Annual Report 2006…R-2006-ENG.pdf · Overview 03 Mekonomen in brief 04 Comments by the President...
76
Annual Report 2006 Mekonomen Annual Report 2006
Transcript of Annual Report 2006…R-2006-ENG.pdf · Overview 03 Mekonomen in brief 04 Comments by the President...
Annual Report 2006
Meko
no
men
An
nu
al Rep
ort 20
06
Mekonomen ABSmista allé 11Box 6077SE-141 06 Kungens KurvaPhone +46-8-464 00 00Fax +46-8-464 00 66www.mekonomen.se
Mekonomen Grossist ABFjädervägen 20Box 542SE-645 45 SträngnäsPhone +46-152-229 00Fax +46-152-229 41
Mekonomen Norge ASRosenholmveien 25Postboks 17NO-1421 TrollåsenPhone +47-66 81 76 90Fax + 47-66 99 11 51www.mekonomen.no
Mekonomen Danmark A/SWichmandsgade 12DK-5000 Odense CPhone +45-66 13 67 00 Fax +45-66 14 76 71www.mekonomen.dk
produCtio
n: Citig
ate stoCk
holm
. prin
t and r
epro
: edita
. photo
: labe allw
in
Overview
03 Mekonomen in brief 04 Comments by the President 06 Goals and strategies 08 Market Analysis 12 Market
Operations
14 Operations 16 Logistics 20 Sweden 22 Norway 24 Denmark 26 Products 28 Mekonomen Service Centre 30 Stores 32 Employees 34 The Mekonomen share 36 Corporate Governance
Accounting
40 Five-year summary 42 Administration report 44 Annual accounts 53 Accounting principles and notes 70 Auditor’s report 71 Definitions 71 Information to shareholders 72 Board of Directors 73 Executive management 74 InMemoriam
75 Addresses
Mekonomen is an integrated automotive spare parts chain offering a complete range of spare parts and accessories to workshops and car-owners through its nationwide network of stores and partner stores in Scandinavia. Efficient logis-tics are critical for Mekonomen’s success and a prerequisite for a high degree of service.
Position and key ratios 2006Sweden Norway Denmark Scandinavia
Market share excluding tyres, % 12 12 11 12Market position, no. 1 1 2 1Total sales, SEK m 1,218 537 663 2,449*Operating profit, SEK m 229.5 63.3 16.7 261.3Operating margin, % 18.9 11.8 2.5 10.7EBIT, SEK m 197.8 57.7 –6.2 220.1No. of stores 115 40 38 193 – of which Group-owned 88 21 38 147Employees, end of period 679 193 383 1,255
* Incl. eliminations, central items and other revenues.
03
0
600
1,200
1,800
2,400
0
70
140
210
280SEK m SEK m
02 03 04 05 06
Sweden
Norway
Denmark
Operating profit
0
60
120
180
240
0
5
10
15
20SEK m %
02 03 04 05 06
Cash flow from ongoing operations
Return onshareholders’
equity
Operating revenue and Operating Profit Cash flow and return on shareholders’ equity
04
EmployeesDespite my relatively short tenure at Mekonomen, I have been impressed by the fantastic commitment to the company on the part of the staff and employees. Coming from outside, I have been able to appreciate the fact that the Mekonomen spirit is present and contributes to a positive work environment.
ThefutureReviewing Mekonomen’s strategies will be an important task going forward. Mekonomen is no longer a small company and it is necessary to adopt strategies that apply to the company’s current size.
On a personal level, it has been a fantastic learning experi-ence to be a part of Mekonomen’s operations.
There are a significant number of challenges ahead, but it is with great confidence that I now hand over the baton to Håkan...
Totalsalesincreasedby5.0percentduring2006toSEK2,449.8m.EBITincreasedby29.9percenttoSEK220.1m,correspondingtoanEBITmarginof9.0percent.Adjustedfornon-operatingcostsdur-ingtheyear,theEBITmarginwas10.7percent.
Mekonomen experienced a very strong showing last year, clearly demonstrating the strong business culture that exists within the company. I also want to take this opportunity to thank Owe Andersson for all his successful years as President of Mekonomen. Since coming aboard as Acting President at the Extraordinary General Meeting in August 2006, my pri-mary responsibilities have involved coordinating and structur-ing management efforts and concluding a number of projects to create a common foundation and stability within the Group in the face of future challenges.
Special focus was placed on a few select areas to ensure that there would be a common platform for all units moving forward in 2007.
One such area was to finalize the revision of contracts within the Mekonomen Service Centre concept. Streamlining the concept has involved operating fewer service centres with a higher level of quality. Today, as a result of that higher quality, we are receiving inquiries from entirely new players interested in becoming part of the concept.
Mekonomen has experienced relatively strong growth recently, although not all aspects of operations have kept pace with that expansion. It has been important to review routines in order to generate stability and a common base to advance to the next stage of development. Certain areas that were lagging behind have been revised, such as the need for consolidated administration and for control systems that are identical in various markets.
COMMENTS BY THE PRESIDENT
Record year for Mekonomen
Roger Gerhman
Kungens Kurva, 14 February 2007
05
NewjourneybeginsI am honoured and very excited to have taken over responsibility for such a successful company as Mekonomen. Mekonomen’s position remains strong, while the industry itself is undergoing change, a factor that will require us to develop further. I am currently getting to know our customers, my colleagues and the company from the bottom up. We will then set a course for how Mekonomen will capitalize on the opportunities that lie ahead during the coming years.
We are facing increasingly intense competition. The pace of change in product and concept development has accelerated in an increasingly global arena that is simultaneously becom-ing more local. We will be encountering more knowledgeable clients and customers, who will place even higher demands on us as a company.
I am convinced that Mekonomen, with its customer offer-ings, talented employees and strong ownership will be able to further improve its competitiveness and advance our positions. I look forward to leading that journey.
COMMENTS BY THE PRESIDENT
Håkan LundstedtPresident and CEO
Kungens Kurva, 15 February 2007
06BusinessConcept
Mekonomen shall provide car workshops and individual car-owners with a complete range of spare car parts and car acces-sories of the highest quality from leading manufacturers from its own wholesale inventories and with a high level of service.
Mekonomen’s business concept is based on the following:
Group-owned retail chainMekonomen’s chain of wholly owned stores and cooperating stores forms the Group’s sales channel. Its customers include brand-independent workshops, car-owners and brand-based workshops. Mekonomen must be perceived as an equivalent alternative to the branded-goods sector for spare-parts pur-chases. Part-ownership by the store manager has been a key part of Mekonomen’s concept right from the start.
Efficient logisticsMekonomen aims to have the highest delivery standard in the market. The means to achieve this include ensuring an efficient flow of goods from manufacturers via the Group’s own wholesale business to stores and, finally, to the customer. Stores are able to maintain complete inventories through overnight deliveries five times a week from the company’s own central warehouse.
High degree of serviceMekonomen aims to ensure a degree of service whereby the customer can obtain all high-frequency and most low-fre-quency spare parts directly from the store, whereas all other parts are delivered not later than the day after being ordered. A high level of service also requires qualified employees to assist customers by providing informed advice. The aim is to provide a degree of service of not less than 97 per cent.
Full rangeThe range must be complete – that is, so that workshops can obtain spare parts for different car brands and year models from a single supplier. Mekonomen shall also offer high-quality products from leading manufacturers, which are often also the suppliers to the car industry. The range also includes a wide range of accessories, which is primarily aimed at car-owners. Most of the products in the range are to be supplied by the company’s own wholesale business.
GoalsOverall goalMekonomen’s overall goal is to continue to grow while maintaining strong profitability and to thereby generate value growth for the shareholders.
Growth goalsMekonomen’s growth goal is to achieve an annual sales in-crease of 10 per cent. Expansion must not occur at the expense of financial stability.
Financial goalsOperating margin of not less than 8 per cent. Long-term equity/assets ratio must not fall below 40 per cent.
DividendPolicyThe intention of the Board of Directors is that Mekonomen will distribute a dividend of at least 50 per cent of profit after tax. When future dividends are established, consideration will be given to investment needs, but also to other factors that the Board of Mekonomen may find significant.
StrategyMekonomen must continuously exploit the advantages of being a fully integrated chain whose growth generates profit in both its wholesale and its retail operations. To achieve this goal, Mekonomen shall accomplish the following:
Continue to grow in the Swedish, Norwegian and Danish markets, and establish its concept in new geographic markets.
Increase the number of stores in the chain by establishing new stores and acquiring others.The company has gained 58 new wholly-owned stores as new establishments or acquisitions since 2002.
Refine the Mekonomen Service Centre concept.The Mekonomen Service Centre concept and its development are extremely important for Mekonomen’s market positioning. In order to emphasise and quality-assure the Mekonomen Service Centre concept as a credible alternative in the Swedish market, Mekonomen replaced the earlier two-party agreements between the store and the service centre with new, three-party agreements between the service centre, the Mekonomen store
GOALS AND STRATEGIES
0.0
2.0
4.0
6.0
8.0
10.0
12.0
02 03 04 05 06
0.010.020.030.040.050.060.070.080.0
02 03 04 05 06
02 03 04 05 060.05.0
10.015.020.025.030.035.040.0
%
%
%
Numbers
02 03Stores Of which group-owned
04 05 06
100
50
0
150
200
250
55
60
65
70
75
80 %
0.0
2.0
4.0
6.0
8.0
10.0
12.0
02 03 04 05 06
0.010.020.030.040.050.060.070.080.0
02 03 04 05 06
02 03 04 05 060.05.0
10.015.020.025.030.035.040.0
%
%
%
Numbers
02 03Stores Of which group-owned
04 05 06
100
50
0
150
200
250
55
60
65
70
75
80 %
0.0
2.0
4.0
6.0
8.0
10.0
12.0
02 03 04 05 06
0.010.020.030.040.050.060.070.080.0
02 03 04 05 06
02 03 04 05 060.05.0
10.015.020.025.030.035.040.0
%
%
%
Numbers
02 03Stores Of which group-owned
04 05 06
100
50
0
150
200
250
55
60
65
70
75
80 %
0.0
2.0
4.0
6.0
8.0
10.0
12.0
02 03 04 05 06
0.010.020.030.040.050.060.070.080.0
02 03 04 05 06
02 03 04 05 060.05.0
10.015.020.025.030.035.040.0
%
%
%
Numbers
02 03Stores Of which group-owned
04 05 06
100
50
0
150
200
250
55
60
65
70
75
80 %
07and the Mekonomen Head Office. The new agreements impose greater demands on service centres in terms of quality, purchas-ing and the environment.
Incorporate new product groups that complement the stores’ product range into the chain.
Incorporate new product groups that are part of the stores’ product range into the company’s wholesale businessIn 2006, purchasing by the Swedish stores from the com- pany’s own wholesale business accounted for 81 per cent of the purchasing, compared with 81 per cent in 2005.
Further develop the Internet website to support and increase sales.In 2001, Mekonomen published its own electronic spare-parts catalogue on its website. Using car registration numbers, the right spare parts can be found for 4.2 million cars in Sweden, 2.0 million cars in Norway and 1.9 million cars in Denmark. In 2006, www.mekonomen.se had an average of over 350,000 visitors a month.
Further develop the cooperation concept.Mekonomen cooperates with 80 of a total of 120 schools of auto-motive engineering in Sweden, which use the Mekonomen-developed computer software Mekotech 2000, free of charge. Teachers from the schools with which Mekonomen has a substantial degree of cooperation are continuously trained at Mekonomen’s training premises in Strängnäs.
Develop new cooperation concepts in response to the new commercial structure of automotive retailing.Mekonomen endeavours to develop new forms of cooperation with former brand-based workshops that are expected to become multiple-brand workshops in the future.
GOALS AND STRATEGIES
Sales growth
EBIT Margin
Equity/Assets Ratio
Stores
Sales growth amounted to 5.0 per cent in 2006.
In 2006, Mekonomen’s EBIT margin was 9.0 per cent.
Mekonomen’s equity/assets ratio at year-end was 58.0 per cent.
At year-end, Mekonomen had 193 stores, 76 per cent of which were Group-owned. Since 2002, the number of stores has increased by 59, of which the percentage owned by the company has increased by 12 percentage points.
08Market AnalysisBrandedworkshopswillfacedifficultchallengesinthefuture.Longerserviceintervalsandanexpand-ingfleetofagingcarsaregivingrisetochangesinprofitabilityrequirements.Structuralchangesandnewlegalrequirementshaveestablishedtheframe-work–revisedconsumptionpatternswillprovidetheopportunitiesfornewplayers.
StructuralchangesandEUregulationsThe EU’s exemption regulation to anti-competition rules, which provide an entire industry a general exemption from open competition regulations, has been a highly limiting factor for structural change within the automotive industry. The group exemption for vehicle distribution was created in the mid-1970s in an effort to protect consumer requirements in terms of qualified aftermarket services. Step-by-step, those rules have been eased and further relief is anticipated when current group exemptions expire in 2010. The latest step towards free competition was taken on 1 January 2003 when brand monopolies were eliminated. In its summer 2002 ruling, the EU Commission decided that select distribution contracts – where retailers and workshops must fulfil quality require-ments determined by the manufacturer in order to sell, service and repair new automobiles – is in the interest of consumers since it provides a means of securing qualified employees that can assist in technical and safety-related problems, thereby contributing to ongoing product quality and safety improve-ment. The attitude of lawmakers has changed over time, from protecting branded workshops to forcing vehicle manufacturers to share information with brand-independent workshops – all to ensure that consumers can purchase workshop services and spare parts at competitive prices.
StructuraltransformationofbrandsalesAuto dealers and their workshops have traditionally been in a weak position relative to the automakers. The terms of dealer contracts have been almost single-handedly determined by manufacturers, who have been able to penalise “disobedient” dealers. Dealers, in turn, have perceived contracts as harsh and have almost routinely opposed manufacturer requirements for investments. Over time, ownership concentration has increased on the dealer side, resulting in a stronger position. A well-known example is Jönköping-based Holmgrens, which markets nine different brands and is therefore not at all de-pendent on individual manufacturers as a small dealer selling only one or two brands would be. There are numerous exam-ples such as Bilia, which previously sold Volvo and Renault, and has more recently taken on the sale of Ford and Land Rover as well as BMW, Honda, Hyundai, Kia, Mini and Nissan. Synergies are attractive on the workshop side, while links to a particular auto brand limit their ability to open up all-make workshops, as lower price levels risk undermining the profitability of branded workshops.
The link between auto manufacturers and who is responsible for service has loosened up considerably since the current EU regulations went into effect in 2003. The difference between brand-dependent and brand independent players has dimin-ished. Independent operators are now able to perform service on new automobiles with the new car warranties remaining in ef-fect, providing the service meets the auto manufacturer’s quality requirements. With the selectivity requirement, brand-inde-pendent workshops have the right to become authorized if they meet the auto manufacturer’s requirements. Branded workshops can acquire spare parts from suppliers other than those recom-mended by the manufacturer and, as long as the spare parts are of the same quality as the originals, they can be sold as original parts and utilized for service and repairs.
Branded shops have long been able to maintain or improve their profitability since they have enjoyed a natural loyalty from customers. In recent years, however, the first signs of increased competitiveness have arrived and branded workshops have started offering discounts on routine maintenance service.
MARKET ANALYSIS
09
WorkshopsandqualitycontrolBranded workshops have, for several decades, struggled with problems that have seemed difficult or impossible to resolve. In Sweden, as in other countries, routine auto testing is con-ducted, where problems are planted in cars that are then hand-ed in for service at a brand workshop. Results are routinely weak, with the problems going undetected. The explanation is usually carelessness, which is due to the fact that mechanics have an incentive to be careless – their compensation system provides a bigger pay cheque to the mechanic that works quickly than to the one who is thorough. A quick mechanic can work three times faster than a slow one, which has a positive effect on the profitability of the auto dealer – as long as the sloppy work is not discovered. Little testing has been done to date on independent workshops, but it is likely that even they will be tested as they begin to take a larger share of the market. Against the backdrop of a certain general level of scepticism towards auto repair workshops, it is very important for independent companies that would like to capture market share to ensure the level of quality of the services they offer. That scepticism is due to the nature of the service – servicing and repairing of automobiles is a tedious and undesirable task. At the same time, that is a good reason to assume that there is significant potential for independent workshops. Modern consumers prefer to invest their money in other, “more enter-taining” consumption than expensive brand services, if the corresponding quality can be obtained at an independent auto repair shop. Brand workshops have improved their customer processes significantly in recent years, and customer expec-tations have risen, so quality will be a survival criterion for independent workshops.
Anders ParmentPhD in economics, strategy consultant and auto industry analyst
MARKET ANALYSIS
10
11
12
TheestimatedtotalvalueoftheScandinavianmar-ketforvehicleaccessoriesandsparepartsissomesek40billion,withsparepartsrepresentingsek22billion,bodyworkandpaintsek10billionandtyresandwheelssek8billion.MekonomenestimatesthattheNorwegianandDanishmarketscombinedareaboutthesamesizeastheSwedishmarket.
Market players and product segmentsThe market can be divided into two main segments: the branded goods sector and the brand-independent sector.
The branded-goods sectorAt present, most branded retailers consist of a showroom sell-ing new and used cars of their own brand, trade-in vehicles of various brands, and a workshop that conducts servicing and repairs of these cars. In addition, such players sell varying volumes of their own brands of spare parts to workshops and to some car-owners. When branded workshops repair traded-in cars of a different brand, they purchase spare parts from brand-independent companies. Generally, branded-goods sector pricing is higher than brand-independent spare parts stores and workshops.
The brand-independent sectorThe brand-independent sector comprises specialist retailers and discount stores. In Sweden, there are more than 400 specialist spare parts retailers. These stores, also called local retailers, account an estimated 90 per cent of the brand-inde-pendent market for workshops and car-owners. In Sweden, the four largest spare parts players are Mekonomen, the Meca Group, the KG Knutsson Group and APE Fordonskompo-nenter. All offer ranges covering most car brands, with their main customers being brand-independent workshops.
The markets in Norway and Denmark have a similar structure to that in Sweden. The largest spare-parts whole-salers in Norway in addition to Mekonomen are AS Sørensen & Balchen, the Meca Group, Hellanor (owned by Hella) and Romnes/Automateriell. The four largest players in the Danish market are FTZ (wholly owned by Hella), Mekonomen, the Meca Group and Auto-G.
The discount retailer segment is dominated by a few com-panies: Biltema and Micro in Sweden, Torshov Bilrekvisita in Norway, and T. Hansen and Høyer in Denmark. Biltema sells not only auto parts but also a large range of leisure products and other items, making Biltema an indirect competitor in the brand-independent retail segment. Discount players mainly market directly to car-owners.
MARKET
Market
Spare parts and accessories Tyres and wheels Body parts and paint Norway DenmarkSweden
SEK22billion
SEK8billion
SEK10billion
50%
25%
25%
Spare parts and accessories Tyres and wheels Body parts and paint Norway DenmarkSweden
SEK22billion
SEK8billion
SEK10billion
50%
25%
25%
Spare parts market in Scandinavia
13
Automotive workshopsThere are some 13,000 workshops in Scandinavia, of which 10,000 are brand-independent and, accordingly, 3,000 branded workshops. Workshops in Denmark and Norway are generally better equipped in terms of machinery, while in Sweden there are a larger number of closely-held companies. In Norway, specific environmental and disposal trade-licensing require-ments must be met in order to establish new workshop opera-tions. Sweden and Denmark do not have such start-up controls.
Vehicle stock continues to growAt the end of 2006, the total size of vehicle stocks in Scandi-navia was approximately 8.3 million vehicles. Divided out ac-cording to market, Sweden accounted for 4.2 million, Norway for 2.1 million and Denmark for 2.0 million vehicles.
New car sales closely follow economic cycles and are rela-tively easy to forecast. The total number of newly registered cars in Scandinavia in 2006 was 548,205, an increase of 3.4 per cent. In Sweden, new car sales increased by 3.1 per cent and totalled 282,766. Norway had 109,164 new car registrations, a decline of 0.7 per cent. In Denmark, new car sales increased to 156,275, an increase of 5.0 per cent.
Sweden has one of the oldest vehicle stocksSweden and Norway have, partly due to annual car inspec-tions, some of the oldest vehicle stocks in Europe. In Sweden, 40.5 per cent of the vehicle stock was ten years old or older in 2006, compared with 37 percent in 1990. There is a similar pat-tern for Norway’s vehicle stock. In Denmark, over 37.7 per cent of cars were ten years old or older at the end of 2006.
MARKET
450,000
375,000
300,000
225,000
150,000
75,000
0
4,500,000
3,750,000
3,000,000
2,250,000
1,500,000
750,000
0
450,000
375,000
300,000
225,000
150,000
75,000
0
4,500,000
3,750,000
3,000,000
2,250,000
1,500,000
750,000
0
450,000
375,000
300,000
225,000
150,000
75,000
0
4,500,000
3,750,000
3,000,000
2,250,000
1,500,000
750,000
0
Vehicle stock New car registrations
Sweden
Bilbestånd och nyregistrerade bilar
Norway
Denmark
96 06050403020100999897
96 06050403020100999897
96 06050403020100999897
Vehiclestocksandnewcarregistrations
14OPERATIONS
Mekonomenisasparepartschain,offeringacom-prehensiverangeofsparepartsandaccessoriestoworkshopsandcar-ownersthroughitsnationwidenetworkofwhollyownedandco-operatingstores.EffectiveunderlyinglogisticsarecrucialtoMeko-nomen’ssuccessandaprerequisiteformaintaininghighservicelevels.
Mekonomen is active in the free after-market, where brand-independent enterprises sell spare parts to brand-independent workshops, branded workshops, and car-owners who perform their own repairs. Smooth logistics and a complete, high-quality product line are crucial to Mekonomen’s success and a prerequi-site for being able to achieve and maintain a high level of service. The customer should be able to receive all high-frequency and most low-frequency spare parts directly from the store, while other spare parts should be delivered no later than one day after ordering. Brand-independent workshops can now perform new car servicing while maintaining warranties and several branded workshops are expanding their operations to include more car makes, which offers greater opportunities for Mekonomen to deliver spare parts regardless of make.
IntegratedsparepartschainMekonomen is an integrated spare parts chain with a central-ized warehouse that delivers to all of the Group’s stores. The Group has the market’s most advanced and effective logistics solution. The branded goods sector markets spare parts as originals in packages labelled with the logo of the respective car brand. Mekonomen sells identical products that are either original spare parts, or of a corresponding quality, under the car part manufacturer’s brand.
Spare parts sales differ from other retail markets because demand is dependent on maintenance, care, age and size of vehicle stocks, all of which affect demand for servicing
and repairs. Demand for car parts tends to increase during economic downturns, while demand on auto manufacturers increases during an economic upswing, thus it is apparent that Mekonomen operates in an acyclical sector that is relatively sensitive to economic trends.
Mekonomen has a single sales channel – its stores – which stock a comprehensive range of spare parts for cars of various brands and years. Stores receive overnight deliveries five days a week from Mekonomen’s central warehouse at Strängnäs, west of Stockholm. Spare parts are delivered, with a few exceptions, to stores prior to 7:00 a.m. the day after ordering. Approximately 40 per cent of Mekonomen’s sales in Sweden and Norway are to consumers, with the remainder sold via distribution to workshops. In Denmark, almost all sales are directly to workshops.
LogisticssavetimeandmoneyforworkshopsMekonomen’s most important customers are workshops. The fact that Mekonomen has a comprehensive range, a high serv-ice level and can deliver all spare parts immediately is the most important incentive for workshops. While workshops plan their purchases, in many instances, the spare parts required are not apparent prior to the vehicle arriving in the workshop. Mechanics can therefore avoid costly delays by accessing the right spare parts quickly, increasing the number of billable hours and workshop profitability. The ability to handle the inflow of spare parts in an efficient manner is a key aspect of Mekonomen’s operations. To facilitate day-to-day operations and free up resources, Mekonomen also provides a proprietary PC support system, including catalogues, labour times and administrative systems for its workshop customers.
