Short-term adaptation, with retained long-term potential
President’s statement
(From the Annual Report 2009/2010)
The B&B TOOLS Group reported respectable earnings during the 2009/2010 operating year under the nearly unbelievable force and speed of the market decline. The year was characterised by a focus on cost cuts and sales initiatives. Provided that the Group’s volumes gradually will turn upward, the efforts to achieve increased coordination in the Group partially put on hold will be reinstated – in the aim of realising the potential in an increased market strength, higher profitability and enhanced efficiency.
Revenue and profit
The 2009/2010 operating year for the B&B TOOLS Group was characterised to a high degree by the economic downturn that beleaguered the entire global economy. Demand for the Group’s products and services fell rapidly for a few months just prior to the beginning of the operating year and continued to decline throughout the year. Revenue in 2009/2010 amounted to MSEK 7,648, representing a 19-percent decline in organic volumes compared with the preceding year. However, toward yearend, the decline in demand levelled off and both external indicators and customers’ views on the future gradually grew increasingly positive. Operating profit for the 2009/2010 operating year was MSEK 261. The diagram below explains this year’s profit on the basis of last year’s profit and the effect that the volume decline and cost-cutting actions generated during the year.
Due to the volume decline, the Group’s contribution margin declined by approximately MSEK 680. Since it became apparent that an extensive recession would affect the market, relatively forceful action plans were initiated throughout the Group at the end of the operating year 2008/2009. Work on cost adaptations subsequently also characterised the 2009/2010 operating year to a large degree. For the 2009/2010 operating year, the recognised cost reduction was approximately MSEK 430. The combined effect of the volume decline and the forceful actions resulted in an operating margin for the year of approximately 3.4 percent.
Continued economic adaption
Accordingly, operations in 2009/2010 generated a profit with which on the one hand, I am anything other than pleased. On the other hand, I am proud of all of my colleagues’ efforts, which quickly generated the intended effect. We created a respectable profit during a nearly unbelievably forceful and rapid volume decline! We shifted from full speed ahead to full braking capacity in a few weeks and the organisation showed strength despite laying off more than 550 employees since September 2008. As soon as the cost-adaptation efforts took shape, the Group’s working capital was also put into focus. During the 2008/2009 operating year, the equation working capital in relation to sales volume increased from 20 to 27 percent as a result of the sharp decline in volume. A target was established to reduce working capital by MSEK 500. As of 31 March 2010, we were able to state that total Group inventories, plus accounts receivable and less accounts payable, were approximately MSEK 500 lower than on the same date in March 2009. The ratio of working capital and sales volume was approximately 23 percent as of 31 March 2010.
The long-term ambition remains the same
Through a goal-oriented strategy and some 100 completed acquisitions, the Group has created a highly attractive market position with exciting potential for increased market strength and efficiency in a few short years. Much of the efficiency-enhancement potential can be summarised by the word coordination. Through numerous acquisitions, the Group has gotten some 100 companies that have been complete with regard to having all the necessary functions themselves. All acquired entities have also had their own product range. The product ranges have been similar but there has of course been no coordination of choice of suppliers or choice of articles, etc. Coordinating these individual units into a more homogenous offering, homogenous processes and homogenous working methods involves a great deal of exciting subsequent potentials. This work requires reflection, development and ultimately implementation throughout the Group.
During the past year, some development efforts have proceeded “under the radar,” although the implementation of the developed solutions in the business has been kept to a minimum so as not to disrupt efforts to adapt to the economic decline or sales activities. However, we chose to coordinate the Group’s Product Companies with the IT, Supply Chain and central purchasing functions into a new operating area called Solutions. The formation of Solutions enables us to take a collective grip on the Group’s offerings of products and services.
Looking ahead
I now hope and believe that the worst has passed. Despite imbalances in the global economy, we have a positive view of the future. Many of the Group’s customers have signalled increased order bookings and a rise in production volumes. We hope that they are right and we see our most important task as maintaining a continuously high level of service for all of the Group’s customers. This will be particularly important when the economy turns upward since many customers have also aspired to keep working capital down. This makes them particularly susceptible to disruptions during volume increases if necessary industrial consumables are not in place. The Group’s current cost level simultaneously entails “ leverage potential” in our income statement and I believe that volumes can rise without costs necessarily increasing to the same degree.
Provided that the Group’s volumes turn upward, we will also reinstate the efforts that were partially put on hold for increased coordination in the aim of gradually realising the potential for increased market strength, higher profitability and enhanced efficiency.
B&B TOOLS already currently holds a leading position in the market, but we want to create a business that is more coordinated than it has been in the past and that capitalises on the economies of scale that are within our reach.
Decentralised responsibility
The change efforts will take place within the framework of a deeply rooted belief in decentralised business responsibility and customer responsibility. Coordinating the product range, purchasing, logistics, IT, processes and culture is a comprehensive and exciting task with considerable potential. However, investments in the form of focus and staffing are required. The change programme will naturally affect operating activities, although the overriding ambition is, of course, for the changes to be conducted as smoothly as possible. This requires active and positive participation by all employees. Here, individual responsibility and initiatives will play a decisive role in our success. Accordingly, decentralised responsibility is a prerequisite for a successful coordination.
What an effort!
It is in times of adversity that we as individuals and as a company are put to the test! A number of fine efforts have been made in the Group during the trying times that are now behind us. Words of praise have partly gone unspoken in the past year. This may seem unfair, but the surrounding world evaluates us based on the results we achieve – not on the results in relation to the prerequisites. This is part of the game, but I would now like to take the opportunity to convey my sincere gratitude for all of the loyalty, all of the will and all of the initiatives that have been demonstrated throughout the Group. I now look forward to meeting the future with the same passion and commitment!
Stockholm, June 2010
Stefan Wigren
President & CEO
