A word from the CEO
Strong year despite challenges
2018 was yet another good year for Swedol. Despite a number of obstacles along the way that had a negative impact on sales, such as integration disturbances and the hottest summer for many years, Swedol revenues amounted to MSEK 3,241.3 (3,067.1) for the full year. One important milestone was achieved in the form of an operating margin of 10 percent.
The group’s margins remained strong throughout the year. An improved product mix, implemented price adjustments and currency hedging all had a positive effect and countered a weak krona, increased commodity prices and higher freight costs. Gross margin amounted to 40.9 percent (39.4) and operating margin was 10.0 percent (9.2).
A double digit operating margin marks an important milestone for the group. In combination with a continued cost focus and high equity ratio, we are strongly equipped for future challenges. Cash flow from operating activities remained strong and amounted to MSEK 264.5 (238.7) but was negatively affected by high stock levels. This increase in stock levels was mainly due to growth investments implemented, including investments in fastenings, gloves and footwear, and the establishment of a core range in Workwear and Personal Protection. Sales during the year were adversely affected by a product shortage in the Grolls chain, and we made a conscious choice to focus on restoring stock availability. We are now actively working to make our inventory more efficient.
We have continued to build on our platform for profitable growth that we have worked hard to develop in the form of a scalable platform. During 2018, we completed work to integrate our Swedish business within a common IT and business system, pricing system and legal structure. We have now also implemented this in Norway. By integrating our divisions and concept brands within the same platform, we have enhanced our opportunities to drive cross sales and continue to maintain a good rate of organic growth, while at the same time enabling future acquisitions to be integrated efficiently.
Development on Swedol’s markets
As a whole, our markets continued to develop well in 2018. While we did see a certain slowdown in Sweden, growth increased on our other markets. Geographically, the group is most heavily weighted to Sweden, but we would like to see a greater geographic spread to achieve a better balance moving forwards. We see good opportunities to strengthen our presence on existing markets outside Sweden and it is pleasing to note that we were able to successfully complete the acquisition of two fine companies in Finland and one in Norway in 2018.
Just like other companies, we were affected by the general economic situation on our markets, and we have both direct and indirect exposure to the construction sector. The group focus will remain on small and medium size enterprises. These are relatively diversified in their activities and less sensitive to upturns and downturns in large projects compared to larger companies. Even though our focus is on small and medium size enterprises, we have a delivery capacity, both with regard to range and technical solutions, that means we can also be a full scale partner for the very largest companies. During the year, we strengthened our relationships with our biggest customers and gained the renewed confidence of SAS and NCC, while at the same time, winning tenders with big new customers such as Toyota and Arriva. We view this as confirmation that we have an attractive offer that ticks the right boxes and that Swedol has the potential to attract new customer categories in the future.
Focus on acquisitions and growth
We intensified our acquisition activities during the year. Altogether, we completed five acquisitions and we are proud and delighted to have welcomed Duunivaruste Oy, Metaplan Oy, Promera Yrkeskläder AB, Karl S Hanssen AS and De Facto Yrkeskläder AB into the Swedol family. We have a well functioning acquisition process and there are plenty of companies of interest that would be a good fit for our business model. Acquisitions will continue to be a big focus moving forwards. In addition to acquisitions, there is further growth potential via expansion of our store network. Eight leases were signed in 2018 for new stores. Comprehensive work to reprofile and update the store network also continued.
Successful product development
Swedol has pursued successful product development work for a number of years. We continue to develop our own brands, and we continuously review product categories that offer scope for us to strengthen the group’s combined offer, in terms of both breadth and depth. The Swedol range has gone from being price focused to market leading within several product categories. Product development within the group continued at a high pace in 2018, and a number of successful product launches were implemented. Björnkläder achieved success with Carpenter Soul, a new line of carpenter pants, and Björnkläder Parvotex, a collection of inherent flame retardant workwear. Our Balance brand now includes a complete range of premium gloves with the focus on either precision or power. Gesto offers safety footwear with the BOA patented lacing system, which admits Gesto to an exclusive club that satisfies the requirements to become a partner. These are just a handful of examples of the many successful investments in our own products. We envisage plenty of continued potential in strengthening our own brands. Having said that, we also strive to offer our customers the best possible product mix, consisting of both the best of external brands and our own products.
Continuous sustainability work
Sustainability work is an important and integrated part of the Swedol strategy and business model, which is expressed in our strategy as “We aim to be a genuinely sustainable company”. Being a responsible and sustainable company in every respect is something we see as both a necessity and an opportunity for Swedol. For us, continuing to support the principles in the UN Global Compact goes without saying. In 2018, Swedol completed a review of our business, based on the UN’s Sustainable Development Goals. The review supports and simplifies sustainability work and enables us to focus on those areas where we have the biggest impact and scope to contribute to sustainable development for people, the environment and society. This work takes time, is ongoing and requires the awareness and commitment of everyone in our organization if we are to reach our goals.
A few of the areas we are focusing on include offering a high quality range that lasts longer, to ensure good procedures in the event of a product recall and to offer services and all the equipment necessary to be able to deal with oil spills, for example. We are continuing to make our logistics more efficient and reducing air freight in favor of shipping by rail.
A growth journey
It is now five years since we implemented our strategic restart in 2013. Swedol has embarked on a fantastic journey and together we have implemented most of what we resolved to do. With new strategies and a clear orientation towards professional users and our chosen customer groups, we have gradually, step by step, moved from being a price focused generalist to become a multispecialist with an omnichannel concept that supplies leading products within several key areas. The group’s development in 2018 has further reinforced my conviction that Swedol is heading in the right direction. We are investing to continue our growth journey and taking up a strong position ahead of the future. There is still a great deal of work to be done to achieve all our goals, but with our organization, scalable platform and strong financial position, we are very well placed to do so.
Finally, I wish to thank all our employees, suppliers, partners, customers and shareholders for a successful year.
Clein Johansson Ullenvik
President and CEO