Operations
15OPERATIONS
16OPERATIONS
Functional,efficientlogisticsareafundamentalandcriticalaspectofMekonomen’soperationsforguar-anteeinghighdeliveryfulfilment.LogisticsshouldfeaturetheefficientflowofgoodsfromproducertoMekonomen’scentralwarehouse,ontostores,andfinally,tocar-owners.
AsinglecentralwarehouseSince 2005, all Mekonomen stores have been served by a single central warehouse, with daily deliveries from Strängnäs. Distributing spare parts from a central warehouse to all Meko-nomen’s stores in Sweden, Norway and Denmark enables Mekonomen to cost-effectively offer the stores a high level of service and delivery reliability.
A shared product range results in higher purchasing volumes, better purchase prices and higher productivity. The central warehouse at Strängnäs processes a daily total of about 24,000 order lines for delivery to stores, although volume can vary between 19,000 and 32,000 order lines. The group has a proprietary IT system for warehousing that enhances efficiency, and reduces the risk of picking errors. In order for Mekonomen to fulfil its goal of being perceived as a reliably supplier, every order must be delivered accurately and on-time. All store orders are picked and dispatched on the day of order, freighted by truck overnight, usually arriving at stores before 7:00 a.m. The IT-based warehousing system uses hand-held bar code reader terminals to pick customer orders and receive goods and for ongoing real-time inventory, stock relocation and top-ups. The system enhances Mekonomen’s prospects of correctly and continuously filling the almost six million order lines processed annually at the central warehouse.
Stock-optimizationsystemMekonomen’s proprietary stock optimisation and forecasting system was further developed during the year, enabling the Group to offer the highest possible service level cost-effec-tively. The system embeds modules for simulation, forecasting, purchasing and stock optimization, which further simplifies and improves collaboration with suppliers. The improvement work that is continuously in progress creates not only perma-nent rationalisation gains but also guarantees that the system is able to manage ever-expanding order flow.
Stores
115 stores in Sweden40 stores in Norway38 stores in Denmark
Workshops6,000 workshops in Sweden
(of which 329 are Mekonomen Service Centres)
3,000 workshops in Norway(of which 321 are Mekonomen
Service Centres)4,000 workshops in Denmark(of which 114 are Mekonomen
Service Centres)
Goods from stores
Goods from workshops
PaymentsystemFor maximum delivery fullfilment at lowest possible stock value
Goods inOrder filling
Allocation to correct storePacking
170suppliers
Goods
Orders
Goods Orders Orders Goods
Car-owner
Logistics
17OPERATIONS
MorestringentdemandsforefficientroutinesContinuous growth for Mekonomen’s products is placing increasing demands on all control systems and processes, which need to be continually improved and developed in order to fulfil their tasks. Mekonomen regularly conducts efforts to develop the organization and ensure that support systems stay well ahead so that they are able to handle ever-expanding volumes. “Partnership” is a key concept and reflects well the target image that Mekonomen has for its relationship with key suppliers. Continually working to implement more intelligent logistical solutions is a key success factor.
QualityfocusAt the Strängnäs central warehouse, and throughout the organization, Mekonomen’s product function has been work-ing intensively on continuously enhancing and developing procedures and work methods.
Managing daily deliveries to the Norwegian market has required, in addition to a functional logistics organization, close collaboration with the Swedish and Norwegian customs authorities resulting from the need to cross an external EU border. For the past two years, Mekonomen and two other companies have been part of a pilot project together with the Swedish and Norwegian customs authorities. This collabora-tion and project will continue during 2007 and is expected to become a permanent solution.
Endcustomer Workshop
Store
Centralwarehouse
Supplier
81%
Contractual supplier
13% Other supplier
6%
170suppliers
18OPERATIONS
Refers to Swedish retail operations.
19OPERATIONS
Mekonomenisanintegratedsparepartschainoffer-ingacompleterangeofsparepartsandaccessoriestoautomotiveworkshopsandindividualcar-ownersthroughitsownnationwideworkshopchainandco-operatingstoresinScandinavia.EfficientlogisticsarecriticaltoMekonomen’ssuccessandaprereq-uisiteforahighrateofdeliveries.Mekonomen’smarketshareinSwedenamountstoapproximately12percentofthemarket.
2006 2005
Net sales, SEK m 1,217.5 1,149.3Operating profit, SEK m 229.5 203.6Marginal operating profit, % 18.9 17.7EBIT, SEK m 197.8 170.2Number of employees 684 670Number of stores 115 115– of which wholly owned 88 88Number of workshops 329 365
StoresandworkshopsAs of 31 December 2006, there were 115 stores in Sweden, of which 88 were Group-owned and 27 co-operating stores. Mekonomen’s store structure is continuously reviewed to optimize sales channels towards end customers.
20
The Mekonomen Service Centre concept was launched in 1999, with the number of affiliated stores growing robustly since the start. The implementation of a new cooperation agreement during 2005, which was fully implemented in 2006, has resulted in the number of affiliated service centres declining in recent years. The new cooperation agreement was implemented in order to emphasise and quality-assure the Mekonomen Service Centre concept as a credible alternative in the Swedish market. The new agreements impose greater demands on service centres in terms of quality, purchasing and environmental standards.
LogisticsHaving a well-functioning, efficient logistics system that ensures a high delivery rate is one of the most important com-ponents and key to the success of operations. Mekonomen’s central warehouse in Strängnäs is the hub of this operation and supplies all the Group’s stores with goods. The central warehouse came on stream at year-end 1998, has floor-space of 30,000 square metres and stocks a total of 57,000 item numbers. Mekonomen’s logistics consist of the effective flow of goods from the manufacturer to the central warehouse, on to stores, and finally to our customers, car owners.
In those instances where stores do not have the spare part in stock, an order is sent to the central warehouse in Strängnäs. All store orders are picked and dispatched on the day of order, freighted by truck overnight, usually arriving at stores before 7:00 a.m. the next morning.
MarketdescriptionSweden comprises some 50 per cent of the Scandinavian spare parts market. The estimated value of the total Swedish car accessories and spare parts market is some sek 22 billion, with spare parts and accessories worth sek 9 billion, accessories sek 4 billion, bodywork and paint sek 4 billion and wheels and tyres sek 5 billion.
In Sweden, the branded workshops have built up a very strong market position compared with other European mar-kets. The reason for this has to do with the fact that the car market is dominated by two strong domestic car manufactur-ers, Volvo and Saab, that together account for 40 per cent of the vehicle stock.
OPERATIONS
Sweden
50% 22% 28%
Share of total revenues
21
CompetitivescenarioThe specialist retail sector is comprised of over 400 spare parts stores with sales to car-owners and workshops. Combined, they account for an estimated 90 per cent of the brand-inde-pendent market. Sweden’s four largest spare parts players are Mekonomen, the Meca Group, the KG Knutsson Group and APE Fordonskomponenter. All these players have ranges cov-ering most vehicle brands, and their largest customer segment is brand-independent workshops. There is a cluster of discount players mainly targeted at the consumer, with Biltema and Micro being Sweden’s largest discount chains.
There are over 6,000 vehicle workshops in Sweden, of which about 1,000 are branded workshops.
TrendsanddriversThe workshop sector is undergoing structural change. The trend is for smaller workshops to close down as their proprietors retire. However, these workshops must be replaced because the need for repair and servicing remains. The increased complex-ity of new cars and environmental requirements entail larger investments and higher fixed costs, requiring more mechanics in the workshop in order to achieve profitability. Over the next few years, Mekonomen will continue to promote the creation of new, larger workshops.
The discount (DIY) market, traditionally a major presence in Sweden, is declining as new cars become more complex.
MarketcommunicationsThe intensive marketing campaign for the relatively new tyres product group continued to achieve greater market impact during the year. Seven different campaigns were also pro-moted during the year to increase in-store traffic. Efforts to position Mekonomen Service Centre continued, with spon-sorship of the weather report on a commercial radio network. Mekonomen also ran direct advertising mailings to the local market of each store. The brand is broadcast on TV through sports arena advertising.
Mekonomen’s catalogue, the market’s largest spare parts publication, contains 900,000 references to about 6,000 vehicle models. Mekonomen’s entire spare parts range, some 57,000 items, is uploaded to Mekonomen’s website,
OPERATIONS
www.mekonomen.se. The Internet catalogue enables motor-ists to find the right spare part and price by entering their car’s registration number. Customers can then e-mail their orders to the nearest Mekonomen store for collection.
The Internet spare parts catalogue also covers other parts of Mekonomen’s range such as accessories, consumables, tools and tyres. Tyres and spare parts are subject to stringent require-ments of correct documentation. Using Mekonomen’s spare parts catalogue, car-owners and workshops can easily find the correct size, profile and approved type of tyre for a car. During mandatory car inspections, automotive inspection centres check that cars are equipped with the approved type of tyre.
MekoCard is a debit card launched in early 2004, enabling customers to divide payments into interest-free instalments over a period of up to six months. The card is an important marketing tool, enhancing customer loyalty towards stores and workshops.
Focusin2007Quality assurance relating to Mekonomen Service Centre will continue in 2007. Significant resources and energy will be placed on solidifying and strengthening offerings. This effort has made the Mekonomen Service Centre concept a much more credible alternative to branded workshops in the Swedish market.
22
MekonomenenteredtheNorwegianmarketin2000andisnowtheleadingsparepartschainwith12percentofthemarket.MekonomenNorwayoffersabroadrangeofspareparts,accessories,tools,tyresandwheelsforworkshopclientsandcarowners,marketedviaGroup-ownedandco-operatingstoresusingthesamestoreconcept.TheMekonomenServiceCentreconcepthasbeenthelargestwork-shopchainintheNorwegianmarketsince2003.
2006 2005
Net sales, SEK m 537.1 490.7Operating profit, SEK m 63.3 55.2Marginal operating profit, % 11.8 11.2EBIT, SEK m 57.7 48.7Average number of employees 185 169Number of stores 40 39– of which wholly owned 22 21Number of workshops 321 310
StoresandworkshopsOne co-operating store was acquired during the year and as of 31 December 2006, there were a total of 40 stores, 21 Group- owned and 19 co-operating stores.
The Mekonomen Service Centre concept continued to experience good growth during the year. After several years of a strong inflow of new workshops into the concept, the focus
during 2006 was on quality assurance more than on acquiring additional workshops. At year-end, the total number of work-shops was 321, an increase of five compared with 2005.
The conscious focus on sales to workshops has been an im-portant success factor in the Norwegian market. Mekonomen’s workshop co-ordinators, who operate as a link between work- shops and stores, have actively focused on servicing the work-shop market, assisting the strong growth in this segment.
LogisticsA well-functioning, efficient logistics system that guarantees a high rate of delivery is one of the most important param-eters and key to operational success in Norway, where large geographic distances place major demands on logistics. All of the Mekonomen stores, with the exception of those in the most northerly locations, receive daily deliveries from the central warehouse in Strängnäs. Due to the efficient logistics, the stores can stock a wide range, including low-frequency items, involving low tying-up of capital. The stores in Norway purchase over 65 per cent of their products from Mekonomen’s central warehouse in Strängnäs and an additional 16 per cent from Mekonomen’s contract suppliers.
In order to maintain daily deliveries to the Norwegian mar-ket, close collaboration between the Swedish and Norwegian customs authorities, in addition to a well-functioning logistical organization, is required since deliveries must pass an external EU border. For the past two years, Mekonomen has, along with two other companies, been part of a test project together with the Swedish and Norwegian customs authorities to further improve routines for companies with daily deliveries across the border.
Volumes delivered from the central warehouse at Strängnäs to Norwegian stores have increased by an average of 39 per cent a year since the Oslo wholesaling operation was closed down in 2002.
ContrastswithSwedenUnlike in Sweden, the Norwegian authorities must approve all workshops before opening through a start-up inspection. Large and small machines, ventilation, environmental stand-ards, and the recycling of hazardous waste are all regulated, while a technical manager with documented training must be present at every workshop. Branded and independent
OPERATIONS
Norway
50% 22% 28%
Share of total revenues
23
workshops assume the role of vehicle inspectors, testing the Norwegian vehicle stock.
There is an average of three employees per workshop in Norway, while Swedish workshops average two employees.
MarketdescriptionNorway represents some 25 per cent of the Scandinavian spare parts market. The estimated value of the total Norwegian market for car accessories and spare parts is some sek 10 billion per year, with spare parts and accessories representing sek 5.5 billion, bodywork and paint sek 2.5 billion and tyres and wheels sek 2 billion. Approximately 60 per cent of Mekonomen’s total sales are to the workshop market, and some 40 per cent to consumers.
Changes in EU regulations have also had an impact on the Norwegian market. Mekonomen has noted growing interest from branded workshops in terms of affiliating to the Meko-nomen chain, and especially for sourcing spare parts from Mekonomen. Mekonomen’s focus on tyres and consumables for workshops has strengthened this interest.
CompetitionSeveral players compete with Mekonomen in the Norwegian specialist retail market, with Sørensen and Balchen being the largest. This pairing operates the Bilexstra spare parts chain with 45 stores and the Quick Partner workshop concept with over 100 workshops. Meca, which is targeted exclusively at pro-fessionals, is the second-largest competitor. Hellanor, with its Automester concept, is Mekonomen’s third-largest competitor.
Branded workshops also present intense competition in Norway. Biltema and Torshov Bilrekvisita are the main discount chains in the consumer market, competing with Mekonomen Norway – both players market exclusively to consumers.
TrendsanddriversThe trend in the Norwegian market is of an increasing number of independent wholesalers affiliating to the established chains continues, either through co-operation agreements or acquisi-tions. The same trend is apparent in the independent workshop market – workshops are seeking out chains to benefit from their marketing and technical know-how.
MarketcommunicationMarket communication in Norway basically conforms to Sweden, with Mekonomen regularly advertising on TV at sporting events through signs in sports arenas. Car owners receive five to seven direct mail campaigns each year, which are combined with local advertising. Mekonomen also adver-tises nationwide in Norway’s largest daily newspaper Verdens Gang, publishes car supplements in the trade paper Motor-bransjen and participates at trade fairs.
Mekonomen actively targets motorists with its Service Centre concept through channels including daily press adver-tising and direct marketing. Mekonomen’s efforts to market its Service Centre concept as a chain regionally and locally in-tensified during the year and have enjoyed continued success. Mekonomen customers have access to the Norwegian market’s best electronic spare-parts catalogue, which is connected to car registration numbers on the Internet. Workshops can or-der their items from the store by Internet and have the goods delivered the same day. Consumers can also order goods on the Internet, but they must pick them up at their nearest Meko-nomen store, where they can also obtain specialist advice.
Focusin2007For 2007, Mekonomen’s objective is to continue to grow and to remain the leading player in the Norwegian market. Efforts will continue to strengthen and increase loyalty towards the Mekonomen Service Centre concept. As part of this effort, a new CRM system is being introduced effective 1 January 2007, which will assist consultants in their work to direct sales processes, both towards existing and new customers, in a more targeted and efficient manner.
OPERATIONS
24
MekonomenhasbeenactiveintheDanishmarketsince2002and,withits11percentmarketshare,isDenmark’ssecond-largestcar-partschain.Meko-nomenDenmarkoffersawiderangeofspareparts,accessories,tyresandwheels.Itscustomersareexclusivelyworkshops.
2006 2005
Net sales, SEK m 662.9 660.3Operating profit, SEK m 16.7 –8.0Marginal operating profit, % 2.5 –1.2EBIT, SEK m –6.2 –26.3Average number of employees 388 405Number of stores 38 39– of which wholly owned 38 39Number of workshops 114 93
StoresandworkshopsThere are 38 stores in Denmark, all of them owned by the Group. The store in Vanløse closed and the stores in Nykøping and Odense were renovated during the year. In early 2007, the store in Århus will move into new facilities and a new store will open in the Copenhagen area. Since the closure of the central warehouse in Odense in autumn 2004, all stores in Denmark
receive overnight deliveries from Strängnäs. Installation of Mekonomen’s electronic spare-parts catalogue was completed during the year and since January 2007, all stores, workshops affiliated with the Autoteknik concept (Mekonomen Service Centre) and other workshops use the catalogue.
Since Mekonomen Denmark started the Mekonomen Autoteknik concept in early 2004, there has been a steady increase in the number of affiliated workshops, which totalled 114 at year-end. Interest in affiliation with Mekonomen Autoteknik is extensive, and the number of affiliated work-shops will expand further during 2007. During the year, Mekonomen continued to conduct regional meetings with the workshops and held training sessions at schools of automotive engineering.
LogisticsAll Danish stores receive overnight deliveries of spare parts from the central warehouse in Strängnäs. Three large suppliers to the central warehouse in Strängnäs have their own ware-houses in Denmark that directly supply the Danish stores.
Distances between stores and workshops are much shorter in Denmark than in Sweden and Norway, resulting in more inten-sive distribution and placing much higher logistical demands, since workshops have many suppliers from which to choose. Workshops are less brand loyal and buy from the supplier that can deliver fastest when the need arises in the workshop.
ContrastswithSwedenIn Denmark, Mekonomen has traditionally focused exclu-sively on sales to the professional market.
Workshop density in Denmark is higher and competition more intense than in Sweden, resulting in shorter wait times and lower costs for car owners. Due to the intense competi-tion, workshops are more sales-focused than in Sweden and Norway, and they compete on their hourly rates. Compared with Sweden, workshops in Denmark are significantly larger and have access to more advanced equipment. The general level of education of the mechanics is high and they receive ongoing additional training to stay current with technical developments.
OPERATIONS
Denmark
50% 22% 28%
Share of total revenues
25
MarketdescriptionThe Danish market represents some 25 per cent of the Scan-dinavian spare parts market. The estimated value of the total Danish accessories and spare parts market is approximately sek 10 billion annually, with spare parts and accessories repre-senting sek 5.5 billion, bodywork and paint sek 2.5 billion and tyres and wheels sek 2 billion.
Just as in Norway and Sweden, the Danish workshop mar-ket is divided between branded and independent workshops. However, Danish specialist retailers do not market themselves to consumers, but rather focus exclusively on professional workshops.
CompetitionThe four largest players in the Danish market are Hella-owned FTZ, Mekonomen, the Meca Group and Auto-G. After the change in EU regulations, brand retailers began to compete on spare parts, and lowered the price level. Previ-ously, brand retailers had the same prices nationwide, whereas now, prices are negotiable and vary regionally. Danish nationwide wholesalers compete on prices and discounts, as well as on distribution and training to a greater extent than in Sweden and Norway. The Danish market contains more workshop chains than the Swedish or Norwegian markets. The Automester workshop chain, part of the FTZ Group, is Denmark’s largest. Apart from this chain, Mekonomen Autoteknik also competes with Autopartner, Din Bilpartner, Meca Car Service, Bosch Car Service, Drivers Test Center and another ten or so smaller players.
Competition from low-price retailers targeting consumers remains intense, with new sales channels, such as superstores and supermarkets, contributing to a further increase in com-petition. Companies such as T. Hansen og Høyer, Bildillen and Bilexperten remain active players in this market.
TrendsanddriversIn recent years, the number of branded car retailers with associated workshops in Denmark has been cut in half, from some 1,600 to approximately 800 today, as a result of factors
including new EU regulations and sector consolidation. Many former branded car dealers continue to operate as car dealers with brand-independent workshops. The Danish market harbours some 3,000 independent workshops. The trend in Denmark is also towards larger workshops, as in Sweden and Norway and for similar reasons. The number of workshops is declining but the number of mechanics is not.
MarketcommunicationsThe Mekonomen brand is communicated in Denmark in a sim-ilar manner to Sweden and Norway, including on TV through advertising signs situated at sports arenas. A first attempt at TV commercials was made during the year in two regions, as well as implementation of direct mail campaigns in all regions. Mekonomen Denmark also publishes its own magazine for distribution to workshop customers six times a year.
Focusin2007After the organizational changes made in recent years, Mekonomen Denmark will be focusing much of its attention during 2007 on developing the organization and its offerings. This will occur partly through the help of an expansion of the product range for the more fragmented Danish market and an upgrade of the electronic catalogue to contain several product groups to create additional added value for customers. In order to increase customer loyalty, consultants, along with their local stores, will be working in a more goal-oriented manner towards both old and new clients.
OPERATIONS
Mekonomenoffersthemarket’sbestassortmentofhigh-qualityproductsfromthesameproducersthatsupplytheautomotiveindustryandbrandedgoodssector.80percentofsparepartsusedwhenacarismanufacturedcomefromoutsidesupplierstotheautoindustry.Mekonomenacquiresitssparepartsfromthesamesuppliersandoffersathree-yearguaranteeonspareparts.
Mekonomen has a broad-based product range in continuous development and modification as new car models appear on the market. Its range comprises some 57,000 centrally ware-housed items for about 5,000 car models. Through agreements with con-tracted suppliers, which deliver directly to Mekonomen’s stores, Mekonomen has access to an additional 400,000 items. Apart from spare parts, Mekonomen has tyres and wheels, accessories, car care products, consumables for auto workshops and tools in its range.
Theoriginalsparepartre-definedNew EU regulations have re-defined original spare parts, with the quality of parts being decisive. Apart from original parts, there is a new term: “spare parts of corresponding quality,” whose quality is at least equivalent to the components used in the factory assembly of the relevant vehicle. In other words, they are often of higher quality than the original items. Meko-nomen is involved in supplying both spare parts that meet original part quality and spare parts of corresponding quality. Mekonomen’s range of spare parts is comprised approximately 85 per cent of original spare parts or parts of corresponding quality, which are supplied from the same plants that supply the auto industry. As early as 2003, Mekonomen was the first player in the free aftermarket to declare a three-year warranty on spare parts sold through its own wholesale operations. The move was intended to increase customers’ awareness that Mekonomen only provides spare parts of the highest quality.
AnnualGroupnegotiationsMekonomen performs annual Group negotiations with its 25 largest primary suppliers. These suppliers account for approximately 75 percent of the total purchasing value for the central warehouse. During 2006, Mekonomen implemented
an incentive model for its suppliers, where a supplier’s ability to deliver the right goods at the right time to Mekonomen are tracked. In support of this system, Mekonomen has built up its own forecasting tool where the suppliers are provided with a rolling 12-month purchasing forecast on a monthly basis. With this forecasting tool and the incentive model, Mekonomen has shortened lead times from suppliers and simultaneously increased the level of service from the central warehouse. The annual negotiations require significant resources, but they are very beneficial for both Mekonomen as well as the suppliers. Changes occurring in the open aftermarket are placing ever greater demands and Mekonomen is working proactively to find simpler, more cost-efficient solutions together with its suppliers.
The goal is to have a single main supplier and one sup-plementary supplier for each product group to gain broader overall coverage of individual car models and higher delivery fulfilment. Having two suppliers for each product group puts Mekonomen in a stronger negotiating position when pur-chasing, while the company is less vulnerable and achieves improved delivery reliability. This model is thoroughly tested and works very well.
Eventsduring2006In order to become even more competitive in filters, Meko-nomen has reached an agreement with Kavo, a Dutch com-pany. The products have been very well received in the market and immediately generated strong sales.
Through All Brake Systems, Mekonomen has become even stronger in the brakes segment, one of Mekonomen’s largest product areas.
The market for spare parts for the US makes has increased significantly in Scandinavia, thanks to strong sales of US car makes in previous years. Mekonomen has reached an agree-ment with Hansen Racing, a Swedish company focused on US spare parts.
Tenlargestsuppliers:Supplier Products
GoodYear TyresTenneco Exhaust systems, shock absorbersBosch Generators, wiper blades, motor startersBrembo Brake padsTMD Brake liningsExide BatteriesSchaeffler Couplings, wheel bearingsMahle FiltersCastrol OilLemförder Front end parts
26OPERATIONS
Products
27OPERATIONS
28
MekonomenServiceCentreisasuccessfulconceptwith764affiliatedworkshopsinScandinaviamar-ketedundertheMekonomenbrand.InexchangeforusingtheirlocalMekonomenstoreastheirmainsupplier,workshopsgainaccesstoMekonomen’sso-phisticatedtechnologicalsystems,training,market-ingandcomprehensiveproductrange.
