Two six-month periods with vastly different prerequisites
The 2008/09 operating year began with continued successes for Lagercrantz Group. After six months had passed, we had added two more quarters to the string of 14 consecutive quarters with better results than in the same year-ago period. We also continued our acquisition strategy and consummated two acquisitions. We feel that these successes stem from the strategy we adopted almost four years ago. In brief, the strategy involves an organisational model with decentralisation and management by objective, a broadening of operations into new areas, a sharper focus on value added and continued acquisitions. Those changes, in combination with a favourable market trend, explain the positive development for Lagercrantz in recent years.
The second six-month period, on the other hand, was marked by uncertainty, financial crisis and recession. The first markets to be affected were the UK and Germany, and certain parts of our operations focused on the construction sector. Subsequently, many of our businesses have been impacted. Market conditions have deteriorated and this has meant declining sales for many of our profit centres.
FORCEFUL ACTION
During the last four months of the year, forceful action was taken to reduce costs and working capital. Measures taken are extensive and are expected to yield positive effects in coming quarters. The focus on costs is therefore across the board, with special emphasis on personnel reduction. This means that approximately 110 employees unfortunately will have to leave the Group. There has also been sharp focus on a reduction of the amount of capital tied up in the business. During the second quarter cash flows from operating activities amounted to MSEK 112. The largest decreases in capital tied up in the business were seen in inventories and trade receivables.
THE LAGERCRANTZ MODEL IN TIMES OF DOWNTURN
In uncertain times Lagercrantz Group’s structure with about 25 niche-oriented, autonomous companies is a strength. The niche orientation means risk diversification with respect to product groups, business models, geography, segments and end customer markets. Each entity also constitutes a focused, flexible unit that works very close to its customers and suppliers. This close relationship makes for rapid response to customer needs, which is translated into business opportunities. All employees in every business unit also know how things are going, which means short lead times between words and action when extraordinary efforts are required. Our model also means that we have mostly variable costs that can be adjusted relatively quickly. The fact that we don’t have a large pool of assets, and at the same time focus on reducing working capital, means that we are able to make swift adjustments, making positive cash flows possible also in an economic slowdown.
THE FUTURE
Continued recession, with downward pressure on our sales volumes, is the most probable scenario for the 2009/10 operating year. No improvement in the state of the market is yet to be seen. At the same time, certain macro-economic signals, including lower interest rates, increased infrastructure investment and a more positive stock market climate nurture some hope. The market’s development is closely followed by the Group’s companies and action is taken as needed. Despite the challenges close at hand, we believe that Lagercrantz Group’s exciting orientation, a well functioning strategy and organisational model, and our strong financial position mean great opportunities when the market stabilises.
In closing, I wish to extend my heart-felt thanks to all of the Group’s highly motivated employees. These times require extraordinary efforts and that’s just what we have seen during the past year.
Stockholm, June 2009
Jörgen Wigh
President & CEO
