heavily impacted by negative
global macro-economic development with
declining growth rates, consumer
confidence and purchasing power
– Markets in Spain, US , UK and
Denmark hit the hardest
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The launch of the new range and increased
marketing initiatives have not been able to
off-set the negative market conditions
– Traffic to Brand Stores reduced
considerably which has led to a slow
down in order-intake in 2Q 2008/09
Revenue (DKKm, LTM)
1400
1200
1000
800
600
400
200
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2005/06
2006/07
2007/08
2008/09
Brand Stores' pipeline intact
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Brand Stores as the primary sales
channel
– Generated 90% of revenues in 1H
2008/09
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Net-addition of 15 Brand Stores in 1H
2008/09
– New openings in main markets in
France, US, Japan, Denmark and
China
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Considerable interest from both new
and existing franchisees to open new
Brand Stores
– New additions will primarily occur
in existing markets, but also in
new growth markets as Mexico
and Singapore
Number of Brand Stores
and percentage of revnue
224
239
193
141
163
90%
84%
60%
2004/05
65%
2005/06
77%
2006/07
2007/08
1H
2008/09
Gross margin increases, EBIT-margin is down
Gross margin
45%
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Gross margin up to 40% from 39%
(YoY)
– Intensified focus on making basic
costs variable
– Increased use of sourcing and
adapting costs to activity level
has reduced number of
employees
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EBIT-margin down from 8.3% to
6.1% (YoY)
– Revenue decline influences EBITmargin
– Increased provisions for losses
on receivables reduces EBIT by
DKK 6m compared to last year
– EBIT-margin for 2Q 2008/09 at
6.3%
43%
41%
39%
37%
35%
2003/04
2004/05
2005/06
EBIT (DKKm, LTM)
2006/07
2007/08
1H
2008/09
EBIT-margin (LTM)
100
90
80
70
60
50
40
30
20
10
0
10,0%
8,0%
6,0%
4,0%
2,0%
0,0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2005/06
2006/07
2007/08
2008/09
Pre-tax profit below expectations
PTP development (DKKm)
Pre-tax profit (DKKm)
42.1
45
40
35
30
25
21.9
20
15
10
5
0
1H 2006/07 2H 2006/07 1H 2007/08 2H 2007/08 1H 2008/09
1H2007/08Gr. Mar. Rev.
Prov.
Infl. Exchange Other1H2008/09
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Net losses on financial items of DKK 9.2m – mainly attributable to unrealised losses on
forward contracts on JPY (DKK 11.2m)
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Pre-tax profit at DKK 21.9m for 1H 2008/09 compared to DKK 42.1m last year
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Profit after tax at DKK 15.8m for 1H 2008/09 compared to DKK 29.6m last year
Increased receivables affects cash flow
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Total balance sheet at DKK 594.1m after 1H
2008/09 (DKK 30.1m up from last year)
– Receivables up due to increase in
number of credit days
– Acquisition of two Brand Stores (DK and
S), one sold (UK)
Balance (DKKm)
700
Current assets
Non-current assets
600
500
400
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Fewer investments in no-current assets than
budgeted
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Equity at DKK 196.6m – equity ratio of
33.1%
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Negative cash flow* of DKK 42.5m as a
consequence of increased working capital
and reduced earnings
* Cash flow before instalments on non-current debt items
300
200
100
0
1H 2006/07 2H 2006/07 1H 2007/08 2H 2007/08 1H 2008/09
TARGETS, STRATEGY AND SHORT
TERM ACTIONS
- FOCUS AND DIRECTION REMAINS
OUR BRAND SOUL
:
the most singular way to describe our brand
CUSTOMISED
URBAN DESIGN
Growth strategy...
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Focus in all parts of the company is on
maximizing positive customer experience
– Increased focus on brand building
– Improve customer satisfaction
– Develop new ROM tools to improve Brand
Store profitability
– Optimise IT platform
– Focus on career and educational
opportunities via BoConcept University
Organic growth to be realized via (prioritised)
1. Same-store-sale
2. New stores by existing franchises
3. New stores in existing markets by new
franchisees
4. New markets
• Attractive opportunities which will
also increase market dispersal and
hence minimize cyclical sensitivity
• Maximum three new markets a year
2008: Switzerland, Italy and Egypt
2009: India, Mexico and
Singapore/Malaysia
Number of sales units
Studios
Brand Stores
400
163
193
224
144
148
133
2005/06 2006/07 2007/08
133
2011/12
...that focuses on further improving
profitability to be continued...