There are currently about 13,000 workshops in Scandinavia, consisting of 10,000 brand-independent workshops and 3,000 brand workshops. Of these, 764 of them are associated with the Mekonomen Service Centre concept. Mekonomen does not own the workshops, but rather has a strategic cooperation regulated by agreement.
In order to emphasise and quality-assure the Mekonomen Service Centre concept as a credible alternative in the Swedish market, Mekonomen drew up a new agreement that places higher demands on workshops as regards quality, purchasing and environmental standards. The new contract structure was fully implemented in Sweden in 2006, resulting in a drop in
the number of affiliated workshops, since not all workshops were able to fulfil the new requirements. Workshops that were obligated to withdraw from the concept have, with few excep-tions, remained Mekonomen customers. The revised contract structure has even resulted in the new addition of workshops that have joined the concept. These workshops are often larger and have a higher number of mechanics than the centres whose agreements were discontinued. Mekonomen is actively working to develop the concept, which is a prerequisite for creating an attractive offer so that larger branded workshops that transition to repairing more car makes, will want to become affiliated with Mekonomen Service Centre.
According to this concept, Mekonomen Service Centre offers a total solution with database analysis and diagnostics instruments, workshop software and various ERP systems tailored for vehicle workshops. Affiliated workshops are mar-keted under the Mekonomen Service Centre brand, receiving ongoing training in the technical aids embedded in the concept. For their part, workshop proprietors make their local Meko-nomen store their main supplier.
CompetitiononequaltermsThe advantages previously enjoyed by the branded workshops have disappeared. The brand-independent workshops can perform service and repairs on new cars without affecting the valid new-car warranty, provided the service is performed in accordance with the car manufacturer’s specifications and that the spare parts are original spare parts as defined in the EU definition. The automotive industry is no longer permitted to restrict car-owners’ choice of supplier for service, repairs and spare parts. Competition between brand-independent and branded workshops shall now occur on equal terms. Independent mechanics are to have the same access to all the necessary technical data, equipment and specialist tools, and on the same terms, as branded workshops. This change has increased demand for spare parts for newer cars, which places higher demands on Mekonomen to increase the number of items in existing product groups. Mekonomen should be able
OPERATIONS
Mekonomen Service Centre
Reservdelar och tillbehör Däck och fälg Plåt och lack Norway DenmarkSweden
22Mdr
8Mdr
10Mdr
43%
42 %
15%
Market share Mekonomen Service Centre
29
to offer spare parts for new cars as the vehicles arrive on the market – a requirement Mekonomen pursues intensively with its suppliers.
It has taken a long time for information about the EU rules to reach everyone involved. Many branded retailers are still uncertain as to how to take advantage of the opportunities, since there is a fear that they could find themselves in conflict with the general agency, which usually accounts for over 60 per cent of the branded retailer’s business.
The major task for Mekonomen and the sector is to keep car-owners updated about the new regulations and the substantial cost savings they imply for households and com-pany-car owners. Mekonomen continues to inform workshop proprietors about the rules since there remains an acute need for that information in the sector.
TrainingoperationsThe selection of courses developed in conjunction with Train-ing Partner during 2005, for both administration and automo-tive service technology, were updated during the year and are regularly adapted to changing market requirements. Since its inception, 36 course participants have received certificates following concluded and approved training. Mekonomen also offers internal training and, since the start, 493 course participants have received certificates following concluded and approved training.
MekoTechinschoolsThe replacement rate of automotive service technicians remains too low in Sweden and the industry is facing a large natural attrition rate during the coming years. In an effort to raise the status of the country’s automotive service technology programs, Mekonomen continued its efforts in 2006 to offer schools the ability to use and develop, at no cost, the PC-based computer tool MekoTech 2000. Currently there are approximately 120 schools offering automotive service technology programs, of which 80 or so use Mekonomen’s tools and programs in their daily operations.
NumberofMekonomenservicecentres
2002 2003 2004 2005 2006
Sweden 591 544* 549* 365* 329Norway 174 217 274 310 321Denmark – – 63 93 114T o Ta l 765 761 886 768 76 4
* In order to raise the quality level, the requirements for participating workshops have increased, resulting in many contracts being cancelled.
OPERATIONS
30
Mekonomen’sGroup-ownedandco-operatingstoresaretheGroup’ssaleschannel.Thiscombina-tionofGroup-ownedandco-operatingstoresisanimportantsuccessfactor.TheGroup’scustomersarebrand-independentworkshops,motoristsandbrandedworkshops.
In December 2006, Mekonomen comprised 193 stores in Scandinavia of which 147 were wholly or partly owned by Mekonomen. In Sweden and Norway, all stores are operated as limited companies, whereas in Denmark, all stores are branches of a larger company that is wholly owned by Mekonomen. Part ownership of stores by store managers has been an integral part of the Mekonomen concept since the company’s incep-tion. Partial store ownership is a guarantee and an incentive for managers to conduct operations in the best possible manner. In Sweden and Norway, all of the co-operating stores are wholly owned by the store manager.
In-store sales continued their steady upward trend in 2006. Through active marketing, direct marketing and advertise-ments on commercial radio, Mekonomen has been reaching out to consumers with its message. Mekonomen continuously reviews the product range in its stores and investigates new product groups with a view to broadening the range. Com-plete wheels and tyres from its own central warehouse were added in 2005. Child safety is an attractive new segment, which complements the range well, while also reinforcing Mekonomen as a specialist spare parts retailer.
Mekonomen’scustomersMekonomen sells all products via its store network, with some 82 per cent of total sales being spare parts, and the remainder accessories. Some 40 per cent of the Group’s sales in Sweden and Norway are over the counter, while 97 per cent of sales in
Denmark are to workshops. Mekonomen’s primary customer group is workshops, although ultimately, the car-owner is always the consumer regardless of whether spare parts are sold through stores, or fitted by a workshop. According to Meko-nomen’s concept for strengthening its position in the work-shop market, Mekonomen has special workshop consultants working for several of its stores and who, in cooperation with stores, cover all workshops in the vicinity of the particular store. The use of workshop consultants began in Norway and has now been fully implemented in Denmark and Sweden.
EconomiesofscaleandincreasedefficiencyAll stores, Group-owned or co-operating, large or small, operate on the same terms in all respects – Mekonomen’s customers should not perceive any difference between a Group-owned or co-operating store. Mekonomen’s wholesal-ing operation must offer all stores competitive terms because co-operating stores can cancel their collaboration agreement and purchase from other suppliers. Overall, this combination of Group-owned and co-operating stores enables Mekonomen to retain efficiency and competitiveness at all levels, and this model is part of Mekonomen’s successful corporate culture.
StorepurchasingandsalesFor suppliers, a contract with the chain provides shopping loyalty and rapid exposure since a contract with Mekonomen means that goods are seen and sold in all stores. The store chain has very high purchasing loyalty towards Mekonomen’s suppliers, comprising the in-house wholesaling business and contracted suppliers.
During 2006, Mekonomen’s wholesaling business account-ed for 81 per cent of deliveries to the Swedish stores, compared with 60 per cent in 1998. Of the remaining amount, approxi-mately 13 per cent was purchased through contracted suppliers
OPERATIONS
Stores
31
and 6 per cent from other suppliers of products that often have a strong local demand or are not available in the contract sup-pliers’ range. In Norway, 73 per cent of store procurement was from the Group’s own wholesale operations, whereas the corre-sponding figure in Denmark was approximately 51 per cent. The figure for Denmark is lower because three large suppliers to Mekonomen’s own wholesale warehouse in Strängnäs have their own warehouses in Denmark and act as contract-based suppliers there.
DisplaysandstorelayoutAll Mekonomen stores have access to the same display materi-als and are based on the same store concept. Stores shall offer customers a good overview of the range as soon as they step into the premises. It should be easy to shop in a Mekonomen store and products should be logically displayed.
The perception that customers have about Mekonomen through the company’s advertising and other campaigns shall be confirmed and reinforced in the store. It is therefore impor-tant that an environment that relates back to the products and the operations as a whole is created in the store.
There should be clearly defined sections and distribution of goods found within the store. Since catalogues and order-ing systems are now computerized, the spare parts counter has been divided into workstations equipped with computers. In addition to creating a confidence-generating impression and a specialized retail feeling, the knowledgeable store employees shall also be on hand to answer questions and advise customers. Mekonomen’s goal is to provide offerings to stores that generate the highest possible return per square meter of store space.
Group-ownedstores2004 2005 2006
Sweden 84 88 88Norway 20 21 21Denmark 43 39 38T o Ta l 147 148 147
Co-operatingstores2004 2005 2006
Sweden 28 27 27Norway 17 18 19Denmark – – –T o Ta l 45 45 46
Total2004 2005 2006
Sweden 112 115 115Norway 37 39 40Denmark 43 39 38T o Ta l 192 193 193
OPERATIONS
32
HavingtheabilitytoofferemployeesanopportunitytogrowwithanorganizationisimportantforacompanylikeMekonomen.Theflatorganizationencouragesopendiscussionandemployeeloyaltyandinvolvementisaprerequisiteforhandlingfuturechallenges.MekonomenAcademy,aschoolfoundedin2005andwhichadministersallinternaltraining,continuedtodevelopoperationsduringtheyear.
The Mekonomen Spirit, which has been developed in the rela-tionship between management and employees over the years, is an important shared value resource that helps the organization pull in the same direction. It is the policy of Mekonomen to first attempt to recruit internally when vacancies arise or when there is a need to appoint new positions. Externally recruited employees must undergo a process during which they learn work methods, routines and product familiarity and receive an introduction to the Mekonomen way.
When stores recruit employees, the minimum requirement for employment is an automotive service certificate or practical experience that provides corresponding skills. The industry in which Mekonomen operates is traditionally very male-domi-nated and Mekonomen is continually striving to find ways of increasing the recruitment of women.
InvolvedemployeesWith a flat organization, Mekonomen is characterized by a decentralized structure, open dialogue and short decision-making paths. Regionally, store managers meet at least four times per year to discuss and develop projects. On two of those occasions, the agenda is set by Mekonomen centrally, in order to receive comparable feedback, which creates the neces-sary conditions for added-value projects so that all regions benefit. Participation by employees in the design of concepts and activities provides a greater degree of acceptance, under-standing and enthusiasm upon implementation.
MekonomenAcademyMekonomen realizes the importance of providing employees with the opportunity to advance within the company. Meko-
nomen Academy was established in 2005 as part of an effort to coordinate training for all employees. Coursework and educational plans have been developed for all units. Employ-ees at stores, workshops, warehouses and headquarters are all included in the educational program.
CourseprogrammingforMekonomenServiceCentre
Course programming developed in conjunction with Train-ing Partner in 2005 for both administration and automotive service technology was updated during the year. Adaptations to changing market requirements are made regularly.
StoremanagertrainingTraining programs have become an important factor in main-taining quality and level of service, and for making room for improvements. Mekonomen’s store managers undergo vari-ous training programs and are responsible for ensuring that employees and workshop customers are offered the option of continuing education.
Mekonomen conducts its own store manager training program, focusing on three areas: leadership, marketing and finance.
StoreemployeetrainingThe most important training for Mekonomen store employees is focused on improving skills relating to the sales process and product offerings. The course contains sessions on customer relations, motivation, sales techniques, finances and product training. An important focus is also on how to use various sales tools, with a special emphasis on Mekonomen’s credit card, MekoCard.
Averagenumberofemployees Men Women T o Ta l
2005 2006 2005 2006 2005 2006
Sweden 571 583 99 101 670 684Norway 150 162 19 22 169 184Denmark 356 336 49 52 405 388T o Ta l 1,077 1,081 167 175 1, 2 4 4 1, 256
OPERATIONS
Employees
33OPERATIONS
34OPERATIONS
Mekonomen’sBshareshavebeenlistedontheMid-CaplistoftheStockholmStockExchangesince29May2000.Theclosingpriceon29December2006wasSEK106.75,whichresultedinatotalstockvalueforMekonomenofSEK3.3billion.
MarketvalueandsalesAn average of 48,705 shares per day were traded during the year. Altogether, 12,078,889 Mekonomen shares, valued at ap-proximately sek 1.1 billion, were sold on the Stockholm Stock Exchange. The highest share price during the year was sek 114.5 and the lowest sek 73.75. The average share price during the year was sek 89.50. Compared with the price paid at the end of 2005, Mekonomen’s share price rose by 5.1 per cent. During the same period, OMX Stockholm increased by 24 per cent.
SharecapitalAs of 31 December 2006, total share capital amounted to sek 77,172,055. The number of shares outstanding was 30,868,822, each with a par value of sek 2.50. Series A shares carry ten votes and Series B shares one vote. In August 2006, the Annual Gen-eral Meeting agreed to restamp all outstanding A shares into B shares. All shares are entitled to an equal share in the company’s assets and profits. A trading lot consists of 100 shares.
OwnershipstructureThe number of shareholders on 31 December 2006 totalled 5,976, compared with 5,978 on the same date in 2005. The ten largest shareholders controlled 74.1 per cent of the capital at year-end. Foreign owners accounted for 5.8 per cent of share capital. Axel Johnson AB holds an option that entitles it to additional acquisitions up to 9.9 per cent of the total number of shares held by the Fraim family.
Keyratiospershare2002 2003 2004 SR 2004 2005 2006
Average number of shares after full dilution 29,343,704 29,738,300 30,868,822 30,868,822 30,868,822 30,868,822Number of shares at year-end 29,540,904 30,609,338 30,868,822 30,868,822 30,868,822 30,868,822Earnings per share after full dilution, SEK 3.02 3.25 2.76 3.18 3.61 4.28Shareholders’ equity, SEK 22.20 24.44 26.49 26.90 29.50 30.2Cash flow, SEK 4.07 3.49 6.95 6.95 4.06 8.61Dividend, SEK 0.75 1.15 1.15 1.15 3.25 10.00Dividend share, % 32.40 33.70 41.60 36.20 90.00 233.64
DividendpolicyIt is the intention of the Board of Directors that Mekonomen shall submit dividends corresponding to at least 50 per cent of profit after tax. When determining future payouts, considera-tion shall be given primarily to investment requirements, as well as to other factors that the Board of Directors of Meko-nomen consider to be of significance.
DividendFor fiscal year 2006, the Board of Directors proposes a divi-dend of sek 10.00 (3.25) per share, which comprises 234 per cent of the year’s profit. The reason for this extra dividend is Mekonomen’s strong financial position with an equity/assets ratio of 58 per cent. If the Annual General Meeting decides in favour of this proposal, the dividend is anticipated to be dis-tributed by VPC on 18 May 2007. The calculated closing price on 31 December 2006 results in a direct yield of 9.4 per cent.
CapitalmarketIt is the goal of Mekonomen to regularly provide a factual and fair report of the company’s operations to shareholders, capital markets and the media through financial reporting and press re-leases on important business events. Mekonomen reports its sales figures on a monthly basis and continuously during the year.
Ownershipstructureat 31 December 2006
No. of sharesNo. of
shareholdersNo. of share-
holders, % No. of shares No. of votes, %
1–500 3,875 64.8 980,374 3.2501–1,000 918 15.4 781,645 2.51,001-10,000 1,078 18.0 3,165,130 10.310,001–100,000 86 1.4 2,477,876 8.0100,001– 19 0.4 23,463,792 76.0T o Ta l 5,976 10 0.0 30,868,822 10 0.0
Share and shareholders
35OPERATIONS
Ownershipdistrtibutionlargest shareholders at 31 December 2006
Owner No. of shares % of votes and capita l
Axel Johnson AB and subsidaries 8,951,958 29.00Ingemar Fraim, Estate 4,321,466 14.00Ing-Marie Fraim Sefastsson 2,040,176 6.61Eva Fraim Påhlman 2,040,176 6.61AFA Sjukförsäkrings AB 1,837,550 5.95SEB Småbolagsfond 1,332,000 4.31Fidelity Funds 955,200 3.09Owe Andersson 595,156 1.93AFA TFA Försäkrings AB 521,450 1.69Lannebo Småbolagsfond 264,200 0.86Fjärde AP-Fonden 226,575 0.73AFA AGB 144,290 0.47Handelsbanken Småbolagsfond 127,700 0.41Other 7,510,925 24.34T o Ta l 30,868,822 10 0.0 0
Sharetrend
Developmentofsharecapital
Year TransactionNominal
value, SEKTotal no. of shares
Total share-capita l, SEK
1990 Company formed 100 1,000 100,0001998 Stock dividend issue 100 400,000 40,000,0001998 10:1 split 10 4,000,000 40,000,0001999 New share issue 10 5,434,444 54,344,4402000 New share issue 10 7,252,626 72,526,2602001 Redemption of
convertibles 10 7,286,626 72,866,2602002 Redemption of
convertibles 10 7,385,226 73,852,2602003 Redemption of
convertibles 10 7,397,326 73,973,2602003 2:1 split 5 14,794,652 73,973,2602003 Redemption of
convertibles 5 14,869,150 74,345,7502004 Redemption of
convertibles 5 15,304,618 76,523,0902004 New share issue 5 15,434,411 77,172,0552005 2:1 split 2,5 30,868,822 77,172,055
500
1,000
1,500
2,000
2,500
3,000
10
20
30
40
50
60
70
80
90 100 110
00 01 02 03 04 05 06
Series B share OMX Stockholm_PI Share turnover in thousands (including after-hours trading)
(c) FINDATA
36OPERATIONS
Mekonomen’scorporategovernanceisbasedonSwedishlegislation,primarilytheSwedishCompa-niesAct,thelistingagreementwiththeStockholmStockExchange,regulationsandrecommendationsfromtheIndustry&CommerceStockExchangeCommittee,ArticlesofAssociationandtheSwedishCodeofCorporateGovernance.
The Swedish Code of Corporate Governance was introduced in December 2004 and as of 1 July, 2005 is applied as part of the listing agreement with the Stockholm Stock Exchange for companies with market values of more than sek 3 billion on 31 May and on average from 1 June to 31 May. Mekonomen is listed on the Stockholm Stock Exchange and is currently on the list of Swedish mid-cap companies. On 31 May 2006, Mekonomen’s market value amounted to approximately sek 2.5 billion. During the period 1 June 2005–31 May 2006, Meko-nomen’s average market value amounted to sek 2.8 billion, which signified that application of the Code as of 1 July 2006 is not mandatory. However, on 17 August 2005, Mekonomen’s Board decided to successively implement the Code’s regula-tions with certain exceptions, which were motivated by the size of the company, among other reasons.
The Board hereby submits the following report on the Group’s control for the 2006 financial year. The report does not represent part of the formal annual report documentation and has not been reviewed by the company’s auditors. Deviations from the Code and explanations are reported in the running text.
Group control refers to Mekonomen’s structures and processes for the governance of the operations, management and control aimed at creating value for the owners and other stakeholders.
ShareholdersShares and shareholdersThe share capital amounted to sek 77,172,055 on 31 December 2006, represented by 30,868,822 Series B shares. In accord-ance with the Articles of Association, Mekonomen may issue Series A and Series B shares. One Series A share represents 10 voting rights and one Series B share represents one voting right. However, all shares have equal rights to participation in the company’s assets and profit. Series B shares are listed on
the Stockholm Stock Exchange since 29 May 2000 and are currently on the list for Swedish mid-cap companies.
In August 2006, the Annual General Meeting decided to reclassify all outstanding Series A shares to Series B shares. The total market value for the company on 31 December 2006 amounted to sek 3.3 billion, based on the closing price.
The number of shareholders on 31 December 2006 was 5,976. The ten largest shareholders controlled at the same time 74.1 per cent of the capital and voting rights and the participa-tion of foreign owners accounted for 5.8 per cent of the capital and voting rights.
The ten largest shareholders on 31 December 2006:Shareholder No. of shares % of votes and capita l
Axel Johnson AB, with subsidiaries 8,951,958 29.00Ingemar Fraim, estate 4,321,466 14.00Ing-Marie Fraim Sefastsson 2,040,176 6.61Eva Fraim Påhlman 2,040,176 6.61AFA Sjukförsäkrings AB 1,837,550 5.95SEB Small Company Fund 1,332,000 4.31Fidelity Funds 955,200 3.09Owe Andersson 595,156 1.93AFA TFA Försäkrings AB 521,450 1.69Lannebo Funds 264,200 0.86T o Ta l 22,859, 332 74.05
Mekonomen has a dividend policy signifying that the com-pany shall pay dividends corresponding to no less than 50 per cent of profit after tax. When proposing dividends, invest-ment needs and also other factors deemed significant by the Board must be taken into account. The dividend policy does not imply that the regulations of the Swedish Companies Act pertaining to distributable funds are disregarded.
Annual General MeetingThe Annual General Meeting is Mekonomen’s highest govern-ing body. The Annual General Meeting shall be held within six months of the close of the financial year. The Annual General Meeting approves the income statement and balance sheet, the appropriation of the company’s profit, decides on discharge from liability, elects the Board of Directors and auditors, when applic-able, and approves fees, addresses other statutory matters as well as makes decisions pertaining to proposals from the Board and shareholders. The company announces the date and location for
Corporate Governance
37OPERATIONS
the Annual General Meeting as soon as the Board has made its decision, however, not later than in connection with the third quarterly report. Information pertaining to the time and location is available on the company’s website. Shareholders that are registered in VPC’s (Swedish Securities Register Centre) shareholders’ register on record day and have registered partici-pation in date are entitled to participate in the Annual General Meeting and vote according to their shareholdings. All informa-tion concerning the company’s meetings, such as registration, entitlement for items to be entered in the agenda in the notifica-tion, minutes, etc. are available on the company’s website.
With regard to participation in the Annual General Meeting, the Board has deemed it not financially justifiable at present to allow shareholders to participate in the Annual General Meeting through modern communication technol-ogy or to participate from another district in or out of Sweden. Neither will there be simultaneous interpreting of the General Meeting (including minutes) to other languages. The reason is that the foreign participating interests are regarded as relative-ly low (5.8 per cent), accordingly, interpreting and translation are not deemed to be financially justifiable.
It is the company’s ambition that the Annual General Meet-ing shall be a comsummate body for shareholders, in accordance with the intentions of the Swedish Companies Act, among other regulations, which is why the goal is for the Board in its entirety, President, auditors and other management executives to always be present at the Annual General Meeting.
BoardofDirectorsandauditorsNomination of the Board of Directors and auditors – Nomination CommitteeOn 16 November 2006, Mekonomen’s principal owner elected a Nomination Committee with the task of submitting proposals pertaining to the number of Board members and the composition of the Board at the Annual General Meeting on 9 May 2007. During 2006, the Nomination Committee comprised Göran Ennerfelt (Chairman), Ingemar Fraim and Marcus Storch.
At the Annual General Meeting on 9 May 2007, the Board will propose the following guidelines when electing the Nomination Committee:
The company shall have a Nomination Committee consisting of three members. The three largest shareholders in the company shall each have the opportunity to elect one member. The name
of the members of the Nomination Committee and the name of the shareholders they represent shall be announced by the com-pany as soon as the Nomination Committee has been elected, however, not later than 6 months prior to the Annual General Meeting. The three largest shareholders will be contacted by the company’s Board on the basis of the list received from VPC AB of registered shareholders on 31 August. If one of the three larg-est shareholders relinquishes his/her right to elect a member to the Nomination Committee, the opportunity to elect a member shall be given to the next shareholder in line, in terms of size of shareholding. The mandate period for the Nomination Commit-tee extends until a new Nomination Committee is elected. The Chairman of the Nomination Committee shall be the member that represents the largest shareholder, if not otherwise agreed by the members. Fees shall not be paid to the members of the Nomination Committee.
If significant changes occur in the ownership structure following the election of the Nomination Committee, the composition of the Nomination Committee shall also change in accordance with the above principles.
The Nomination Committee shall prepare and submit propos-als to the Annual General Meeting pertaining to:- election of the Chairman of the Annual General Meeting- election of the Chairman of the Board and other Board
members- the Board’s fees and any remuneration for committee work- election of and fees to auditors
The Nomination Committee has the right to charge the company with costs for, for example, recruiting consultants and other consultants required in order for the Nomination Committee to fulfil its duties. Moreover, in connection with its assignments, the Nomination Committee shall fulfil the duties that rest upon the Nomination Committee in accord-ance with the Swedish Code of Corporate Governance.
Mekonomen has not established any specific age limit for Board meetings or time limits pertaining to the length of time Board members may sit on the Board. Auditors are elected every fourth year when the matter is submitted to the Annual General Meeting. The election of auditors shall be held at the 2007 Annual General Meeting.
38OPERATIONS
SpecificinformationabouttheBoard’sworkSize and compositionThe Board that was elected at the Annual General Meeting in May 2006 comprised five ordinary members and two deputy members. In August 2006, at an Extraordinary Board Meet-ing it was decided that the Board shall comprise seven ordi-nary members with no deputy members and a new Board was elected. Of the ordinary Board members, two are women. How-ever, Mats Jansson resigned, which is the reason why the Board is not complete. Mats Jansson left the Board of Mekonomen in November 2006 when he became the CEO for SAS.
The Board includes Antonia Axelson Johnson as ordinary Board member, who, through a corporation holds 8,951,958 shares in the company. This holding corresponds to more than 10 per cent of the total number of shares in the company and makes her dependent in relation to Mekonomen. The Presi-dent is not a Board member and neither is any other member of the Management Group.
Board membersIt is the opinion of the Board that the Board’s structure in terms of competency, experience and background must cor-respond to the company’s operations, development phase and circumstances.
As of May 2006, the Board members were:Christer Zetterberg, ChairmanAndreas Falkenmark, memberIngemar Fraim, memberLeif Möller, memberHelena Skåntorp, memberIng-Marie Fraim-Sefastsson, deputy memberAnnica Möller, deputy member
And, as of August 2006, are:Marcus Storch, Chairman (as of November 2006)
Antonia Axelson Johnson, memberAnders Carlberg, memberFredrik Persson, memberWolff Huber, memberHelena Skåntorp, memberMats Jansson was Chairman of the Board between August and November 2006.
A presentation of current assignments for Board members is available on page 72. Chairman of the BoardThe Chairman of the Board, Mats Jansson, who was elected at the Annual General Meeting in August 2006, was replaced by Marcus Storch in November 2006. Marcus Storch is not employed by the company and does not have any assignments for the company beyond his chairmanship of the Board. It is the opinion of the Board that Marcus Storch ensures that the Board conducts its assignments efficiently and also fulfils its duties in accordance with applicable laws and regulations.
The Board’s work methodsThe Board is responsible for the company’s organization and management and shall also make decisions pertaining to strate-gic issues. During 2006, the Board held 13 meetings. The meet-ings were held at the company’s head office in Segeltorp, south of Stockholm – Smista Allé 11 – or on the telephone. The minutes of the meetings were recorded by the Board’s secretary. Relevant meeting documentation was sent to all members prior to each meeting, which were then held in accordance with the agenda that was approved for the meeting. On occasions, other senior executives have participated in the Board meetings in a reporting capacity, whenever applicable. No deviating views to be recorded in the minutes were expressed at any of the meetings during the year. Matters of greater significance that were discussed during the year primarily concerned the company’s financial develop-ment, appointment of a new President and CEO of Mekonomen AB and managing the Group’s property portfolio.
InformationIn accordance with the requirements of the Code, the Board’s ambition was to devote particular attention to establishing overall goals for the operation and decide on strategies by which to achieve said goals, and in part to continuously evalu-ate the operating management, with the aim of securing the company’s governance, management and control. The Board believes that there are functioning systems for the monitoring and control of the company’s financial position in relation to the established goals; that control of compliance with laws and other regulations is implemented, and that the provision of external information is open, objective and relevant.
39OPERATIONS
There are written instructions that regulate the distribution of information between the Board and the President, and the reporting process. They are primarily:- the rules of procedure for the Board’s work- instructions for the President- attest regulations
The instructions are revised annually.
The Board evaluates its work every second year and it is the duty of the Chairman of the Board to ensure that it is imple-mented. The previous evaluation was conducted in 2005 and the next evaluation is scheduled for 2007. The Board is of the opinion that one evaluation every second year is adequate.
Remuneration to the Board was paid in accordance with a resolution made at the Annual General Meeting.
FinancialreportingInternal controlDuring 2006, the Board initiated work pertaining to chart-ing, evaluating and developing the internal control system. Since a new Board was appointed during the year, the work will be evaluated and completed during 2007. Subsequently, an internal control report will not be submitted for the 2006 financial year. An internal control report will be issued prior to the 2008 Annual General Meeting.
Work pertaining to accounting and auditing issuesThe Board has decided not to elect a special Audit Commit-tee; instead, the Board itself will fulfil the corresponding du-ties without the presence of the company’s President or other members of company management.
With regard to the preparation of the Board’s work, the Board estimates that quality assurance of the financial report-ing, which is conducted within the framework of the company’s own internal control, presently corresponds to the requirements.
The company’s auditors personally present their plans, risk assessments and controls, and findings from the audit at one or several Board meetings during the year, which additionally secures the Board’s information requirement.
The Board continuously evaluates the need to elect an Audit Committee and representatives of the Board hold one annual meeting with auditors.
CompanyManagementPresident’s assignmentsThe President is appointed and discharged by the Board and his/her work is continuously evaluated by the Board, which occurs without the presence of Company Management. During the financial year, Håkan Lundstedt was appointed President as of 15 February 2007. Håkan Lundstedt is also a member of the Board of MILKO Economic Association.
Company ManagementA presentation of Company Management is available on page 73.
Remuneration to Company ManagementThe company has not established a Remuneration Committee; instead, the Board in its entirety will function as such. In this connection, the Board decided on remuneration to the President. Information on issues pertaining to remuneration to Company Management was prepared by the Board.
The Board has not made any decisions pertaining to share or share-price-related incentive programs for Company Man-agement.
AuditorsThe auditors are appointed by the Annual General Meeting and are charged with reviewing the company’s financial reporting and the Board’s and President’s management of the company. Deloitte AB, which has an organization comprising broad and specialized competency that is well-suited to Mekonomen’s operations, has been the company’s auditors since 1994. At the 2003 Annual General Meeting, Deloitte AB, with Authorized Public Accountant Jan Bergman as the Auditor in Charge, was appointed the auditing firm until the 2007 Annual General Meeting. During 2006, Jan Bergman was replaced by Lars Svantemark as Auditor in Charge. In addition to Mekonomen, Lars Svantemark also has assignments with Elekta, Poolia, My Travel, Uniflex, Nicatorgruppen and CVC Capital Partners. He also has accounting experience from Sandvik and A-Com. Lars Svantemark has no assignments in the company that are closely related to Mekonomen’s major shareholders or the President.
INCOME STATEMENTSEK M 2002 SG * 2003 SG 2004 SG 2004 2005 2 0 0 6
O P E R AT I N G R E V E N U E Net sales 1,442.9 1,881.3 2,132.7 2,132.7 2,311.6 2,432.4
Other operating revenue 7.1 7.8 16.3 16.3 21.8 17.4
T O TA L R E V E N U E 1,450.0 1,889.1 2,149.0 2,149.0 2, 333.4 2,4 49.8Goods for resale –782.1 –1,012.5 –1,135.2 –1,135.2 –1,246.1 –1,274.9
Other expenses –526.7 –710.5 –860.3 –845.5 –917.8 –954.8E B I T 141. 2 166.1 153.5 168. 3 169.5 220.1
Net interest revenue –2.4 –13.1 –6.6 –6.6 –7.4 –21.8
P R O F I T A F T E R F I N A N C I A L I T E M S 138.8 153.0 146.9 161.7 162.1 198. 3
Tax on profit for the year –41.2 –47.9 –53.8 –55.5 –44.5 –58.1
Minority share of the profit –6.4 –6.4 –7.9 0.0 0.0 0.0
P R O F I T F O R T H E Y E A R 91. 2 98.7 85. 2 106. 2 117.6 14 0. 2
Profit for the year attributable to:Parent Company’s shareholders 98.3 111.4 132.1
Minority shareholders 7.9 6.2 8.1
106. 2 117.6 14 0. 2
BA L A NCE SHEET SEK M 2002 SG * 2003 SG 2004 SG 2004 2005 2 0 0 6
A S S E T S
F I X E D A S S E T S
Intangible assets 126.6 128.5 145.2 160.1 172.8 168.9
Tangible fixed assets 463.7 476.1 545.8 545.8 475.1 458.4
Financial fixed assets 5.6 9.2 15.1 15.1 14.7 13.1
T O TA L F I X E D A S S E T S 595.9 613.8 706.1 721.0 662.6 6 4 0.4
Inventories 453.1 475.2 472.9 472.9 533.5 520.7
Properties for sale 0.0 0.0 0.0 0.0 75.6 29.8
Accounts receivable 157.7 162.5 175.4 175.4 195.8 199.5
Other current assets 47.6 76.9 67.0 67.0 94.2 158.7
Cash and cash equivalents and short-term investments 16.0 81.9 91.0 91.0 38.0 95.3
T O TA L C U R R E N T A S S E T S 674.4 796.5 8 06. 3 8 06. 3 937.1 1,0 0 4.0T O TA L A S S E T S 1, 270. 3 1,410. 3 1,512.4 1,527. 3 1,599.7 1,6 4 4.4
S H A R E H O L D E R ’ S E Q U I T Y A N D L I A B I L I T I E S
Shareholders’ equity, Parent Company’s shareholders 658.2 728.9 817.7 830.7 910.6 933.1
Minority share of shareholders’ equity 22.9 25.5 23.1 23.1 22.7 20.2
681.1 754.4 8 4 0.8 853.8 933. 3 953. 3
Provisions, non-interest-bearing 105.1 100.0 80.9
L O N G -T E R M L I A B I L I T I E S
Interest-bearing 231.2 275.4 266.6 138.0 81.2 1.1
Deferred tax liabilities, non interest-bearing 82.7 67.2 69.4C U R R E N T L I A B I L I T I E S
Non-interest-bearing 221.6 259.0 304.2 148.5 325.4 362.7
Interest-bearing 31.3 21.5 19.9 304.2 192.6 257.9
TOTA L LI A BILIT IES 589. 2 655.9 671.6 673.4 666.4 691.1TOTA L LI A BILITIES A N D SH A R EHOLDER’ S EQU IT Y 1, 270. 3 1,410. 3 1,512.4 1,527. 2 1,599.7 1,6 4 4.4
40FIVE-YEAR SUMMARY
41CONSOLIDATED CASH-FLOWSTATEMENT SEK M 2002 SG * 2003 2004 SG 2004 2005 2 0 0 6
Operating revenue 141.2 166.1 153.5 168.3 169.5 220.1 +/– not affecting liquidity 48.1 47.4 97.9 83.1 61.6 68.4Net financial income –4.0 –10.5 –8.0 –8.0 –7.4 –8.6Tax paid –40.5 –50.3 –41.9 –41.9 –79.0 –71.8Change in working capital –23.1 –50.5 13.0 13.0 –19.5 57.5C A S H F L OW F R O M O P E R AT I N G AC T I V I T I E S 121.7 102. 2 214.5 214.5 125. 2 265.6Net investments –274.3 –57.6 –163.3 –163.3 –64.5 –23.2Cash flow after investing activities –152.6 44.6 51.2 51.2 60.7 242.4Financing activities 32.9 21.3 –42.2 –42.2 –113.4 –183.8C A S H F L OW F O R T H E Y E A R –119.7 65.9 9.0 9.0 –52.7 58.6
K EY R ATIOS 2002 SG * 2003 SG 2004 SG 2004 2005 2 0 0 6
Net sales 1,442.9 1,881.3 2,132.7 2,132.7 2,311.6 2,432.4Other operating revenue 7.1 7.8 16.3 16.3 21.8 17.4
T O TA L R E V E N U E 1,450.0 1,889.1 2,149.0 2,149.0 2, 333.4 2,4 49.8EBIT 141.2 166.1 153.5 168.3 169.5 220.1Profit after financial items 138.8 153.0 146.9 161.7 162.1 198.3Sales growth, % 36.0 30.3 13.8 13.8 8.6 5.0Gross margin, % 45.8 46.2 46.8 46.8 46.1 47.6EBIT margin 9.7 8.8 7.1 7.8 7.3 9.0Profit margin 9.6 8.1 6.8 7.5 6.9 8.1Capital employed 911.7 1,029.7 1,127.3 1,148.3 1,077.9 1,212.3Operating capital 895.7 969.4 1,036.3 1,057.3 1,039.9 1,117.0Return on capital employed, % 19.4 18.5 14.1 15.3 15.7 18.6Return on operating capital, % 20.2 17.8 15.3 14.6 16.2 20.4Return on equity, % 14.7 14.2 11.0 12.8 12.8 14.3Equity/assets ratio, % 53.6 53.5 55.6 55.9 58.3 58.0Net debt/equity ratio, multiple 0.36 0.28 0.23 0.23 0.11 0.17Interest coverage ratio, multiple 12.9 9.5 12.4 12.4 12.9 14.3Net indebtedness 246.5 215.0 195.5 195.5 235.8 163.7
FIVE-YEAR SUMMARY
PROFIT/LOSS PER QUARTER Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2 0 0 6
Net sales 504.0 622.4 580.1 605.1 545.1 659.1 605.4 622.9Other operating revenue 2.5 11.2 2.1 6.0 4.7 3.9 2.1 6.7Total revenue 506.5 633.6 582.2 611.1 549.8 663.0 607.5 629.6Goods for resale –274.7 –340.4 –311.2 –319.8 –290.1 –361.0 –310.0 –313.7Other expenses –209.1 –234.1 –224.1 –250.5 –221.7 –264.7 –226.9 –91.6EBIT 22.7 59.1 46.9 40.8 38.0 37.3 70.6 74.1Net financial income –1.7 –1.3 –4.3 0.0 –2.2 –5.4 –6.1 –8.0Profit after net financial items 21.0 57.8 42.6 40.8 35.8 31.9 64.5 66.1Tax –5.7 –16.0 –15.2 –7.6 –11.2 –8.7 –18.4 –19.8
P R O F I T F O R T H E P E R I O D 15. 3 41.8 27.4 33. 2 2 4.6 23. 2 46.1 46. 3
K EY R ATIO PER QUARTER Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2 0 0 6
Gross margin, % 45.5 45.3 46.4 47.1 46.8 45.2 48.8 49.6EBIT margin, % 4.5 9.3 8.1 6.7 6.9 5.6 11.6 11.8Profit margin, % 4.1 9.1 7.3 6.7 6.5 4.8 10.6 10.5Profit per share, sek* * 0.46 1.25 0.76 1.14 0.77 0.64 1.34 1.53
* SG = Swedish GAAP, which means that prior to the transition to IFRS, the Group applied accounting principles that corresponded with the Swedish Annual Accounts Act and recommendations and statements from Swedish Financial Accounting Standards Council.
** Translated for comparison following a 2 for 1 split on 7 June 2005.
42ADMINISTRATION REPORT
The Board and President of Mekonomen AB (publ), Corporate Registration Number 556392-1971 hereby submit the Annual Report and Consolidated Accounts for the 2006 financial year.
FINA NCI A L Y E A RMekonomen is leaving a very strong year behind with record numbers in both sales and EBIT. During the year, there was specific focus on a few areas aimed at creat-ing the same prerequisites for all units prior to 2007.
The revision of the agreement within the Mekonomen Bilverkstad concept was finalised. The higher demands of the concept signified fewer associated workshops but with higher quality.
A review of the Group’s administrative systems and the need for identical sys-tems was implemented and a consolidated administration was defined. The work relating to the implementation of these systems will continue in 2007.
During August, the Axel Johnson Group took over as principal owner of the company and in conjunction with this Roger Gehrman assumed the position of Acting President. In February 2007, Håkan Lundstedt took over as President of Mekonomen AB. Mekonomen’s management organisation also changed during the year with the appointment of a new IT manager and HR manager for the Group.
RevenueRevenues for the full year increased by 5.0 per cent to sek 2,449.8 m (2,333.4). Other revenues included exchange-rate profits of sek 11.8 m (13.7) and rental revenue, etc.
EBITEBIT totalled sek 220.1 M (169.5) and the EBIT margin was 9.0 per cent (7.3). Non operating items totalling sek 41.2 m (11.9) were charged to the profit for the year, adjusted for these costs, the EBIT margin was 10.7 per cent (7.8). These items represent personnel-related expenses, impairment of intangible assets and invento-ries and capital losses pertaining to the divestment of properties in Denmark.
Profit/loss after net financial incomeProfit after net financial income amounted to sek 198.3 m (162.1). Net financial income for the period was negative in the amount of sek 21.8 m (neg: 7.4). Net financial income includes negative currency effects in the amount of sek 10.8 m (profit: 9.7).
Profit/loss for the yearProfit for the year totalled sek 140.2 m (117.6), of which sek 132.1 m (111.4) refers to the Parent Company’s shareholders and sek 8.1 m (6.2) to minority shareholders’ participations.
SwedenNet sales (external) increased by 5.9 per cent to sek 1,217.5 m (1,149.4). Operating profit amounted to sek 229.5 m (203.6) and the operating margin was 18.9 per cent (17.7).
The number of stores totalled 115 (115), of which 88 (88) are wholly owned.
NorwayNet sales (external) increased by 9.5 per cent to sek 537.1 m (490.7). Adjusted for currency effect, sales growth was 10.7 per cent.
Operating profit increased to sek 63.3 m (55.2) and operating margin amounted to 11.8 per cent (11.2).
The number of stores in Norway was 40 (39), of which 21 (21) are wholly owned.
DenmarkNet sales (external) in Denmark amounted to sek 662.9 m (660.5). Operating profit amounted to SEK 16.7 M (loss: 8.0) and operating margin was 2.5 per cent (neg: 1.2).
The number of stores in Denmark was 38 (39), of which 38 (39) are wholly owned.
ACQU ISITIONS A ND STA RT-U PSDuring 2006, two partnership stores were added, one in Norway and one in Sweden. In January 2006, a new partnership store was opened in Lycksele. In Denmark, a wholly owned store was discontinued during the year.
The total number of stores in the chain at the end of the year was 193 (193). The percentage of wholly owned stores is 76 per cent (77).
IN V ESTMENTSDuring the year, net investments in tangible fixed assets amounted to sek 37.3 m (49.3). Investments in new IT systems totalled sek 1.8 m (3.5) during the year. The acquisition of minority shares amounted to sek 11.7 m (14.5) during the year.
FINA NCI A L POSITIONCash and cash equivalents and short-term investments amounted to sek 95.3 m at the end of the year, compared with sek 38.1 M on 31 December 2005. The equity/assets ratio was 58.0 per cent, compared with 58.2 per cent at year-end 2005.
CASH-FLOW STATEMENTDuring the period, cash flow was positive in the amount of sek 58.6 m, compared with a negative cash flow of sek 52.9 m in 2005. Inventory value in the Group de-creased by sek 12.8 m, of which sek 11.6 m was due to currency effects. Long-term liabilities in Norway and Denmark amounting to sek 77.8 m were repaid.
SENSITI V IT Y A NA LYSISMekonomen’s earnings were influenced by a number of factors, which include, in addition to changes in sales volume and expenses, exchange-rate fluctuations on imported goods, margins for purchased goods, salary changes, etc. Import is basi-cally exclusively from Europe and represents slightly less than 40 per cent of the purchased volume. Purchases are made on a daily basis from a number of foreign suppliers without any form of hedging.
FACTORS PERTAINING TO PROFIT BEFORE TA X Changes Inf luence
Sales volume +/–1% +/–2 SEK M
Exchange-rate fluctuation +/–1% +/–5 SEK M
Gross margin +/–1% +/–24 SEK M
Personnel expenses +/–1% +/–5 SEK M
ESTIM ATED F U T UR E DEV ELOPMENTS, R ISKS A ND U NCERTA IN FAC TORSIt is estimated that the trend for 2007 will remain favourable.
CompetitionCompetition in the spare parts market is fierce and within the brand independ-ent trade there are approximately 400 stores in Sweden in which the four largest players, including Mekonomen, all have assortments that covers most automotive models. The situation is similar in both Norway and Denmark, with only a few major players with overall assortments, but there is also competition from a number of smaller players. Accessibility is very important in this market, which means that delivery rate is a key factor in competition. Accordingly, Mekonomen attaches great importance to logistics and related optimization activities.
Operational risksWithin the company, there is significant awareness that the increasing centralised IT structure could provide the Group with considerable advantages and improved possibilities. Consequently, preventive efforts are prioritised and the organisation responsible for this is well developed, as is planning for continuity in operations in the event of unforeseen circumstances.
It is very important for the Group’s fire protection work that there is a well-functioning fire organisation, a regular internal control and training.
InsuranceMekonomen has Group-wide insurance solutions. Insurance coverage includes property, break-downs, transport, the Board and President. Through common solutions, insurance costs were reduced in the past three years.
Value-management risksMekonomen strives to achieve the same level of solutions for security services, security systems and value management within the Group.
43ADMINISTRATION REPORT
ShrinkageActivities relating to shrinkage are continuously in progress within Mekonomen, to define scrapping, internal consumption and actual theft. Shrinkage activities are based on the idea that it is important to focus on all parts of shrinkage, for exam-ple, by reviewing procurement procedures, delivery tests and securing goods. This will improve knowledge on procedures for managing shrinkage, while providing a basis for increased vigilance of goods that are particularly theft-prone.
FINA NCI A L R ISKSThe Board has established various policies and risks that the Mekonomen Group may take. These policies specify the manner in which different types of risks should be managed and state the risk exposure in the operation. The main focus is to aim at a low risk profile. The policies identify risks pertaining to value management, cash management and capital procurement. Refer also to Note 28 for a description of the financial risks identified and managed by Mekonomen.
PA R ENT COMPA N YThe Parent Company operations comprise Group management and Group-wide functions and financial management. The Group’s procurement bonus from suppliers was previously reported in the Parent Company but during 2006 it was distributed to respective operations based on purchases made from Mekonomen Grossist AB. Loss after net financial income was sek 32.3 m (profit: 48.7) excluding dividends from subsidiaries.
PROPERT Y COMPA N YThe property company, Bileko Konsult AB, owns and manages properties in Sweden. In addition to the central warehouse in Strängnäs, the company owns 22 (22) small properties throughout the country. These properties are leased to wholly and partly owned Mekonomen stores.
EN V IRONMENTThe Group does not conduct any operations that require permits according to the Swedish Environmental Code.
Environmental activities are concentrated on the best and most efficient way to environmentally adapt operations in terms of distribution and packaging material. These two “guiding principles” from the Group’s environmental plan, apply to both the supply and delivery of goods.
When procuring transport services, great demands are put on high efficiency and fewer transhipment to minimise the number of transport miles.
At the central warehouse and store warehouses, fireproof rooms for chemicals and petroleum products are being constructed.
EV ENTS A F TER THE END OF THE Y E A ROn 15 January 2007, Mekonomen’s Board decided to call for tenders for the Group’s property portfolio. The portfolio comprises 90,000 square meters divided into 50 store properties and other commercial properties in Sweden and Denmark with a book value, including surplus on consolidation, of approximately sek 393 m. Divest-ment is expected to be concluded during the first half of 2007.
Klavs Thulstrup Pedersen was appointed President of Mekonomen i Danmark A/S. Klavs assumed his position in March 2007.
On 1 February, Håkan Lundstedt joined Mekonomen AB. Håkan formally took up duties as President on 15 February.
Mekonomen Norway decided to open four new retail stores in 2007. On 19 Febru-ary, the company announced that Casper Seifert will be resigning his position as CFO of Mekonomen AB. Casper Seifert was replaced by Bo Rutberg as acting CFO.
SH A R E DI V IDENDThe Board of Directors proposes a dividend of sek 3.00 (1.5) based on profit for the year and an additional extra dividend of sek 7.00 (2.10) per share. The extra dividend is due to Mekonomen’s strong financial position with an equity/assets ratio of 58.0 per cent. At the Board meeting on 14 February 2007, the Board of Mekonomen AB decided on a new dividend policy signifying dividends of not less than 50 per cent of the profit after tax.