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Economy of scale in additional sales to
grow EBIT-margin
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Strong focus on SCM and production
optimisation as value driving vehicles
– Increased sourcing and improved
productivity to maintain gross margin
– Own production of board furniture –
all other production is sourced,
primarily from Eastern Europe and
China
– Introduction of Best Practise tools to
make supply chain costs flexible and
dependable on demand
– Future capacity expansion by
increasing outsourcing of inventories
and distribution planned
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Limited investments in non-current assets
as growth is not capital intensive
Origin of production
Sourced production
50%
50%
40%
60%
Own production
30%
25%
70%
75%
2005/06 2006/07 2007/08
2011/12
...but current market conditions are demanding
Situation
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Decreasing global growth and
consumer confidence reduces
traffic to Brand Stores and
adds pressure on order-intake
and same-store-sales
Positive reception of new
collection has not been able to
off-set the negative impact
from the recent macroeconomic development
Absence of additional sales
limits EBIT-margins as
Economy of Scale is not
achieved
Actions from BoConcept
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Focussed effort to increase samestore-sales
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–
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Tactical marketing to increase traffic to
Brand Stores
Local activities (low cost)
Market aligned 2009/10
Interior decoration set-up to be rolled
out by Feb. 2009
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Working pipeline to increase netadditions of Brand Stores on all
markets
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Intensify efforts to make production
costs variable
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–
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Increase sourcing
Adjust own-production
General cost cuts
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90-100 in head count reductions since
beginning of financial year
Own-production consolidation
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BoConcept will close its board furniture factory in Herning and
concentrate production on Ølgod facility
– Will ensure future cost-efficient operation
– Focus on utilising capacity and introduce a more technology
advanced production process
– Administrative functions remains in Herning
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The concentration of production in Ølgod will happen gradually
and be fully in effect by Feb. 2009
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Closing down production in Herning is expected to bring about
annual savings of min. DKK 10m p.a. from 2009/10
– In 2008/09 restructuring costs incidental to the shutdown are
expected to amount to DKK 10m
Downgraded forecast for 2008/09
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Visibility very low, but no signs of change in the current market conditions Global recession and financial instability expect to remain for the rest of 2008/09
Same-store-sales not expected to improve in 2H 2008/09, and the effect of new
openings in 2007/08 and 2008/09 will not be enough to off-set decline in samestore-sales
Revenue
Same-store-sales
Sourcing
EBIT-margin
Profit before tax
CAPEX
ROCE
Cash flow**
Cash flow/rev.
Equity ratio
Brand Store
FY2007/08
DKK 1,141m
0%
70%
6.9%
DKK 67.7m
DKK 42.8m
14.5%
DKK 49.5m
4.3%
36.6%
224 units
* Including restructuring costs of DKK 10m
** Cash flow before instalments on non-current debt items
FY2008/09(E)
-2 to -5%
-8%
70%
5.5-6.0%*
DKK 40-50m*
DKK 30-35m
Slightly neg.
3.0%
30-40%
259-264 units
FY2011/12(E)
DKK 2bn
>5%
>75%
12.0%
–
–
>30%
6.0%
30-40%
400 units
In summary
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BoConcept's design and concept is perfectly aligned with global mega-trend –
market position in high end of mid-market continues to expand
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BoConcept's business model, concept and core competencies showed their
strength
– Attractive franchise model enables strong future growth in number of Brand
Stores
– Momentum and profitability to be secured and grown via an increased
number of sales units, adjusted marketing and product mix as well as
continued focus on sourcing and improved productivity in own-production
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2008/09 will be a challenging year influenced by macro economic set-back on
main markets in USA and Western Europe (ex. France)
– Strong focus on marketing efforts and customer experience to increase
traffic to shops, and on growing net-additions to Brand Stores base
– Further develop production efficiency to maintain gross margins
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Strategy and targets of the long term growth plan maintained
– Road to steep and profitable non-capital intensive growth paved
Q&A
FOR FURTHER INFOMATION VISIT OUR WEBSITE
www.boconcept.dk