BOA R D OF DIR EC TOR’ S WORK 20 0 6At the 2006 Annual General Meeting, the Board comprising the following five members were re-elected: Christer Zetterberg (Chairman), Andreas Falkenmark, Helena Skåntorp, Ingemar Fraim and Leif Möller, and two deputy members Annica Möller and Ing-Marie Fraim-Sefastsson.
In connection with the Extraordinary General Board meeting on 17 August 2006, it was decided that the Board shall comprise seven members and no deputy members, until the next Annual General Meeting.
The General Meeting also decided to dismiss the Chairman of the Board and Board member Christer Zetterberg, Board members Andreas Falkenmark, Ingemar Fraim and Leif Möller and deputy members Ing-Marie Fraim Sefastsson and Annica Möller. For the period until the close of the next Annual General Meeting, Mats Jansson was elected the new Chairman, Marcus Storch as Vice President and Antonia Ax:son Johnson, Anders G. Carlberg, Fredrik Persson and Wolff Huber as new Board members. Helena Skåntorp remained as Board member for the period until the close of the next Annual General Meeting. In November, Mats Jansson resigned from the Board and was replaced as Chairman by Marcus Storch. During 2006, the Board held 13 meetings, of which eight ordinary and five extraordinary meetings, of which two were telephone meetings. The Board meetings primarily addressed the company’s financial development and management of the Group’s property portfolio.
The Board of Mekonomen has no specific committees; all matters are handled by the Board in its entirety.
The Board’s fee for 2006 totalled sek 612,500.
AU DITORSThe auditor for the company is elected at the Annual General Meeting every fourth year. According to the Annual General Meeting resolution, auditors’ fees are paid against invoices. The company’s auditor participates in Board meetings in conjunction with the presentation of year-end reports and proposals for the Annual Report and in this connection he/she submits the report from the audit of the com-pany’s financial position and internal control. At the 2003 Annual General Meet-ing, the auditing firm Deloitte AB was elected, with Authorised Public Account-ant Jan Bergman as the Auditor in Charge for the next four-year period. During 2006, Jan Bergman was replaced by Lars Svantemark as Auditor in Charge.
PROPOSED A PPROPR I ATION OF PROFITSParent CompanyThe following profit is available for distribution by the Annual General Meeting, SEK 000’s:
Unappropriated profit brought forward 452,240
Profit for the year 9,675
T O TA L 4 61,915
The Board of Directors and President propose that profits be distributed as follows:
Dividend to shareholders (SEK 10.00 per share) 308,688
To be carried forward 153,227
T O TA L 4 61,915
THE BOA R D’ S R EPORT ON THE PROPOSED DI V IDENDFollowing the proposed dividend, the Parent Company’s equity/assets ratio amounted to 34 per cent and the Group’s equity/assets ratio amounted to 39 per cent. The equity/assets ratio is satisfactory considering that the company’s and the Group’s operations continue to operate profitably. It is estimated that cash and cash equivalents in the company and the Group will remain at a satisfactory level.
The Board is of the opinion that the proposed dividends do not prohibit the Parent Company or other Group companies from fulfilling their obligations in the short or long term. Neither do the dividends influence the Group’s ability to implement re-quired investments. However, the proposed dividends can be justified by what is stated in the prudence principle, Chapter 17, Section 3, Paragraphs 1–3 of the Companies Act.
For further information regarding the company’s and the Group’s earnings, refer to the following income statement, balance sheet, cash-flow statement and accompanying notes.
INCOME STATEMENTSEK 000’s Note 2 0 0 6 2005
1
Net sales 2 2,432,430 2,311,609
Other operating revenue 17,415 21,805
T O TA L R E V E N U E S 2,4 49,8 45 2, 333,414
O P E R AT I N G E X P E N S E S
Goods for resale –1,274,869 –1,246,090
Other external expenses 3 –360,557 –348,928
Personnel expenses 4 –534,510 –506,713
Revaluation of properties for sale 10 – –7,925
Depreciation/amortisation and impairment of tangible and intangible fixed assets 5 –59,829 –54,276
E B I T 220,08 0 169,482
F I N A N C I A L I N C O M E A N D E X P E N S E S
Profit from sale of subsidiaries –343 –
Financial income 7 6,484 6,227
Interest expenses –14,934 –13,488
Exchange-rate differences –12,991 –102
P R O F I T A F T E R F I N A N C I A L I T E M S 198, 296 162,119
Tax on profit for the year 9 –58,078 –44,519P R O F I T F O R T H E Y E A R 14 0, 218 117,60 0
Profit for the year attributable to:Parent Company shareholders 132,117 111,418
Minority shareholders 8,101 6,182
14 0, 218 117,60 0
Profit per share before dilution, SEK * 4,28 3,61
K E Y R AT I O P E R S H A R E * *
Number of shares at the end of the period, after a 2 for 1 split 30,868,822 30,868,822
Shareholders’ equity, SEK 30.20 29.50
Cash flow, SEK 8.61 4.06
Dividend, SEK *** 10.00 3.25
Dividend share, % 233.64 90.00
* No dilution is relevant since Mekonomen has no ongoing option programme.** Historic data is recalculated for comparability after a 2 for 1 split on 7 June 2005.*** Proposed dividend for 2006.
44GROUP
45GROUP
CASH-FLOW STATEMENTSEK 000’s Note 2 0 0 6 2005
O P E R AT I N G AC T I V I T I E S
EBIT 220,080 169,482
Adjusted for items not affecting liquidity 24 68,437 61,352
288,517 230,83 4
Interest received 6,479 6,208
Interest paid –15,067 –13,587
Tax paid –71,815 –78,977
C A S H F L OW F R O M O P E R AT I N G AC T I V I T I E S B E F O R E
C H A N G E S I N WO R K I N G C A P I TA L 208,114 14 4,478
C A S H F L OW F R O M C H A N G E S I N WO R K I N G C A P I TA L
Decrease (+)/Increase (–) in inventories 1,161 –45,271
Decrease (+)/Increase (–) in receivables –41,538 –25,004
Decrease (+)/Increase (–) in liabilities 97,895 50,737I N C R E A S E D ( – ) / D E C R E A S E D ( + ) R E S T R I T I O N I N WO R K I N G C A P I TA L 57,518 –19,538C A S H F L OW F R O M O P E R AT I N G AC T I V I T I E S 265,632 12 4,94 0
I N V E S T M E N T S
Divestments (+)/Acquisition (–) of subsidiaries 25 –11,731 –14,885
Acquisition of tangible fixed assets –37,307 –49,710
Divestment of tangible fixed assets 29,552 192
C A S H F L OW F R O M I N V E S T I N G AC T I V I T I E S –19,486 – 6 4,4 03
F I N A N C I N G AC T I V I T I E S
Increase (–)/Decrease (+) in long-term loans –3,738 –142
Amortisation of loans –77,849 –71,972
Dividend paid –105,994 –41,325C A S H F L OW F R O M F I N A N C I N G AC T I V I T I E S –187,581 –113,439C A S H F L OW F O R T H E Y E A R 58,565 –52,902
C A S H A N D C A S H E q U I VA L E N T S AT T H E B E G I N N I N G O F T H E Y E A R 38,143 91,001
Exchange-rate difference in cash and cash equivalents –1,453 44
C A S H A N D C A S H E q U I VA L E N T S AT T H E E N D O F T H E Y E A R 17 95, 255 38,143
46GROUP
BA L A NCE SHEETSEK 000’s Note 31 Dec. 2 0 0 6 31 Dec. 2005
A S S E T S F I X E D A S S E T S
I N TA N G I B L E A S S E T S 12
Goodwill 168,880 165,596
Capitalised expenditure for IT systems – 7,153
T O TA L I N TA N G I B L E A S S E T S 168,88 0 172,749
TA N G I B L E F I X E D A S S E T S
Buildings and land 10 362,957 363,165
Equipment and transport 11 91,682 106,414
Leased equipment and transport 11 3,736 5,560
T O TA L TA N G I B L E F I X E D A S S E T S 458, 375 475,139
F I N A N C I A L F I X E D A S S E T S
Other long-term receivables 14 9,692 5,954T O TA L F I N A N C I A L F I X E D A S S E T S 9,692 5,954
Deferred tax assets 13 3,389 8,765
T O TA L F I X E D A S S E T S 6 4 0, 336 662,607
C U R R E N T A S S E T S
Goods for resale 520,737 533,513
Properties for sale 10 29,845 75,571
Short-term receivables 15 358,251 289,895
Cash and cash equivalents 17 95,255 38,143
T O TA L C U R R E N T A S S E T S 1,0 0 4,088 937,122T O TA L A S S E T S 1,6 4 4,42 4 1,599,729
47GROUP
BA L A NCE SHEETSEK 000’s Note 31 Dec. 2 0 0 6 31 Dec. 2005
S H A R E H O L D E R S ’ E Q U I T Y A N D L I A B I L I T I E S
S H A R E H O L D E R S ’ E q U I T Y 23
Share capital (30,868,822 shares) 77,172 77,172
Other capital contributions 3,341 343,341
Translation reserve –10,686 –1,425
Profit brought forward including profit for the year 863,283 491,489
T O TA L S H A R E H O L D E R S ’ E q U I T Y AT T R I B U TA B L E
T O T H E PA R E N T C O M PA N Y S H A R E H O L D E R S 933,110 910,577
Minority share of shareholders’ equity 20,195 22,741
T O TA L S H A R E H O L D E R S ’ E q U I T Y 953, 305 933, 318
L O N G -T E R M L I A B I L I T I E S
Liabilities to credit institutions, interest-bearing 18 – 78,173
Leasing liabilities, interest-bearing 18 1,076 3,028
Deferred tax liabilities, interest free 13 69,356 67,181
T O TA L L O N G -T E R M L I A B I L I T I E S 70,432 148, 382
S H O R T-T E R M L I A B I L I T I E S
Liabilities to credit institutions, interest-bearing 19 255,197 190,100
Leasing liabilities, interest-bearing 11, 19 2,660 2,532
Tax liabilities 28,586 14,745
Other short-term liabilities, non interest-bearing 19 334,244 310,652
T O TA L S H O R T-T E R M L I A B I L I T I E S 620,687 518,029T O TA L L I A B I L I T I E S A N D S H A R E H O L D E R S ’ E Q U I T Y 1,6 4 4,42 4 1,599,729
M E M O R A N D U M I T E M S
Pledged assets 21 206,161 276,182
Contingent liabilities 21 1,427 2,414
INCOME STATEMENTSEK 000’s Note 2 0 0 6 2005
1
Net sales 69,342 118,270
Other operating revenues 4,142 2,736
T O TA L R E V E N U E S 73,48 4 121,0 06
O P E R AT I N G E X P E N S E S
Goods for resale –4,153 –8,558
Other external expenses 3 –40,505 –33,993
Personnel expenses 4 –40,968 –24,482
Depreciation/amortisation and impairment of tangible and intangible fixed assets 5 –17,614 –7,287
E B I T –29,756 46,686
F I N A N C I A L I N C O M E A N D E X P E N S E S
Dividend on shares in subsidiaries 6 55,000 45,000
Interest income 9,314 5,472
Interest expense –9,931 –4,400
Exchange-rate difference in foreign loans –1,904 1,030
P R O F I T A F T E R F I N A N C I A L I T E M S 22,723 93,788
Appropriations 8 –30,019 974
Tax on profit for the year 9 16,971 –14,059
P R O F I T F O R T H E Y E A R 9,675 8 0,703
PARENT COMPANY
48
PARENT COMPANY
49CASH-FLOW STATEMENTSEK 000’s Note 2 0 0 6 2005
O P E R AT I N G AC T I V I T I E S
EBIT –29,757 46,686
Adjusted for items not affecting liquidity 24 17,568 7,303
–12,189 53,989
Interest received 9,341 5,445
Interest paid –9,937 –4,394
Tax paid –19,847 –13,086
C A S H F L OW F R O M O P E R AT I N G AC T I V I T I E S B E F O R E
C H A N G E I N WO R K I N G C A P I TA L –32,632 41,954
C A S H F L OW F R O M C H A N G E S I N WO R K I N G C A P I TA L
Decrease(+)/Increase(–) of inventories 63 646
Decrease(+)/increase(–) of receivables 37,419 –10,450
Decrease(–)/increase(+) of liabilities 136,359 –13,461I N C R E A S E ( – ) / D E C R E A S E ( + ) R E S T R I C T E D WO R K I N G C A P I TA L 173,8 41 –23, 265C A S H F L OW F R O M O P E R AT I N G AC T I V I T I E S 141, 209 18,689
I N V E S T M E N T S
Divestment (+)/Acquisition (–) of subsidiaries – 86,062
Acquisition of tangible fixed assets –7,163 –2,888
Acquisition of intangible fixed assets –1,833 –3,498
Divestment of tangible fixed assets 128 13
C A S H F L OW F R O M I N V E S T I N G AC T I V I T I E S –8,868 79,689
F I N A N C I N G AC T I V I T I E S
Increase(–)/Decrease(+) in long-term lending –16,524 –46,780
Group contribution received – 114,282
Group contribution paid – –128,420
Dividend paid –100,324 –35,500C A S H F L OW F R O M F I N A N C I N G AC T I V I T I E S 116,8 48 –96,418C A S H F L OW F O R T H E Y E A R 15,493 1,960
C A S H A N D C A S H E q U I VA L E N T S AT T H E B E G I N N I N G O F T H E Y E A R 2,237 233
Exchange-rate differences in cash and cash equivalents 0 44
C A S H A N D C A S H E q U I VA L E N T S AT T H E E N D O F T H E Y E A R 17,730 2, 237
50PARENT COMPANY
BA L A NCE SHEETSEK 000’s Note 31 Dec. 2 0 0 6 31 Dec. 2005
A S S E T S
F I X E D A S S E T S
I N TA N G I B L E F I X E D A S S E T S 12
Capitalized expenditure for IT systems – 7,153
– 7,153TA N G I B L E F I X E D A S S E T S
Equipment and transport 11 13,881 15,954
13,881 15,954F I N A N C I A L F I X E D A S S E T S
Participation in Group companies 22 247,033 247,033
Receivables in Group companies 220,889 205,131
Other long-term receivables 14 29 63
467,951 452, 227T O TA L F I X E D A S S E T S 481,832 475, 33 4
C U R R E N T A S S E T S
I N V E N T O R I E S , E T C
Goods for resale 512 574
C U R R E N T R E C E I VA B L E S
Accounts receivables 530 299
Receivables in Group companies 217,254 47,476
Tax receivables – 1,112
Other receivables 5,867 7,935
Prepaid expenses and accrued income 16 42,473 38,011
T O TA L C U R R E N T R E C E I VA B L E S 266,12 4 94,833
C A S H A N D B A N K B A L A N C E S 17,730 2,237
T O TA L C U R R E N T A S S E T S 28 4, 366 97,6 4 4T O TA L A S S E T S 766,198 572,978
51PARENT COMPANY
BA L A NCE SHEETSEK 000’s Note 31 Dec. 2 0 0 6 31 Dec. 2005
S H A R E H O L D E R S ’ E Q U I T Y A N D L I A B I L I T I E S
S H A R E H O L D E R S ’ E q U I T Y 23R E S T R I C T E D S H A R E H O L D E R S ’ E q U I T Y
Share capital, (30,868,822 shares) 77,172 77,172
Statutory reserve 3,341 343,341
T O TA L R E S T R I C T E D S H A R E H O L D E R S ’ E q U I T Y 8 0,513 420,513
N O N - R E S T R I C T E D S H A R E H O L D E R S ’ E q U I T Y
Profit brought forward 452,240 20,321
Profit for the year 9,675 80,703
T O TA L N O N - R E S T R I C T E D S H A R E H O L D E R S ’ E q U I T Y 461,915 101,02 4
T O TA L S H A R E H O L D E R S ’ E q U I T Y 542,428 521,537
U N TA X E D R E S E RV E S 41,46 4 11,4 4 4
C U R R E N T L I A B I L I T I E S
Liabilities to credit institutions 40,000 0
Accounts payable 6,646 6,172
Liabilities to Group companies 97,515 14,106
Tax liabilities 18,891 12,333
Other liabilities 642 496
Accrued expenses and deferred income 20 18,612 6,890
T O TA L C U R R E N T L I A B I L I T I E S 182, 306 39,997T O TA L L I A B I L I T I E S A N D S H A R E H O L D E R S ’ E Q U I T Y 766,198 572,978
M E M O R A N D U M I T E M S
Pledged assets 21 92,0 0 0 129,68 4
Contingent liabilities 21 1,427 2,414
52CHANGES IN SHAREHOLDER’S EQUITY
GROUP Share capita l
Other contri- buted capita l
Translation reserve
Prof it broughtforward
Total attributable to Parent Com-
pany shareholdersMinority
shares
Total shareholders’
equity
O P E N I N G B A L A N C E
O N 1 J A N U A R Y 2 0 0 5 77,172 3 43, 3 41 –5, 354 415,570 830,729 23,125 853,854Translation difference pertaining to foreign operations 3,929 3,929 3,929Profit for the year 111,418 111,417 6,182 117,600
T O TA L R E V E N U E S A N D
E X P E N S E S F O R T H E P E R I O D 3,929 111,418 115, 3 47 6,182 121,529Dividends –35,499 –35,499 –5,876 –41,375
Acquisition of minority shares –690 –690
C L O S I N G B A L A N C E
O N 3 1 D E C E M B E R 2 0 0 5 77,172 3 43, 3 41 –1,425 491,489 910,577 22,741 933, 318
O P E N I N G B A L A N C E
O N 1 J A N U A R Y 2 0 0 6 77,172 3 43, 3 41 –1,425 491,489 910,577 22,741 933, 318Translation difference pertaining to foreign operations –9,261 –9,261 –9,261,Profit for the year 132,117 132,117 8,101 140,218
T O TA L R E V E N U E S A N D
E X P E N S E S F O R T H E P E R I O D – –9, 261 132,117 132,117 8,101 130,958Dividends –100,324 –100,324 –5,612 –105,936
Acquisition of minority shares –5,032 –5,032
C L O S I N G B A L A N C E
O N 3 1 D E C E M B E R 2 0 0 6 77,172 3 43, 3 41 –10,686 523, 283 933,110 20,195 953, 305
PAR ENT COMPA N YShare capita l
Statutoryreserve
Prof it brouht forward
Prof it / loss for the year
T O TA L , 3 1 D E C . 2 0 0 4 77,172 3 43, 3 41 10,4 41 55,558Appropriation of profits according to Annual General Meeting resolution 55,558 –55,558
Group contribution received 114,282
Tax on Group contribution received –31,999
Group contribution paid –128,419
Tax on Group contribution paid 35,957
Dividends –35,499
Profit for the year 80,703
T O TA L , 3 1 D E C . 2 0 0 5 77,172 3 43, 3 41 20, 321 8 0,703
Appropriation of profits according to Annual General Meeting resolution 80,703 –80,703
Reduction of statutory reserve –340,000 340,000
Group contribution received 155,440
Tax on Group contribution received –43,523
Group contribution paid –523
Tax on Group contribution paid 146
Dividends –100,324
Profit for the year 9,675
T O TA L , 3 1 D E C . 2 0 0 6 77,172 3, 3 41 452, 2 4 0 9,675
NOTES
53NOTE 1 ACCOU N T I NG PR I NCI PLES
GENER A LMekonomen is the leading automotive spare parts chain in Scandinavia and offers spare parts and accessories to workshops and individual car owners through its nationwide network of stores.
The Parent Company conducts its operations in the form of a limited liability company and is domiciled in Stockholm. The head office is located on Smista Allé 11, se-141 70 Segeltorp, in Stockholm. The Parent Company share is listed on the mid-cap list of the Stockholm Stock Exchange. The principal owner is the Axel Johnson Group, which owns 29 per cent of the voting rights and capital.
ACCOU NTING A ND VA LUATION PR INCIPLESThe consolidated accounts were prepared in accordance with the International Financial Reporting Standards (IFRS) and interpretations issued by the Interna-tional Financial Reporting Interpretations Committee (IFRIC) approved by the European Union for application as of 31 December 2006. Furthermore, the Swed-ish Financial Accounting Standards Council’s recommendation RR30:05, Supple-mentary Accounting Regulations for Groups, has been applied, which specifies the additions to the IFRS information that are required in accordance with regulations in the Swedish Annual Accounts Act.
The functional currency of the Parent Company is Swedish kronor (sek). All amounts are stated in sek thousands (sek 000s) unless otherwise stated.
The items in the Annual Report are valued at acquisition value. The Parent Company applies the same accounting principles as the Group, with the exception and addition that are regulated in the Swedish Financial Accounting Standards Council’s recommendation RR32:05, Reporting for legal entities.
The Group’s main accounting principles are described below.
Consolidated accountsThe consolidated accounts include the Parent Company and all companies over which the Parent Company has a controlling influence. Controlling influence refers to companies in which Mekonomen has a right to formulate financial and operational strategies. This normally occurs through ownership and voting rights of more than 50 per cent. The existence and effect of potential voting rights, which are currently available for utilisation or conversion, are taken into account when an assessment is made of whether the Group can exercise controlling influence over another company.
Subsidiaries are included in the consolidated accounts from the point in time at which controlling influence is achieved and they are not included in the consoli-dated accounts from the time at which the controlling influence ceases.
The consolidated accounts are prepared in accordance with the purchase method, which means that the Parent Company’s carrying amount of shares in subsidiaries is eliminated against shareholders’ equity including the proportion of equity of untaxed reserves for each Group company. If applicable, subsidiaries’ accounting are adjusted to comply with the same principles that apply for the other Group companies. All internal transactions between Group companies and inter-company transactions were eliminated during the preparation of the consolidated accounts.
Translation of transactions in foreign currencyTransactions in foreign currencies are translated into Swedish kronor (sek) ac-cording to the exchange rate on the day of transaction. Monetary items (assets and liabilities) in foreign currencies are translated into sek according to the exchange rate on closing day.
Exchange-rate gains and losses that arise attributable to such translations are reported in the income statement as Other operating revenues and/or Other operating expense.
Translation differences that arise in foreign long-term loans and liabilities are reported in financial income and expenses.
Translation of foreign subsidiariesWhen the consolidated accounts were prepared, the Group’s foreign operations’ balance sheets were translated from their functional currencies to sek based on the exchange rates on closing day. The income statements were translated at the average annual exchange rate. Translation differences that arose were reported against translation reserves in shareholders’ equity. The accumulated translation differences were transferred and reported as part of capital gains, or capital losses in cases where foreign operations were divested.
Goodwill and adjustments to fair values attributable to acquisition of operations with functional currencies other than sek are treated as assets and liabilities in the acquired operations’ currencies and translated at the exchange rates on closing day.
Segment reportingThe Mekonomen Group uses geographical regions as primary segments since the Group’s organisation and control is based on geographical division. The regions consist of each country, Sweden, Norway and Denmark. Secondary segments are not reported since Mekonomen only has one line of business. Profit/loss for each segment includes the contribution received by the segment through wholesale operations. This is to facilitate comparison between segments.
Revenue recognitionSales of goods are reported at delivery/handover of products to the customer, in accordance with conditions of sale. Sales are reported net after deduction of discounts and value-added tax. Sales from central warehouse to stores occur in the currency of the receiving country. Consequently, exchange-rate fluctuations only affect wholesale operations. Inter-Group sales are eliminated in the consolidated accounts.
Interest revenues are periodised over the term by applying the effective interest method.
LeasingA financial leasing contract is an agreement according to which the financial risks and benefits that are connected to ownership of an object are essentially transferred from the lessor to the lessee. The leasing object refers primarily to company vehi-cles and distribution vehicles.
Group as lesseeAssets held under financial leasing agreements are reported as fixed assets in the consolidated balance sheets at fair value at the beginning of the leasing period or at the minimum lease charges if this is lower. The liability that the lessee has to the lessor is reported in the balance sheet under the heading “Lease agreement” divided into long-term and short-term liabilities. Leasing payments are divided between interest and repayment of debt. Interest is divided over the leasing period so that each reporting period is charged with an amount corresponding to a fixed interest rate of the liability reported during each period. Interest expenses are reported di-rectly in the income statement. Lease charges that are paid during operating lease agreements are systematically reported over the leasing period.
Remuneration to employeesThe Group has both defined-contribution and defined-benefit pension plans. A defined-benefit pension plan is a pension plan that is normally based on several different factors, for example, salary and period of service. A defined-contribution pension plan is a pension plan in which the Group, after having paid its pension premium to a separate legal entity, fulfilled its commitments towards the employee.
Defined-contribution plans are reported as an expense in the period to which the premiums paid are attributable.
Pension expenses for defined-benefit plans are calculated using the Projected Credit Method whereby expenses are distributed over the employee’s period of employment. Calculations are performed annually by independent actuaries. These commitments, meaning liabilities that are reported, are valued at the present value
NOTES
54of expected future payments, in which estimated future salary increases are taken into account, applying a discount rate corresponding to the interest on first-class corporate bonds or government bonds issued in the same currency as the pension is to be paid in, with a remaining duration that is comparable to the current commit-ment and with deductions for fair value of the plan assets. In the event a net asset arises, this will be reported only to the extent that it represents future financial advantages, for example, in the form of repayments or reduced future premiums. Accumulated actuarial gains and losses, outside the corridor, are reported in the income statement as revenues or expenses, distributed over the employee’s average remaining estimated period of employment until retirement.
The corridor represents the highest of 10 per cent of the present value of the defined-benefit pension obligation and 10 per cent of the value of the plan assets. Expenses pertaining to employment during previous periods are reported directly in the income statement if no changes in the pension plan are subject to the employee remaining an employee during the stipulated period. In such cases, the expense pertaining to the employment period from previous periods will be dis-tributed according to the straight-line method over the earnings period. Expenses for service during the present period are reported as personnel expenses.
One of the Group’s defined-benefit pension plans comprises a multi-employer defined-benefit pension plan (the ITP plan at Alecta), (a supplementary pension for salaried employees in private industry and commerce). In accordance with Meko-nomen’s accounting principles, a multi-employer defined-benefit plan is reported based on the rules of the plans and reports its proportional share of the defined-benefit pension obligations and of the plan assets and expenses related to the plan in the same manner as for any other similar defined-benefit pension plan.
However, Alecta has not been able to present sufficient information to facilitate reporting as a defined-benefit plan, which is the reason why the ITP plan is reported as a defined-contribution plan in accordance with IAS 19:30.
Remunerations in connection with termination can be paid when an employee has been terminated prior to the expiration of a normal pension date or when an employee accepts voluntary retirement. The Group reports liabilities and expenses in connection with a resignation, when Mekonomen is unquestionably obligated to either terminate employment prior to the normal termination date or voluntarily pay remuneration to encourage early retirement. Mekonomen reports a liability and an expense for bonuses when there are legal or informal obligations, based on earlier practice, to pay bonuses to employees.
Ta xThe Group’s total tax expense comprises current tax and deferred tax. Current tax is tax that shall be paid or received pertaining to the current year and adjustments of prior years’ current tax. Deferred tax is calculated based on the difference be-tween carrying amount and tax values on company assets and liabilities. Deferred tax is reported according to the balance sheet method. Deferred tax liabilities are reported in principle on all taxable temporary differences, while deferred tax assets are reported to the extent that is probable that the amount can be utilized against future taxable surplus.
The carrying amount on deferred tax assets is assessed at each accounting year-end and reduced to the extent that it is no longer probable that sufficient taxable surplus will be available to be utilised either in its entirety or partially against the deferred tax asset.
Deferred tax is calculated based on the tax rates that are expected to apply for the period when the asset is recovered or the debt settled. Deferred tax is reported as revenues or expenses in the income statement, except in cases when it pertains to transactions or events that are reported directly against shareholders’ equity. The deferred tax is then also reported directly against shareholders’ equity.
Deferred tax assets and tax liabilities are offset since they are attributable to income tax that is debited by the same authorities and since the Group intends to pay the tax by a net amount.
GoodwillGoodwill comprises the amount by which the acquisition value exceeds the fair value of the Group’s portion of the acquired subsidiary’s identifiable net assets on the date of acquisition. If in conjunction with the acquisition, the fair value of the acquired assets, liabilities and contingent liabilities exceeds the acquisition value, the surplus is reported directly as revenue in the income statement.
Goodwill has an unspecified useful life and is reported at acquisition value with deduction for accumulated impairments and accumulated amortization implemented prior to the transition to IFRS. In the divestment of an operation, the portion of goodwill attributable to this operation that has not been amortized is reported in the calculation of profit or loss of the divestment.
Goodwill is allocated to the smallest cash generating unit.
Other intangible assetsExpenditure for the development and implementation of IT systems can be capital-ized if development costs are estimated to exceed sek 1 m, an individual assessment is conducted on each occasion. The economic life is calculated as five years follow-ing the start of operation.
Tangible f i xed assetsTangible fixed assets are reported as assets in the balance sheets if it is probable that future financial advantages will be accrued to the company and the acquisition value of the asset can be calculated in a reliable manner. Tangible fixed assets, primarily comprising properties, equipment, computers and transport are reported at acquisition value with deduction for accumulated depreciation and any impair-ment. Depreciation of tangible fixed assets is reported as an expense so that the assets value is depreciated according to the straight-line method over its estimated useful life. The following percentages were applied for depreciation.
F I X E D A S S E T S Per cent
Buildings 2–4
Land improvements and permanent equipment in buildings 5
Machinery 10–15
Vehicles 20
Servers 20
Workplace computers 33
Impairment lossesAt each accounting period, an assessment is made to determine whether there is any indication that an impairment loss should be recognised on any of the Group’s assets. If there is such an indication, the asset’s recoverable value is established.
The recoverable value is deemed to be the higher of the asset’s value in use in the operations and the value that would be received if the asset were to be divested to an independent party, that is the asset’s net realisable value. The value in use is the present value of all deposits and payments attributable to the asset during the period in which it is expected to be utilized in the operations, plus the present value of the net realisable value at the end of its useful life. If the calculated recoverable value is less than the carrying amount, the asset is impaired to its recoverable value.
Impairment losses are reported in the income statement in the period in which it is established.
With regard to goodwill items, an impairment test is conducted at least once a year. Refer also to Note 12 for information on how this test is performed.
Assets held for saleFixed assets that Mekonomen has offered for sale, which were also immediately available for sale and for which the carrying amount will largely be recovered through the sale, were reported as current assets. Such assets were valued and thereby reported at the lowest of carrying amount and fair value after deductions for selling expenses.
NOTES
55InventoriesInventories are reported at the lower of the acquisition value and net realisable value. The acquisition value is established by using the first in/first out principle (FIFO).
A provision for estimated obsolescence in inventories is established when there is objective basis to assume that the Group will not be able to receive the book value when inventories are sold in the future. The size of the provision amounts to the difference between the asset’s carrying amount and the value of the expected future cash flow. The reserved amount is reported in the income statement.
The inventory value was calculated down by the value included in the inter-company profit from goods sold from the wholesaler to the company’s own stores.
Financial instrumentsFinancial assets reported in the balance sheets include loan receivables, accounts receivables and cash and cash equivalents, on the asset side. On the liability side, there are long-term and short-term loans and accounts payable. A financial asset or financial liability is reported in the balance sheet when the company becomes party to the contractual conditions of the instrument. Accounts receivable are reported when an invoice is sent and accounts payable are reported when an invoice has been received. When only an insignificant portion of the financial assets is interest-bear-ing, interest exposure is not reported.
Maximum credit risk corresponds to book value. The terms for long-term and short-term loans are stated in separate note information; other financial liabilities are non-interest-bearing.
A financial asset, or portion thereof, is eliminated when the rights contained in the contract are realised or mature. A financial liability, or portion thereof, is eliminated when the commitment in the agreement has been completed or has in any other manner been terminated.
Calculation of fair value, f inancial instrument When establishing the fair value of short-term investments and loans, official mar-ket listings on the balance sheet date are used. If no such information is available, a valuation is conducted applying established methods such as discounting future cash flow to the listed market rate for each term. Translation to sek is based on the listed exchange rate on the balance sheet date.
Accounts receivableAccounts receivables are reported net after provisions for possible bad debts. The expected term of accounts receivable is short, which is why the amount is reported at nominal value without discounting in accordance with the method for accrued acquisition value. A provision for possible bad debts on accounts receivable is made when there are objective indications to assume that the Group will not be able to receive all the amounts that are due for payment in accordance with the receivables’ original conditions.
The amount of the provision consists of the difference between the asset’s carry-ing amount and the value of the estimated future cash flow. The reserved amount is reported in the income statement.
Cash and cash equivalentsCash and cash equivalents comprise cash funds held at financial institutions and current liquid investments with a term from the date of acquisition of less than three months, which is exposed to only an insignificant risk fluctuations in value. Cash and cash equivalents are reported at nominal value.
Derivative instrumentMekonomen does not apply hedge accounting and accordingly does not possess any derivative instruments.
Accounts payableThe expected term for accounts payable is short, which is why the debt is reported at nominal value without discounting according to the method for accrued acquisi-tion value.
LoansLiabilities to credit institutions, overdraft facilities and other liabilities (loans) are initially reported at fair value net after transaction costs. Thereafter, loans are reported at accrued acquisition value. Possible transaction costs are distributed over the loan period applying the effective interest method. Long-term liabilities have an estimated term longer than one year while short-term liabilities have a term of less than one year.
Share capitalOrdinary shares are classified as share capital. Transaction costs in connection with a new share issue are reported as a deduction, net after tax, from proceeds from the new share issue.
Cash-f low statementThe cash-flow statement was prepared in accordance with the indirect method. The reported cash flow comprises only transactions that result in deposits and payments.
Parent Company’s accounting principles The accounts of the Parent Company were prepared in accordance with the Swed-ish Annual Accounts Act and the Swedish Financial Accounting Standards Coun-cil’s recommendation RR32:05, Reporting of Legal Entities, as well as statements from the Emerging Issues Task Force of the Swedish Financial Accounting Stand-ards Council. In accordance with the regulations stipulated in RR32:05, the Parent Company shall, in the annual accounts for a legal entity, apply all of the IFRS and statements that have been approved by the EU where this is possible within the framework of the Swedish Annual Accounts Act and the law on safeguarding of pension commitments and taking into account the link between accounting and taxation. The recommendation specifies which exceptions and additions shall be made from IFRS. The differences between the Group’s and the Parent Company’s accounting principles are stated below.
Ta xThe amounts reserved as untaxed reserves consist of taxable temporary differences. Due to the link between accounting and taxation, the deferred tax liabilities that are attributable to the untaxed reserves, are not reported separately in the legal entity. The changes in untaxed reserves are reported in accordance with Swedish practice in the income statement for individual companies under the heading “Ap-propriations.” The accumulated value of provisions are reported under the heading “Untaxed reserves,” of which 28 per cent are regarded as deferred tax liabilities and 72 per cent as restricted shareholders’ equity.
Reporting of Group contributionsMekonomen reports Group contributions and shareholders’ contributions in ac-cordance with statements from the Emerging Issues Task Force (URA 7).
Shareholders’ contributions are reported directly against non-restricted share-holders’ equity with the receiver and as an increase in the item “participations in Group company” with the provider. Group contributions that are paid and received with the aim of minimising the Group’s tax payments are reported as a reduction or increase in non-restricted shareholders’ equity.
PensionDefined-benefit and defined-contribution pension plans are reported in accordance with the present Swedish accounting standard, which is based on the regulations in the law on safeguarding of pension commitments.
56NOTES
NOTE 2 R EP ORT I NG OF GEO GR A PH IC SEGM EN T
Sweden Norway Denmark Eliminations and
centra l items Total2 0 0 6 2005 2 0 0 6 2005 2 0 0 6 2005 2 0 0 6 2005 2 0 0 6 2005
R E V E N U E S
External net sales 1,217.5 1,146.7 537.1 490.7 662.9 660.5 14.9 13.7 2,432.4 2, 311.6
Internal revenues 438.2 487.0 0.0 0.0 0.0 0.0 –438.2 –487.0 0.0 0.0
Other revenues 13.6 17.4 2.1 3.0 0.9 1.1 0.8 0.3 17.4 21.8
T O TA L R E V E N U E S 1,669.3 1,651.1 539.2 493.7 663.8 661.6 –422.5 –473.0 2,4 49.8 2, 333.4
O P E R AT I N G P R O F I T L O S S 229.5 203.6 63.3 55.2 16.7 –8.0 –48.2 –69.4 261. 3 181.4
Non operating items* –31.7 –33.4 –5.6 –6.5 –22.9 –18.3 19.0 46.3 – 41. 2 –11.9
E B I T 197.8 170.2 57.7 48.7 –6.2 –26.3 –29.2 –23.1 220.1 169.5
O T H E R I N F O R M AT I O N
Assets 1,178.3 905.2 150.0 161.9 420.4 449.6 –179.3 –191.5 1,569.4 1, 325. 2
Undistributed assets 75.0 274.5 75.0 274.5
T O TA L A S S E T S 1,178.3 905.2 150.0 161.9 420.4 449.6 –104.3 83.0 1,6 4 4.4 1,599.7
L I A B I L I T I E S 876.0 566.5 115.1 176.2 282.6 299.8 –641.1 –413.7 632.6 628.8
Undistributed liabilities 78.7 60.4 78.7 60.4
T O TA L L I A B I L I T I E S 876.0 566.5 115.1 176.2 282.6 299.8 –562.4 –353.3 711. 3 689. 2
Investments, tangible assets 14.4 30.7 3.8 6.2 10.1 6.0 7.2 6.4 35.5 49. 3
Investments, IT systems 1.8 3.5 1.8 3.5
Depreciation (tangible assets) 23.5 23.6 4.5 3.5 14.2 15.9 8.6 7.3 50.8 50. 3
Average number of employees 659 646 185 169 388 405 24 24 1, 256 1, 2 4 4
Number of own stores 88 88 21 21 38 39 147 148
Number of partnership stores 27 27 19 18 0 0 46 45
N U M B E R O F S T O R E S I N T H E C H A I N 115 115 40 39 38 39 193 193
K E Y F I G U R E S
Marginal operating profit/loss, % 18.9 17.7 11.8 11.2 2.5 –1.2 10.7 7.8
EBIT margin, % 11.8 10.3 10.7 9.9 –0.9 –4.0 9.0 7. 3
Sales increase, % 1.1 23.0 9.2 35.4 0.3 –1.2 5.0 8.6Sales/employee (converted into a one-year balance) 2,533 2,556 2,915 2,921 1,711 1,634 1,950 1,876Operating profit/loss per employee (converted to a one-year balance) 348 315 342 327 43 –20 208 146* Non operating items refer to central expenses and any goodwill impairments. Non recurring personnel-related
expenses and capital losses in the sale of properties were also included for 2006.
NOTE 3 AU DI T E X PENSES
Group Parent Company2 0 0 6 2 005 2 0 0 6 2 005
D E L O I T T E A B
Audit fee 3,604 3,560 913 1,023
Consultant fee 1,749 1,839 1,309 835T O TA L 5, 353 5, 399 2, 222 1,858
57NOTES
NOTE 4 AV ER AGE N U M BER OF E M PL OY EES , SA L A R I ES , O T H ER R E M U N ER AT ION A N D SO CI A L SECU R I T Y CON T R I BU T IONS
2 0 0 6 2005
AV E R AG E N U M B E R O F E M P L OY E E S No. of employees Of whom men, % No. of employees Of whom men, %
PA R E N T C O M PA N Y
Sweden 24 88 24 79Total in Parent Company 24 88 24 79S U B S I DA R I E S
Sweden 659 85 646 85Denmark 388 88 405 88Norway 185 88 169 88Total in subsidiaries 1,232 86 1,220 86
G R O U P T O TA L 1, 256 86 1, 2 4 4 86
S A L A R I E S , R E M U N E R AT I O N , E T C Salaries and otherremuneration
Soc. security expenses (of which pension costs)
Salaries and otherremuneration
Soc. security expenses (of which pension costs)
Parent Company 24,054 12,289 15,012 8,142(3,427) (3,141)
Subsidiaries 397,600 93,657 387,212 91,275(22,833) (25,142)
G R O U P, T O TA L 421,654 105,946 4 02, 22 4 99,417(26, 260 ) (28, 283 )
S A L A R I E S A N D O T H E R R E M U N E R AT I O N D I S T R I B U T E D B E T W E E N B OA R D M E M B E R S A N D O T H E R E M P L OY E E S
Board and President* (of which bonus, etc.)
Otheremployees
Board and President* (of which bonus, etc.)
Otheremployees
PA R E N T C O M PA N Y
Mekonomen AB 4,974 19,080 2,710 12,302(1,047) (1,826) (167) (429)
T O TA L I N PA R E N T C O M PA N Y 4,974 19,08 0 2,710 12, 302(1,0 47) (1,826) (167) (429 )
S U B S I DA R I E S I N S W E D E N 12,719 161,655 11,821 151,409(1807) (1,727) (0) (0)
S U B S I DA R I E S A B R OA D
Denmark 1,200 147,939 1,192 156,991(0) (0) (0) (0)
Norway 10,229 63,858 9,601 56,198(832) (0) (140) (0)
T O TA L I N S U B S I DA R I E S 2 4,148 373,452 22,614 36 4,598(2,639 ) (1,727) (14 0 )
G R O U P, T O TA L 29,122 392,532 25, 32 4 376,90 0(3,686) (3,553 ) (307) (429 )
* Remuneration to the Board of Directors and President includes the Parent Company and, where appropriate, subsidiaries in respective countries.
Remunerations to senior executivesFees paid to the Board of Directors amounted to sek 612,500, in accordance with the resolution of the Annual General Meeting. No fees are paid to the Boards of other subsidiaries.
Remuneration to the former President comprised basic salary, bonus, individual pension terms and car benefits, all terms were approved by the Board in its entirety. The Board’s bonus programme, based on the company’s earnings trend, for the President and other senior executives could generate bonuses of up to four months’ salary.
The former President Owe Andersson received salaries and remunerations during the year amounting to sek 4,294,000 of which sek 695,000 was bonus and sek 2,258,000 was severance pay, which was expensed in its entirety in 2006; payment of this will continue until September 2007.
Acting President Roger Gehrman received salaries and remunerations totalling sek 680,000, of which sek 352,000 was bonus. Other benefits in the form of car benefits 207 (299) and bonus of 2,178 (429) were paid to other senior executives.Håkan Lundstedt, who assumed the position of President of Mekonomen on 1 February 2007, has a basic salary of sek 275,000 per month and a variable salary
portion based on the company’s profits and which can amount to a maximum of 50 per cent of his annual basic salary. His pension terms entail that payment of pension premiums will be paid in an amount corresponding to 25 per cent of basic salary. Other benefits consist of a company car. The period of notice is 12 months if termination is on the part of the company and six months on the part of the employee. In the case of termination on the part of the company, severance pay amounting to six months salary is paid.
The Board will submit proposals to the 2007 Annual General Meeting for principles for remuneration to company management. The proposal entails that the company shall strive to offer its senior executives market-based remuneration, that the criteria shall accordingly be based on the significance of work assignments, competency requirements, experience and performance, and that remuneration comprise the following components: fixed basic salary, variable remuneration, pension benefits and other benefits and termination terms.
The Board’s proposal is in agreement with the preceding years’ remuneration principles and based on agreements signed between the company and senior executives. The division between basic salary and variable remuneration shall be in proportion to the responsibilities and authority of the senior executive. The variable remuneration for senior executives, excluding the President, are based partly on the Group’s profits and partly on individual qualitative parameters and could amount to a maximum of four months’ salary.
Other benefits consist primarily of company cars. Pension premiums are paid in an amount based on the ITP plan. Pensionable salary consists of the basic salary. Severance pay for termination on the part of the company can total one annual salary. Matters pertaining to remuneration to Board members shall be prepared and resolved on by the Board of Directors.
PensionsCommitments for old-age pensions and family pension for salaried employees are secured through insurance with Alecta. According to a statement from the Emerging Issues Task Force, URA42, this is a defined-benefit plan that comprises several employers. In the 2006 financial year, the company did not have access to such information that made it possible to report this plan as a defined-benefit plan. ITP pension plans that are secured through insurance with Alecta are therefore reported as defined-contribution plans. The annual fees for pension policies signed with Alecta amounted to sek 2.9 m (2.6). Alecta’s surplus can be distributed to policyholders and/or the insured. At the end of 2006, Alecta’s surplus, in the form of the collective consolidation level, amounted to 143.1 per cent (128.5). The collective consolidation level comprises the market value of Alecta’s assets as a percentage of insurance commitments calculated according to Alec-ta’s actuarial calculation commitments, which are not in agreement with IAS 19.
E X E C U T I V E S / O C C U PAT I O N C AT E G O RY Basic sa lary Bonus Board fees Other benef its Pension premiums
Chairman of the Board 325
Other external Board members 288
President 3,927 1,047 13 822
Other senior executives, 11 11,315 1,826 194 2,102
15, 2 42 2,873 613 207 2,92 4
Of all the company’s officers and senior executives, two are women. At year-end, the number of senior executives was eight, who also comprise the Group’s management group. In addition to the President, they are the Group’s IT Manager, HR Manager, CFO, Head of Busi-ness Development and Head of Operations for Norway, Sweden, Denmark and Mekonomen Grossist. The above amounts also include the Group’s previous Executive Vice President, CFO, IT Manager and Administration Manager in Norway who were part of the management group during the year. The basic salary for other senior executives includes severance pay for two persons totalling sek 3,852,000.
Parent CompanyS I C K L E AV E 2 0 0 6 2005
Total sick leave, % 0.9 0.7
Of which, long-term sick leave, % 0.0 0.0
The portion of female employees is too low to facilitate the implementation of a complete specification.
NOTE 5 DEPR ECI AT ION /A MORT ISAT ION A N D I M PA I R M EN T OF TA NGI BLE A N D I N TA NGI BLE F I X ED A SSE T S
Group Parent Company 2 0 0 6 2005 2 0 0 6 2005
Depreciation of equipment and transport 39,086 38,866 8,628 7,287
Depreciation of properties 11,757 11,463 – –
T O TA L , D E P R E C I AT I O N AC C O R D I N G T O P L A N 50,843 50,329 8,628 7,287
Impairment of intangible assets 8,986 – 8,986 –
Impairment of goodwill – 3,947 – –
T O TA L D E P R E C I AT I O N / A M O R T I S AT I O N A N D I M PA I R M E N T 59,829 54, 276 17,614 7, 287
Goodwill impairment for 2005 amounted to sek 3.9 m and pertained to goodwill arising from the purchase of the net assets in Hilleröd in Denmark. The reason for the impairment is that the store did not develop according to plan.
NOTE 6 PROF I T/ L OSS F ROM PA RT ICI PAT IONS I N GROU P COM PA N I ES
Parent Company 2 0 0 6 2005
Dividends 55,000 45,000
T O TA L 55,0 0 0 45,0 0 0
58NOTES
59NOTES
NOTE 7 F I NA NCI A L I NCOM E
Group2 0 0 6 2005
Dividends 25 20
Interest 6,459 6,207
T O TA L 6,48 4 6, 227
NOTE 8 A PPROPR I AT IONS
Parent Company 2 0 0 6 2005
Reversal of tax allocation reserve 384 23
Provision, tax allocation reserve –31,434 –
Changes in excess depreciation 1,031 951
T O TA L A P P R O P R I AT I O N S –30,019 974
NOTE 9 TA X ON PROF I T F OR T H E Y E A R
Group Parent CompanyC U R R E N T TA X 2 0 0 6 2005 2 0 0 6 2005
Sweden –41,267 –55,221 –26,406 –9,034
Other countries –10,166 –3,538 – –
T O TA L C U R R E N T TA X –51,433 –58,759 –26,4 06 –9,03 4
Changes in deferred tax temporary differences –6,645 14,240 – –
Tax on Group contributions, net – – 43,377 –5,025
R E P O R T E D TA X E X P E N S E S –58,078 – 4 4,519 16,971 –14,059
TA X O N P R O F I T F O R T H E Y E A R
Reported profit before tax 198,296 162,119 –7,296 94,762
Tax according to applicable tax rate, 28% –55,523 –45,393 2,043 –26,533
Tax on standard interest on tax allocation reserves –1,331 –1,785 –68 –83
Tax effects on expenses that are not tax deductible Other non-deductible expenses –1,587 –358 –410 –60
Other non-taxable income – – 15,406 12,617Effects on adjustments from the preceding year 363 3,018 – –R E P O R T E D TA X E X P E N S E S –58,078 – 4 4,519 16,971 –14,059
In 2006, the Parent Company, Mekonomen AB paid Group contributions of sek 14.1 m to Mekonomen Norge AS and sek 114.3 M to Mekonomen Danmark S/S.
Mekonomen has treated the contribution as tax deductible in Sweden and as taxable in Norway and Denmark.
NOTE 10 L A N D A N D BU I L DI NGS
Land and buildings
New buildings and extensions
Permanent equipment Total
O P E N I N G AC q U I S I T I O N VA L U E , 1 J A N UA RY 2 0 0 5 476,911 56,255 857 534,023Purchases and extensions 67,731 –56,255 – 11,476
Translation differences, currency 12,285 – – 12,285
Reclassifications –113,909 – 2,582 –111,327
O P E N I N G AC q U I S I T I O N VA L U E , 1 J A N UA RY 2 0 0 6 4 43,018 0 3,439 4 46,457Purchase, rebuilding and extensions, conversion 5,820 – – 5,820
Translation differences, currency –5,375 – – –5,375
Sales/disposals –181 – – –181Reclassifications 13,455 – – 13,455C L O S I N G AC q U I S I T I O N VA L U E , 3 1 D E C E M B E R 2 0 0 6 456,737 0 3,439 460,176O P E N I N G AC C U M U L AT E D D E P R E C I AT I O N , 1 J A N UA RY 2 0 0 5 –95,076 0 –2 41 –95, 317
NOTE 10 CON T ’ D
Depreciation according to plan for the year –11,291 – –172 –11,463
Translation differences, currency –6,491 – – –6,491Reclassifications 30,414 – –435 29,979O P E N I N G AC C U M U L AT E D D E P R E C I AT I O N S , 1 J A N UA RY 2 0 0 6 –82,4 4 4 0 –8 48 –83, 292Depreciation according to plan for the year –11,712 – –174 –11,886
Translation differences, currency 1,274 – – 1,274Reclassifications –3,315 – – –3,315C L O S I N G AC C U M U L AT E D D E P R E C I AT I O N , 3 1 D E C E M B E R 2 0 0 6 –96,197 0 –1,022 –97, 219C L O S I N G R E S I D UA L VA L U E AC C O R D I N G T O P L A N ,
3 1 D E C E M B E R 2 0 0 6 360,54 0 0 2,417 362,957
The buildings are depreciated at 2–4 per cent according to classification. Building equipment was depreciated at 5–10 per cent based on the calculated economic lifetime. Danish properties in Odense, Nyköbing, Åsnaes, Struer and Hjörring were divested during the year, which resulted in capital loss totalling sek 8,181,000 in the Group. The Stensätra 19 property was reported as “property held for sale” for more than one year. Since the Board of Mekonomen decided in January 2007 to call for tenders for the Group’s entire property portfolio, Stensätra was also classified as “held for sale” as of 31 December 2006. Other properties in the Group will be reclassified in connection with the financial accounts for the first quarter if they remain in the Group.
P R O P E R T I E S H E L D F O R R E S A L E
P R O P E R T Y / C I T Y / C O U N T RY Initia l va lueRevaluation
during the year Book value Date
Stensätravägen 6/Stockholm/Sweden 29,845 – 29,845 05-01-0129,8 45 – 29,8 45
T H E A S S E S S M E N T VA L U E S , P R O P E R T I E S31 Dec. 2006
Buildings31 Dec. 2006 of which land
31 Dec. 2005 Buildings
31 Dec. 2005 of which land
Tax assessment values, Sweden 115,543 21,148 102,323 21,130
Tax assessment values, Denmark 100,854 16,131 185,820 31,548
NOTE 11 EQU I PM EN T A N D T R A NSP ORT
Equipment, transport
Building equipment Leasing Total
O P E N I N G AC q U I S I T I O N VA L U E , 1 J A N UA RY 2 0 0 5 235,573 2,582 9,605 247,760
Purchases 41,652 – 4,136 45,788
Divestments/disposals –13,181 – – –13,181
Reclassifications – –2,582 – –2,582
Exchange-rate fluctuation 5,063 – – 5,063O P E N I N G AC q U I S I T I O N VA L U E , 1 J A N UA RY 2 0 0 6 269,107 0 13,741 282,848Purchases 27,863 – 1,791 29,654
Divestments/disposals –18,573 – –870 –19,443
Exchange-rate fluctuation –5,170 – –304 –5,474CLOSI NG ACC U M U L AT E D ACqU ISI T ION VA LU E , 31 DECE M BER 2 0 0 6 273,227 0 14,358 287,585O P E N I N G D E P R E C I AT I O N , 1 J A N UA RY 2 0 0 5 –132,711 –435 –4,110 –137,256
Divestments/disposals 12,584 – – 12,584
Reclassifications – 435 – 435
Exchange-rate fluctuation –3,700 – – –3,700
Depreciation for the year –38,866 – –4,071 –42,937
O P E N I N G D E P R E C I AT I O N , 1 J A N UA RY 2 0 0 6 –162,693 0 –8,181 –170,874
Divestments/disposals 14,267 – 548 14,815
Exchange-rate fluctuation 2,638 211 2,849
Depreciation for the year –35,757 –3,200 –38,957C L O S I N G AC C U M U L AT E D D E P R E C I AT I O N , 3 1 D E C E M B E R 2 0 0 6 –181,545 –10,622 –192,167
B O O K VA L U E 91,682 0 3,736 95,418
60NOTES
NOTES
61L E A S I N G C O N T R AC T
Leasing contracts refer to the leasing of distribution vehicles in Sweden and Norway and trucks in Denmark.2 0 0 6 2005
Leasing expenses for the year 2,193 2,902
F F U T U R E L E A S I N G C H A R G E S F O R I R R E VO C A B L E L E A S I N G C O N T R AC T S
FA L L I N G D U E F O R PAY M E N T: 2 0 0 6 2005
Within one year 2,358 2,532
Later than one year but within five years 1,850 1,885
After five years 0 0
4, 208 4,417
Parent CompanyE q U I P M E N T A N D T R A N S P O R T 2 0 0 6 2005
Opening acquisition value 28,612 26,565
Purchases 7,163 2,888
Divestments/disposals –1,675 –841
Closing accumulated acquisition value 34,100 28,612
Opening depreciation –12,658 –6,139
Divestments/disposals 1,067 768
Depreciation for the year –8,628 –7,287
Closing accumulated depreciation –20,219 –12,658B O O K VA L U E 13,881 15,954
NOTE 12 I N TA NGI BLE F I X ED A SSE T S
Goodwil lIT investments in Parent Company Total
O P E N I N G AC q U I S I T I O N VA L U E , 1 J A N UA RY 2 0 0 5 217,143 3,654 220,797Acquisitions 10,736 3,499 14, 235
Translation difference, currency 2,408 – 2,4 08
Accumulated depreciation according to plan before adapting to IFRS –60,744 – – 60,74 4
Impairment –3,947 – –3,947
O P E N I N G AC q U I S I T I O N VA L U E , 1 J A N UA RY 2 0 0 6 165,596 7,153 172,749Acquisitions 6,322 1,833 8,155Translation difference, currency –3,038 – –3,038C L O S I N G AC C U M U L AT E D AC q U I S I T I O N VA L U E , 3 1 D E C E M B E R 2 0 0 6 168,88 0 8,986 177,866O P E N I N G AC C U M U L AT E D A M O R T I S AT I O N , 1 J A N UA RY 2 0 0 5 – 60,74 4 0 – 60,74 4Reversal of accumulated amortisation before adapting to IFRS 60,744 – 60,74 4O P E N I N G AC C U M U L AT E D A M O R T I S AT I O N , 1 J A N UA RY 2 0 0 6 0 0 0Impairment – –8,986 –8,986
C L O S I N G AC C U M U L AT E D A M O R T I S AT I O N , 3 1 D E C E M B E R 2 0 0 6 0 –8,986 –8,986C L O S I N G R E S I D UA L VA L U E , 3 1 D E C E M B E R 2 0 0 6 168,88 0 0 168,88 0
The reported goodwill value is partly attributable to the wholesale operation and partly to Mekonomen’s stores in Sweden, Norway and Denmark. The amount is divided into sek 40 m and sek 129 m, respectively. The division of sek 129 m according to countries is as follows: Sweden sek 80 m, Norway sek 33 m and Denmark sek 16 m.
Testing impairment requirement of intangible fixed assetsThe assessment of the value of the Group’s goodwill items was based on the value in use of cash-generating units. For Me-konomen, this unit means an individual store; in some cases two stores are included in one company and an assessment of the individual company as a whole is conducted. The value in use is based on the cash flow that the unit is expected to generate in the Group in the future. The future cash flow used in the calculation of each unit’s value in use is based on the 2007 budget for each unit. Subsequently, the cash flows will be based on the unit’s business plan, which extends to 2010. The forecast after 2010 is based on a cautious growth at largely the same level as the cash flow for 2010. The present value of the forecasted cash flows is calculated by applying a discount rate of 16.5 per cent before tax. With a discount factor of 16.5 per cent, the value in use for all of the units will exceed the book value. In this type of calculation, assessments and assumptions from company management are included. The future cash flows of several units are based on similar assumptions. Important assumptions, which when changed
62NOTES
cause major impact on the cash flow, are assumptions on future price and volume developments. In the plans that are the basis for cash flows, company management assumes that the price trend will amount to only a few per cent annually. The volume trend is calculated to be between 2.0 and 5.0 per cent annually up to 2010. Price and volume developments vary a total of between 2.0 and 5.0 per cent. Assessments are conducted taking into account the trends in the preceding year. Company management estimates that although reasonable deviations from assumed prerequisites were taken into account, recoverable value will not decrease to such an extent that it is less than the book value.
NOTE 13 DEF ER R ED TA X ES
The table below states the Group’s deferred tax assets and tax liabilities for each category. The deferred tax liabilities are reported after deduction of tax assets if sub-items are offsetable.
TA X A S S E T S , L O S S C A R RY F O RWA R D SOpening balance
1 Jan. 2005Reported as income
during 2005Reclassif ications
2005Closing balance
31 Dec. 2005
Deferred tax assets, Norway 9,266 –661 – 8,605Estimated tax on reversed net asset goodwill – –580 – –580
Translation difference, currency – – – 740
T O TA L TA X A S S E T S 9, 266 –1, 2 41 – 8,765
TA X A S S E T S , L O S S C A R RY F O RWA R D S 1 Jan. 2006 2006 2005 31 Dec. 2006
Deferred tax assets, Norway 8,605 –4,636 – 3,969Estimated tax on reversed net asset goodwill –580 –383 – –948
Translation difference, currency 740 – – 368
T O TA L TA X A S S E T S 8,765 –5,0 0 4 – 3, 389
TA X L I A B I L I T I E S 1 Jan. 2005 2005 2005 31 Dec. 2005
Untaxed reserves 66,576 –4,766 – 61,810Surplus value on fixed assets 49,611 –3,770 – 45,841
Estimated tax on reversed net asset goodwill 1,750 2,335 – 4,085
Deferred tax assets’ deficit, Denmark –14,487 14,487 – 0
Temporary tax benefits from inter-company profits –15,915 –7,728 – –23,643
Other –4,837 –16,039 – –20,876
Translation difference, currency – – – –36
T O TA L TA X L I A B I L I T I E S 82,698 –15,481 0 67,181
TA X L I A B I L I T I E S 1 Jan. 2006 2006 2006 31 Dec. 2006
Untaxed reserves 61,810 2,422 – 64,232Surplus value on fixed assets 45,841 –5,984 –728 39,129
Estimated tax on reversed net asset goodwill 4,085 3,439 – 7,524
Deferred tax assets’ deficit, Denmark 0 –2,901 – –2,901
Temporary tax benefits from inter-company profits –23,643 3,248 – –20,395
Other –20,876 1,393 1,767 –17,716
Translation difference, currency –36 24 – –517
T O TA L TA X L I A B I L I T I E S 67,181 1,6 41 1,039 69, 356
NOTE 14 O T H ER L ONG -T ER M R ECEI VA BLES
Group Parent Company31 Dec. 2 0 0 6 31 Dec. 2005 31 Dec. 2 0 0 6 31 Dec. 2005
Receivables from partnership companies 29 63 29 63
Deposits paid 2,163 549 – –
Bonds 52 52 – –
Hire-purchase contract 4,598 – – –
Other receivables 2,850 5,290 – –
T O TA L O T H E R L O N G -T E R M R E C E I VA B L E S 9,692 5,954 29 63
All receivables falling due for payment within five years.
63NOTES
NOTE 15 CU R R EN T R ECEI VA BLES
Group Parent Company2 0 0 6 2005 2 0 0 6 2005
Accounts receivables 199,546 195,829 530 299
Receivables from Group companies – – 217,254 47,476
Current tax assets 39,290 – – 1,112
Other receivables 52,989 31,232 5,867 7,935
Prepaid expenses and accrued income 66,426 62,834 42,473 38,011
T O TA L 358, 251 289,895 266,12 4 94,833
Accounts receivablesAC C O U N T S R E C E I VA B L E S , G R O U P 2 0 0 6 2005
Accounts receivables 214,830 207,671
Provision for bad debts –15,284 –11,842
T O TA L AC C O U N T S R E C E I VA B L E S 199,546 195,829
Provision for bad debts2 0 0 6 2005
Provision for bad debts at the beginning of the year –9,961 –9,961
Provision for companies acquired during the year – –202
Net change in provision –6,216 –2,266
Recovered prior impairment losses 458 970
Translation difference in opening balance 435 –383
T O TA L P R OV I S I O N F O R B A D D E B T S –15, 28 4 –11,8 42
NOTE 16 PR EPA I D E X PENSES A N D ACCRU ED I NCOM E
Group Parent Company2 0 0 6 2005 2 0 0 6 2005
Prepaid rents 9,877 6,789 1,617 1,447
Prepaid leasing fees 777 1,887 – –
Prepaid insurance 1,655 2,321 241 320
Accrued supplier bonus 49,051 47,019 40,317 35,849
Other interim receivables 5,066 4,818 298 395
T O TA L 66,426 62,83 4 42,473 38,011
NOTE 17 CA SH A N D CA SH EQU I VA LEN T S
GroupU N I T-L I N K E D S H A R E 31 Dec. 2 0 0 6 31 Dec. 2005
Acquisition value 247 247
Divestments –247 –135
Revaluation – 4
Book value 0 116
Cash and bank balance 95,255 38,027
C A S H A N D C A S H E qU I VA L E N T S 95, 255 38,143
NOTE 18 L ONG -T ER M L I A BI L I T I ES TO CR EDI T
I NS T I T U T IONS A N D LE A SI NG COM PA N I ES
Group31 Dec. 2 0 0 6 31 Dec. 2005
S W E D E N
Liabilities to leasing companies 507 1,637
Other liabilities – –
N O RWAY
Liabilities to credit institutions – 18,842
Liabilities to leasing companies 569 1,391
D E N M A R K
Liabilities to credit institutions – 59,331
Liabilities to credit institutions 0 78,173Liabilities to leasing companies 1,076 3,028
T O TA L L O N G -T E R M L I A B I L -
I T I E S , I N T E R E S T-B E A R I N G 1,076 81, 201
64NOTES
NOTE 18 CON T ’ D
GroupI N T E R E S T E X P O S U R E 31 Dec. 2006 Interest rate % (f ixed) Interest adjustment
S W E D E N
Bank loan 40,000 – Variable
Overdraft 87,300 – Variable
Liability, leasing companies 2,634 – Variable
N O RWAY
Liability, leasing companies 1,102 – Variable
D E N M A R K
Bank loan 21,441 5.11 1 Jan. 2007
Bank loan 1,945 5.43 31 March 2007
Bank loan 6,972 5.22 31 March 2007
Bank loan 740 5.00 31 March 2007
Bank loan 1,234 4.28 31 March 2007
Bank loan 21,320 – Variable
Overdraft 74,245 – Variable
T O TA L , I N T E R E S T-B E A R I N G L I A B I L I T I E S 258,933Long-term portion 1,076
Short-term portion 257,857
The average interest rate on above listed loans with fixed interest is 5.12 per cent.
NOTE 19 CU R R EN T L I A BI L I T ES
Group31 Dec. 2 0 0 6 31 Dec. 2005
Short-term portion of bank loans 93,652 60,802
Overdraft facility 161,545 129,298
Liability, leasing companies 2,660 2,532
T O TA L C U R R E N T L I A B I L I T I E S , I N T E R E S T-B E A R I N G 257,857 192,632Accounts payable 165,402 189,000
Other liabilities 50,837 29,780
Accrued expenses and deferred income 118,005 91,872
T O TA L C U R R E N T L I A B I L I T I E S , I N T E R E S T-F R E E 33 4, 2 4 4 310,652
NOTE 20 ACCRU ED E X PENSES A N D DEF ER R ED I NCOM E
Group Parent Company2 0 0 6 2005 2 0 0 6 2005
Accrued salaries 11,991 433 8,160 –
Accrued holiday salaries 50,600 50,571 2,270 2,044
Accrued social security contributions 22,901 15,422 5,226 1,060
Prepaid rental revenue 2,878 377 – –
Accrued bonus/contract expense 6,258 2,777 – –
Other interim liabilities 23,377 22,292 2,956 3,786
T O TA L 118,0 05 91,872 18,612 6,890
NOTES
65NOTE 21 PLED GED A SSE T S
Group Parent CompanyL I A B I L I T I E S T O C R E D I T I N S T I T U T I O N S 31 Dec. 2 0 0 6 31 Dec. 2005 31 Dec. 2 0 0 6 31 Dec. 2005
Property mortgages, Swedish properties 55,500 55,500 – –
Property mortgages, Danish properties 58,661 90,998 – –
Property mortgages, subsidiaries 92,000 129,684 92,000 129,684T O TA L 206,161 276,182 92,0 0 0 129,68 4
C O N T I N G E N T L I A B I L I T I E S
Guarantee commitment, Norway 1,427 2,414 1,427 2,414
NOTE 22 PA RT ICI PAT ION I N GROU P COM PA N I ES
N A M E O F C O M PA N Y / R E G I S T E R E D O F F I C E S W E D E N Corp. Reg. No. Share of equity % No. of stores Book value
Mekonomen Grossist AB/Stockholm 556062-4875 100 40,320
Mekonomen Detaljist AB/Stockholm 556157-7288 100 4,520
Mekonomen Finans AB/Stockholm 556179-9676 100 657
Mekonomen Vilande Tre AB/Huddinge 556683-3546 100 100
45,597N A M E OF C O M PA N Y/ R E G I S T E R E D OF F IC E DE N M A R K
Mekonomen Danmark A/S / Odense 30 07 81 28 100 36 176,988
N A M E O F C O M PA N Y / R E G I S T E R E D O F F I C E N O RWAY
Mekonomen Norge AS/Oslo 980 748 669 100 24,448
PA R T I C I PAT I O N I G R O U P C O M PA N I E S , T O TA L 2 47,033
PA R T I C I PAT I O N I N S U B S I DA R I E S
Name of company/registered off ice Corp. Reg. No. Share in equity % No. of stores No. of workshops
S W E D E N
Bileko Konsult AB/Stockholm 556171-9435 100Mekonomen Bilverkstad AB/Stockholm 556607-1493 100 2Mekonomen Alingsås AB/Alingsås 556596-3690 75 1Mekonomen Arvika AB/Arvika 556528-3750 80 1Mekonomen Borås AB/Borås 556226-1338 100 –Mekonomen Borås City AB/Borås 556078-9447 100 2Mekonomen Bromma AB/Stockholm 556230-5101 100 1Mekonomen Enköping AB/Enköping 556264-2636 100 1Mekonomen Eskilstuna AB/Eskilstuna 556613-5637 75 1Mekonomen Falkenberg AB/Falkenberg 556213-1622 70.2 1Mekonomen Falköping AB/Falköping 556272-1497 100 1Mekonomen Falun AB/Falun 556559-3927 60 1Mekonomen Farsta AB/Stockholm 556528-4766 100 1Mekonomen Finspång AB/Finspång 556594-1951 100 1Mekonomen Gislaved AB/Gislaved 556261-4676 100 1Mekonomen Gävle AB/Gävle 556353-6803 100 1Mekonomen Göteborg Ringön AB/Gothenburg 556561-6751 100 1Mekonomen Hedemora AB/Hedemora 556308-8011 100 1Mekonomen Helsingborg AB/Helsingborg 556044-4159 75 2Mekonomen Hudiksvall AB/Hudiksvall 556428-1102 75 1Mekonomen Härnösand AB/Härnösand 556217-2261 80 1Mekonomen Hässleholm AB/Hässleholm 556678-0622 75 1Mekonomen Järfälla AB/Stockholm 556660-3196 100 1Mekonomen Jönköping AB/Jönköping 556237-5500 100 1Mekonomen Kalmar AB/Kalmar 556236-8349 100 1Mekonomen Karlshamn AB/Karlshamn 556649-9090 100 1Mekonomen Karlskoga AB/Karlskoga 556196-2605 100 1
66NOTES
NOTE 22 CON T ’ D
Mekonomen Karlskrona AB/Karlskrona 556649-9082 100 1Mekonomen Kramfors AB/Kramfors 556496-1810 100 1Mekonomen Kristianstad AB/Kristianstad 556171-9203 80 1Mekonomen Landskrona AB/Landskrona 556646-4813 100 1Mekonomen Linköping AB/Linköping 556202-9545 100 1Mekonomen Ljungby AB/Ljungby 556530-9266 75 1Mekonomen Ludvika AB/Ludvika 556470-4210 100 1Mekonomen Luleå AB/Luleå 556338-4071 100 1Mekonomen Lund AB/Lund 556531-0108 100 1Mekonomen Lycksele AB/Lycksele 556687-8095 75 1Mekonomen Malmö Fosie AB/Malmö 556493-7018 100 2Mekonomen Malmö Värnhem AB/Malmö 556530-7237 100 –Mekonomen Mariestad AB/Mariestad 556261-0179 50 1Mekonomen Mjölby AB/Mjölby 556362-0565 75 1Mekonomen Mora AB/Mora 556363-2487 80 1Mekonomen Motala AB/Motala 556311-8750 100 1Mekonomen Märsta AB/Sigtuna 556596-3674 100 1Mekonomen Norrköping AB/Norrköping 556376-2797 75 2Mekonomen Norrtälje AB/Stockholm 556178-9719 60 1Mekonomen Nyköping AB/Nyköping 556244-0650 75 1Mekonomen Nässjö AB/Nässjö 556187-8637 100 2Mekonomen Osby AB/Osby 556408-8044 100 1Mekonomen Oskarshamn AB/Oskarshamn 556631-8589 75 1Mekonomen Piteå AB/Piteå 556659-8966 75 1Mekonomen Ronneby AB/Ronneby 556649-9017 100 1Mekonomen Sandviken AB/Sandviken 556201-1295 100 1Mekonomen Segeltorp AB/Huddinge 556580-2351 100 1Mekonomen Skellefteå AB/Skellefteå 556389-4095 100 1Mekonomen Sollefteå AB/Sollefteå 556216-9424 80 1Mekonomen Sollentuna AB/Sollentuna 556462-0416 85 2Mekonomen Solna AB/Stockholm 556213-3073 100 1Primexxa Strängnäs AB/Stockholm 556422-3872 60 1Mekonomen Sundsvall AB/Sundsvall 556201-1675 100 2Mekonomen Sätra AB/Stockholm 556509-7861 100 1Mekonomen Söderhamn AB/Söderhamn 556509-4132 75 1Mekonomen Södertälje AB/Södertälje 556405-5498 100 1Mekonomen Sölvesborg AB/Sölvesborg 556216-4250 75 1Mekonomen Torslanda AB/Göteborg 556583-3893 100 1Mekonomen Trollhättan AB/Trollhättan 556515-0298 80 2Mekonomen Täby AB/Täby 556632-9958 100 1Mekonomen Umeå AB/Umeå 556483-3084 81.8 1Mekonomen Uppsala AB/Uppsala 556092-4218 100 2Mekonomen Varberg AB/Varberg 556261-0161 75 1Mekonomen Vetlanda AB/Vetlanda 556653-4219 100 1Mekonomen Vimmerby AB/Vimmerby 556232-5877 100 1Mekonomen Värnamo AB/Värnamo 556111-9719 100 1Mekonomen Västerås AB/Västerås 556344-5492 75 2Mekonomen Växjö AB/Växjö 556192-0439 100 1Mekonomen Skåne Ystad AB/Ystad 556565-3085 100 1Mekonomen Åkersberga AB/Österåker 556632-9966 100 1Mekonomen Örebro Aspholmen AB/Örebro 556344-0717 75 2Mekonomen Örnsköldsvik AB/Örnsköldsvik 556465-6287 75 1Mekonomen Östberga AB/Stockholm 556192-0314 83.3 1Mekonomen Östersund AB/Östersund 556296-5243 100 1
88
67NOTES
NOTE 22 CON T ’ D
N O RWAY
Mekonomen Askim AS/Askim 974 209 772 100 1Mekonomen Bodö AS/Bodö 986 489 576 100 1Amundsen AS/Sarpsborg 910 155 520 100 1Christoffersen och Bekken AS/Oslo 938 215 103 100 1Mekonomen Tönsberg AS/Tönsberg 934 256 867 75 1Drammen Supply AS/Drammen 924 843 543 100 1Heggeli Bildeler AS/Tromsö 942 591 322 100 1Mekonomen Grenland AS/Porsgrund 984 690 703 100 1Mekonomen Harstad AS/Harstad 982 952 379 100 1Mekonomen Jessheim AS/Jessheim 987 696 109 100 1Mekonomen Kongsberg AS/Kongsberg 937 161 786 75 1Mekonomen Arendal AS/Arendal 982 434 696 100 1Mekonomen Fredrikstad AS/Fredrikstad 881 509 032 100 1Mekonomen Molde AS/Molde 985 793 417 100 1Mekonomen Sandvika AS/Sandvika 982 707 862 100 1Mekonomen Ski AS/Ski 983 098 525 100 1Åsensentret AS/Stavanger 983 935 214 67 1Mekonomen Sörlandsparken AS/Kristiansand 981 508 939 100 1Mekonomen Trondheim AS/Trondheim 979 462 026 100 1Mekonomen Ålesund AS/Ålesund 981 929 276 100 1Mekonomen Moss AS/Moss 939 161 260 100 1
21D E N M A R K
Mekonomen Holding A/S/Odense 38 10 70 11 100Mekonomen Århus A/S/Århus 26 10 99 57 100 2Dansk Auto Materiel A/S/Odense 67 73 45 13 100Dansk Motor Industri ApS/Odense 24 34 69 19 100Mekonomen Eiendomsselskab ApS/Odense 16 68 03 70 100
2T O TA L N U M B E R O F S T O R E S / WO R K S H O P S 147 2
NOTE 23 SH A R EHOL DER S ’ EQU I T Y
S H A R E C A P I TA L Number Share capita l
Series B shares 27,668,822 69,172,055
Series A shares 3,200,000 8,000,000
T O TA L N U M B E R O F S H A R E S , 1 J A N UA RY 2 0 0 5 30,868,822 77,172,055Reclassification of Series A shares to Series B shares, 24 August 2006Series B shares 30,868,822 77,172,055T O TA L N U M B E R O F S H A R E S , 3 1 D E C E M B E R 2 0 0 6 30,868,822 77,172,055
Other capital contributions The amount consists of the Parent Company’s statutory reserve.
Statutory reserveThe purpose of the statutory reserve is to allocate profits to cover any future losses. At the Annual General Meeting on 10 May 2006, a resolution was made pertaining to the reduction of the statutory reserve by sek 340,000,000. The reduced amount shall be allocated to a fund to be used in accordance with resolution by the Annual General Meeting.
Profit brought forwardComprise prior years’ profits brought forward after any provisions to statutory reserves and after dividends. Profit for the year is added to this amount. Profit brought forward for the Parent Company is the basis for the Annual General Meeting’s decision on the year’s dividend.
Dividend to Parent Company’s shareholdersThe Board of Directors propose a dividend of sek 10.00 per share, giving a total dividend of sek 308,668,220.
68NOTE 23 CON T ’ D
T R A N S L AT I O N D I F F E R E N C E , F O R E I G N S U B S I D I A R I E S 2 0 0 6 2005
Accumulated translation differences in Norway –3,259 51
Accumulated translation differences in Denmark –7,427 –1,476
–10,686 –1,425
NOTE 2 4 A DJ US T M EN T S F OR I T E MS NO T A F F EC T I NG L IQU I DI T Y
Group Parent Company31 Dec. 2 0 0 6 31 Dec. 2005 31 Dec. 2 0 0 6 31 Dec. 2005
Depreciation/amortisation 59,829 50,329 17,614 7,287Impairment of properties – 7,925 – –Impairment of goodwill – 3,947 – –Exchange-rate differences in cash and cash equivalents – –44 – –44Capital gain attributable to divestment of fixed assets 8,638 504 –43 60Other items not affecting liquidity –30 –1,309 –3 –
68,437 61, 352 17,568 7, 303
NOTE 25 ACQU ISI T ION OF SU BSI DA R I ES
During 2006, minority shares in a total of nine companies were acquired amounting to sek 11.7 m. All these companies are now wholly owned except Mekonomen Sollentuna AB, for which ownership is 85 per cent. The surplus value of all acquisitions total-ling sek 6.3 m was allocated to goodwill.
AC q U I R E D S U B S I DA R I E S 2 0 0 6 Country Acquisit ion dateShareholding and share
of voting rights Object
Mekonomen Gävle AB, Gävle Sweden February 25 Part-ownedMekonomen Sandviken AB, Sandviken Sweden March 25 Part-ownedMekonomen Östersund AB, Östersund Sweden March 25 Part-ownedMekonomen Växjö AB, Växjö Sweden March 25 Part-ownedMekonomen Sollentuna AB, Sollentuna Sweden April 25 Part-ownedMekonomen Kalmar AB, Kalmar Sweden October 25 Part-ownedMekonomen Nässjö AB, Nässjö Sweden December 25 Part-ownedMekonomen Göteborg Ringön AB, Gothenburg Sweden December 25 Part-ownedMekonomen Farsta AB, Stockholm Sweden December 40 Part-owned
AC q U I R E D S U B S I DA R I E S 2 0 0 5VA L U E O F AC q U I R E D A S S E T S A N D L I A B I L I T I E S
Carrying amount before acquisit ion Adjustment Fair va lue
Tangible fixed assets 3,427 – 3,427Financial fixed assets – 733 733Inventories 5,527 995 6,522Current receivables 4,023 – 4,023Cash and cash equivalents 884 – 884Long-term liabilities –310 – –310Current liabilities –11,309 – –11,309
AC q U I R E D N E T A S S E T S 2, 2 42 1,728 3,970Goodwill 12,464 –1,728 10,736Total purchase price 14,706 – 14,706Invested capital, recently started business 743 – 743Cash and cash equivalents in acquired companies –564 – –564
I M PAC T O N G R O U P C A S H A N D C A S H E q U I VA L E N T S 14,885 0 14,885
AC q U I R E D S U B S I DA R I E S Country Acquired dateShareholding and share
of voting rights Object
Amundsen AS, Sarpsborg Norway May 100 PartnershipHässleholms Bildelar AB, Hässleholm Sweden June 75 Partnership
Amundsen AS contributed sek 20.0 m in revenues and sek 2 m to the Group’s net profit for the period May to December 2005. The corresponding full-year amount would have been sek 30.1 m and sek 3.3 m, respectively. Hässleholms Bildelar AB contributed sek 3.8 m in revenues and sek 0.3 m to the Group’s net profit for the period June to December 2005. The corresponding full-year amount would have been sek 6.1 m and sek 0.3 m, respectively.
NOTES
69NOTES
NOTE 26 T R A NSAC T IONS W I T H R EL AT ED PA RT I ES
Primexxa Fastighets AB, 25 per cent of which is owned by the former principal shareholder Leif Möller and Ingemar Fraim, is the owner of Mekonomen’s head office at Kungens Kurva, in Southern Stockholm. A ten-year lease agreement was signed on 1 June 2004. The rental level and terms are in line with market conditions. In 2006, sek 5,788,000 was paid in rent.
During the year, Mekonomen AB sold goods and services to Group companies amounting to sek 58.4 m (63.8).
NOTE 27 A PPROVA L OF T H E A N N UA L R EP ORT
The Annual Report and the consolidated report were approved for issue by the Board on 21 March 2007. The consolidated income statement and balance sheet and the Parent Company’s income statement and balance sheet will be adopted by the Annual General Meeting on 9 May 2007.
NOTE 28 F I NA NCI A L R ISK S
Mekonomen AB is exposed to risks in terms of currency, credit, interest-rates and liquidity through its operations. The management of these risks is regulated in accordance with the policy established by the Board of Directors. In 2007, the Board will evaluate these policies and determine the Group’s financial policy based on the results.
Currency risksExchange-rate risks occur when exchange-rate fluctuations have a negative impact on the Group’s profit and shareholders’ equity. Cur-rency exposure arises in connection with cash flow in foreign currencies (transaction exposure) and in the foreign subsidiaries’ translation of balance sheets and income statements into sek (translation exposure). During 2006, exchange-rate fluctuations had a negative impact on the Group’s income before tax amounting to sek 10.8 m (pos: 9.7). The most important currency in terms of transaction exposure is eur, which represents 40 per cent of imports. Norwegian kronor (nok) and Danish kronor (dkk) are the most important currencies pertaining to translation exposure.
Credit risks The Group’s financial transactions give rise to credit risks with financial counterparties. Credit risks or counterparty risks refer to the risk of loss if the counterparty does not fulfil its commitments. Mekonomen’s credit risks primarily comprise accounts payables, which are distributed over a
large number of counterparties. The maximum credit risk corresponds to the book value of financial assets. Specifications pertaining to the impair-ment of accounts payable for the year are found in Note 15.
Interest-rate risksInterest-rate risks refer to the risk that changes in market interest rates will have a negative impact on the Group’s net interest income. The speed at which interest-rate changes will affect the net interest income depends on the period of fixed interest for the loan. The average remain-ing term for the loan portfolio was three months on 31 December 2006. Mekonomen does not apply interest derivatives to change the period of fixed interest. More information pertaining to fixed interests is available in Note 18.
Financing and liquidity risksFinancing risk is seen as the risk to the cost being higher and financing opportunities limited as the loan is converted and that the ability to pay cannot be met as a result of insufficient liquidity or difficulties in secur-ing financing. The Group’s cash and cash equivalents are invested short-term with the aim that any excess cash balances shall be used for amortis-ing loans. According to the applicable policy from the Board, refinancing risks shall be managed by signing long-term binding credit agreements. At the end of 2006, the Group had no long-term loan facilities.
Fair valueNo financial assets or liabilities were reported to a value that significantly deviated from fair value.
70AUDITOR’S REPORT
We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the Board of Directors and the President of Mekonomen AB for the 2006 financial year. The company’s annual accounts are included in the printed version of this document on pages 42-69. The Board of Directors and the President are responsible for these accounts and the administration of the Company, as well as for the application of the Annual Accounts Act when preparing the annual accounts and the application of the international financial reporting standards, IFRS, as adopted by the European Union, and the Annual Accounts Act when preparing the consolidated accounts. Our responsibility is to express an opinion on the annual accounts, the con-solidated accounts and the administration based on our audit.
We conducted our audit in accordance with generally accepted audit-ing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable, but not absolute, assurance that the annual accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the Board of Directors and the President and significant estimates made by the Board of Directors and the President when preparing the annual accounts and consolidated accounts as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any Board member or the President. We also examined
whether any Board member or the President has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below.
The annual accounts have been prepared in accordance with the Annual Accounts Act and give a true and fair view of the company’s financial position and results of operations in accordance with generally accepted accounting principles in Sweden. The consolidated accounts have been prepared in accordance with international reporting standards, IFRS, as adopted by the European Union and Annual Accounts Act and give a true and fair view of the Group’s results and position. The Board of Directors’ report is consistent with the other parts of the annual accounts and the consolidated accounts.
We recommend to the Annual General Meeting of shareholders that the income statements and balance sheets of the Parent Company and the Group be adopted, that the profit of the Parent Company be dealt with in accordance with the proposal in the Board of Director’s report and that the members of the Board of Directors and the President be discharged from liability for the financial year.
Stockholm, 21 March 2007
Deloitte AB
Lars SvantemarkAuthorised Public Accountant
The Annual General Meeting of Mekonomen AB (publ)Corporate Registration Number 556392-1971
To the best of our knowledge, the Annual Report was prepared in accordance with generally accepted accounting principles for stock market companies; the information submitted corresponds to the actual circumstances and nothing of significance was omitted that could influence the view of the company that has been created by the Annual Report.
Stockholm, 21 March 2007
Marcus StorchChairman of the Board
Antonia Ax:son Johnson
Anders G Carlberg Wolff Huber Fredrik Persson
Helena Skåntorp Håkan LundstedtPresident and CEO
71DEFINITIONS AND INFORMATION TO SHAREHOLDERS
Average number of employeesAverage full-year employees during the year.
Average number of sharesThe average of the number of shares adjusted for splits, bonus issues and full dilution of the convertible loans, taking into account the date on which the changes occurred during the year.
Capital employedTotal assets reduced by non-interest-bearing provisions and liabilities, including deferred tax.
Cash f low per shareCash flow from operating activities, adjusted for convertible interest, in relation to the average number of shares.
Dividend ratioDividend per share in relation to profit per share.
EBIT marginEBIT as a percentage of total revenues.
Equit y/assets ratioShareholders’ equity including minority shares as a percentage of total assets.
Gross marginGross profit, meaning net sales less expenses for goods for resale, as a percentage of net sales. (New definition from 2006).
Interest coverage ratioProfit after net financial income increased by interest expenses divided by interest expenses.
Net debt /equit y ratioNet indebtedness divided by shareholders’ equity including minority shares.
Net indebtednessInterest-bearing liabilities with deductions for cash and cash equivalents and short-term investments.
Operating capitalCapital employed reduced by cash and cash equivalents and short-term investments.
Operating prof it / lossEBIT reduced by the effects of goodwill impair-ments and inter-Group expenses. The term is used for segments.
Prof it marginProfit after net financial income as a percentage of total revenues.
Prof it per shareProfit after tax, adjusted for convertible inter-est, in relation to the average number of shares.
Return on capital employedProfit after net financial income increased by interest expenses as a percentage of average capital employed.
Return on operating capitalEBIT as a percentage of average operating capital.
Return on shareholders’ equit y Profit for the year as a percentage of average shareholders’ equity.
Sales growthIncrease in total revenues as a percentage of the preceding year’s total revenues.
Sales per employeeSales in relation to the average number of employees.
Share of risk-bearing capitalShareholders’ equity, minority shares and deferred tax at the end of the year as a percent-age of the total assets.
Shareholders’ equit y per shareShareholders’ equity excluding minority shares, adjusted for convertible debentures, in relation to the number of shares at the end of the year.
DEFINITIONS
Annual General MeetingThe ordinary Annual General Meeting will be held on 9 May 2007, at 5:00 p.m. at Salénhuset (the assembly hall).
W ho is entitled to participate in the Annual General Meeting?Shareholders registered in the shareholders’ register on record day and who have informed Mekonomen of their intention to attend in ad-vance are entitled to participate in the Annual General Meeting.
How do you register as owner?Shareholders must be registered in the share-holders’ register maintained by VPC AB, (the Swedish Central Securities Depository), not later than 3 May 2007. Shareholders whose shares are registered in the name of a nominee must have temporarily registered their shares in their own name with VPC, to be able to participate at the Annual General Meeting.
This means that shareholders wishing such reregistration must inform the nominee in suit-able time before 3 May 2007.
How do you register?Shareholders wishing to participate at the An-nual General Meeting should register not later than 4:00 p.m. on Friday 4 May 2007 at: Mekonomen ABBox 6077SE-141 06 Kungens KurvaSwedenorPhone: +46 (0)8-464 00 28Fax +46 (0)8-464 00 67E-mail: [email protected]
DividendThe Board proposes the Annual General Meeting a dividend of sek 3.00 (1.15) per share. The dividend proposal will be supplemented by an extra dividend of sek 7.00 according to
a Board resolution on 14 February. The total dividend will therefore amount to sek 10.00. The Board has proposed 14 May 2007 as record day for the dividend. If the Annual General Meeting approves the proposal, the dividend will be paid on 18 May 2007.
Reporting dates for 2007Interim report January–March:10 May
Interim report April–June:16 August
Interim report July–September:14 November
Year-end report for the entire financial year:February 2008
INFOR M ATION TO SH AR EHOLDERS
72BOARD OF DIRECTORS
a. Marcus StorchChairman of the Board. Born in 1942. Other assignments: Chairman of the Board of the Nobel Foundation and Executive Vice Chairman of Axel Johnson AB and Axfood AB and member of the Board of Dagens Industri Holding AB, Nordstjer-nan AB, NCC AB, AB Hannells Industrier, Stockholm Stock Exchange Listing Committee, the Royal Swedish Academy of Sciences, the Royal Swedish Academy of Engineering Sciences (IVA), and others. Marcus Storch was previously President and CEO of AGA AB. Shares in Mekonomen: 0. Board member since 2006.
b. A ntonia A x : son JohnsonBorn in 1943. Other assignments: Chairman of the Board of Axel Johnson AB and Axel Johnson Inc., member of the Board of Åhléns AB, Servera R&S AB, Axel Johnson International AB, AxFast AB, Axfood AB, Nordstjernan AB, NCC AB, the Axel and Margaret Ax:son Johnson Foundation and World Childhood Foundation, and others, and Chairman of the Board of the Dressage Committee in the Swedish Equestrian Federation. Shares in Mekonomen: 8,951,958 through companies. Board member since 2006.
c. Fredrik PerssonBorn in 1968. Other assignments: Executive Vice President of Axel Johnson AB and member of the Board of Axel Johnson International AB, Åhléns AB, Servera
R&S AB, Novax AB, Svensk Bevakningstjänst AB, AxFast AB and Lancelot AB. Shares in Mekonomen: 1,000. Board member since 2006.
d. Wolf f HuberBorn in 1942. Other assignments: Previously President of Bil Sweden and Volvo Car Europe. Shares in Mekonomen (incl. family): 500. Board member since 2006.
e. Helena Skåntor pBorn in 1960. Other assignments: Ångpanneföreningen AB and Hemtex AB, Presi-dent of Sveriges BostadsrättsCentrum (SBC) (Sweden’s Tenant-Owner Centre). Shares in Mekonomen: 2,000. Board member since 2004.
f. A nders G CarlbergBorn in 1943. Other assignments: President and CEO of Axel Johnson International AB and member of the Board of Axel Johnson AB, Axel Johnson Inc., Svenskt Stål AB (SSAB) and Sapa AB, among others. Shares in Mekonomen: 0. Board member since 2006.
Mats Jansson resigned his post on the Board in 2006 at his own request to assume the position of President and CEO of SAS.
a b
c d
e f
73MANAGEMENT GROUP
a. Roger Gehrman.Acting President. Born in 1946. Employed in 2006. Shares in Mekonomen: 0.
b. Nils-Erik BrattlundHead of Retail Operations in Sweden. Born in 1952. Employed in 2005. Shares in Mekonomen: 0.
c. Håkan LundstedtPresident and CEO. Born in 1966. Employed in 2007. Shares in Mekonomen: 9,000.
d. Göran BerglindIT Manager. Born in 1944. Employed in 2006. Shares in Mekonomen: 12,000.
e. Petter Tor pHead of Retail Operations in Norway. Born in 1955. Employed in 1997. Shares in Mekonomen: 0.
f. Marcus LarssonHead of Business Development. Born in 1970. Employed in 2002. Shares in Mekonomen: 0.
g. K lavs T hulstr up PedersenHead of Wholesale Operations in Denmark. Born in 1965. Employed in 2007. Shares in Mekonomen: 0.
h. Michael T horburnHead of Wholesale Operations. Born in 1954. Employed in 1997. Shares in Mekonomen (incl. family): 35,162.
i. Lena BorgHR Manager. Born in 1961. Employed in 2005. Shares in Mekonomen: 0.
a b
d e
g h
c
f
i
74
Ingemar Fraim died on 31 December 2006.
Ingemar was the founder of Mekonomen, along with Leif Möller. During Ingemar’s entrepreneurship, Mekonomen developed from a local warehouse into Scandinavian’s leading integrated spare parts chain. Ingemar’s work was characterised by great commit-ment and by what has now become the Mekonomen spirit.
We mourn his passing.
IN MEMORIAM
75ADDRESSES
SwedenAlingsåsArvikaBollnäsBorlängeBoråsBrommaEnköpingEskilstunaFalkenbergFalköpingFalunFarstaFinspångFlenGislavedGävleGothenburgHalmstadHaningeHedemoraHelsingborgHudiksvallHärnösandHässleholmJärfällaJönköpingKalmarKarlshamnKarlskogaKarlskronaKarlstadKramforsKristianstadKristinehamnKungälvLandskronaLidingöLidköpingLinköpingLjungbyLudvikaLuleåLundLyckseleMalmöMariestadMjölbyMoraMotalaMärstaMölndalNackaNorrköpingNorrtäljeNyköpingNässjöOsby
OskarshamnPiteåRonnebySandvikenSegeltorpSkellefteåSkärholmenSkövdeSollefteåSollentunaSolnaStenungsundStockholmSträngnäsSundsvallSöderhamnSödertäljeSölvesborgTranåsTrollhättanTyresöTäbyUddevallaUlricehamnUmeåUppsalaVarbergVetlandaVimmerbyVisbyVänersborgVärnamoVästervikVästeråsVäxjöYstadÅkersbergaÅmålÄlvsjöÄngelholmÖdåkraÖrebroÖrnsköldsvikÖrkelljungaÖstersund
NorwayArendalAskimBodøDrammenFinnsnesFredrikstadGjøvikHarstadHaugesundJessheimKongsberg
KristiansandLarvikMo I RanaMosjøenMossOsloSandeSandvikaSarpsborgSkiStavangerTromsøTrondheimTønsbergÅlesund
DenmarkAalborgAssens EsbjergFredericiaFrederikshavnFrederikssund GladsaxeGrenåHaderslevHammelHerningHillerødHobroHolbækHolstebroHorsensKoldingKøgeKøbenhavnMiddelfartNyborgNykøbing F.NæstvedOdenseRandersRibeRingstedRoskildeRønneSilkeborgSkanderborgSkiveSlagelseSvendborgSønderborgVallensbækVanløseVejleViborgÅbenråÅrhus
Annual Report 2006
Meko
no
men
An
nu
al Rep
ort 20
06
Mekonomen ABSmista allé 11Box 6077SE-141 06 Kungens KurvaPhone +46-8-464 00 00Fax +46-8-464 00 66www.mekonomen.se
Mekonomen Grossist ABFjädervägen 20Box 542SE-645 45 SträngnäsPhone +46-152-229 00Fax +46-152-229 41
Mekonomen Norge ASRosenholmveien 25Postboks 17NO-1421 TrollåsenPhone +47-66 81 76 90Fax + 47-66 99 11 51www.mekonomen.no
Mekonomen Danmark A/SWichmandsgade 12DK-5000 Odense CPhone +45-66 13 67 00 Fax +45-66 14 76 71www.mekonomen.dk
produCtio
n: Citig
ate stoCk
holm
. prin
t and r
epro
: edita
. photo
: labe allw
in
