Danske Markets

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Danske Markets Small/MidCap Seminar December
2008
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Agenda

• Introduction to BoConcept
• BoConcept's franchise model
• Latest financial development 1H 2008/09
• Targets, strategy and short term actions
• QAs

ContactHans Barslund, EVP CFOE-mail
hb_at_boconcept.com
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INTRODUCTION TO BOCONCEPT
TO MAKE BOCONCEPTNO. 1 BRANDWITHIN URBAN
INTERIORS
OUR VISIONwhat we want to achieve

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BoConcept anno 2008

• International retail-oriented concept holder
  within furniture and lifestyle products for
  private homes
• Focuses on development, support and supply to
  global franchise based retail chain, BoConcept,
  which operates in 47 countries
• 239 BoConcept Brand Stores
• Most important sales channel
• 400-800 sqm individual operated franchise stores
  on high-traffic locations
• BoConcept products exclusively
• 114 BoConcept Studios
• 100-400 sqm shop-in-shops
• BoConcept's products supplements other brands
• BoConcept core competencies
• Design and branding
• 'Best practice' in store management
• Supply Chain Management and sourcing
• Production of board furniture

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BoConcept's market position

• BoConcept's concept is truly global
• BoConcept's products are the most commercial and
  coordinated on the market in terms of design
• Collection divided into three product lines
  positioned in high end of mid market to reduce
  exposure to price competition
• BoConcept's primary target group consists of
  brand-oriented trend spotters who are too smart
  to excessive prices for designer furniture

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Solid financial development
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Diversified shareholder base

• 240.000 A-shares / 2.383.745 B-shares
• 1300 registered shareholders
• Free float approx. 75
• Listed on OMX Copenhagen since 1984 member of
  SmallCap
• Employee shareholder program in November 2007
• Incentive programme (warrants) for senior
  management launched in 2007/08

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BOCONCEPT'S FRANCHISE MODEL
OUR MISSIONwhat we do to achieve our vision
THROUGH PASSIONATE AND PERSISTENT PERFORMANCE WE
MAKE CUSTOMISED AND COORDINATED DESIGN FURNITURE
AND ACCESSORIES AFFORDABLE TO THE URBAN-MINDED
SHOPPER

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Award winning franchise model

• BoConcept's franchise model is based on a proven
  concept which has been in place since 1999
• Strong focus on growth in number of Brand Stores
  since 2004
• Today, 145 franchisees run 239 Brand Stores an
  increasing number of franchisees are opening
  Brand Store no. 2 and 3
• Average turnover in Brand Stores is EUR 1.5m p.a.
  (significant spread)
• BoConcept offers franchisees massive support to
  increase same store sales by optimising
  performance

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Deliverables from BoConcept to franchisee

• Coordinated product and accessories program with
  centralized warehouse handling offering millions
  of product combinations to customers
• Centralized branding and marketing platform
• Catalogue and web-site (decoration and trend
  inspiration)
• Store design and planning
• Events and campaigns
• Ads and newsletters
• PR and communication platform
• Yearly retail conference (BiC) with introduction
  of new product range, new concepts, marketing
  activities, workshops etc.
• Continued training and education of sales staff
  via BoConcept University
• Full IT platform
• Dedicated local Retail Operation Manager (ROM) to
  ensure ongoing optimal operational performance
  (store report, budgeting, action plans, best
  practice sharing)

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Pipeline to developing a BC Franchisee
Phase 1
Phase 2
Phase 3
Making thecontact
Exchange ofinformation
Execution ofcontract

• Preparation of business plan
• Selection of location and preparation of project
  plan
• Budgets approved
• Lease signed, agreement signed and entrance fee
  paid
• Completion of opening check list
• Opening

• Confidentiality agreement
• Structured interview, presentation of BoConcept
  and personality test of franchisee
• Intent to proceed fee is paid
• Local Master/BC HQ and potential franchisee
  decideGo/No-Go

• Potential franchisee fills out an application
  form on www.boconcept.com
• Application evaluated by BC HQ
• Local Master or ROM meet with potential
  franchisee for a further talk

Few weeks to months
Few weeks to months
16 weeks
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Main terms and investments

• Franchise agreement 5 years, renewable for
  further 5
• Franchise entrance fee EUR 25,000 (ex. VAT)
• Intent to proceed deposit EUR 2,500 with letter
  of intent
• Investment store build up EUR 350,000-600,000
• Marketing spending At least 5 of gross turnover
• Delivery terms Ex works
• Payment terms 30 days (with guarantee on
  opening order)
• Axapta, entrance and license fee at cost
• Catalogues and other marketing at cost

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Attractive business model for franchisees

• BoConcept Brand Stores
• Total sales
• Contribution margin
• Contribution ratio
• Personnel and marketing variable
• Tenancy lease and other overheads
• Result before tax
• EBT
• Total sales
• Balance sheet
• Rate of turnover
• Return on net assets

Normal store 100.0 44.6 44.6 15.0 26.3 3.3 26
.3 7,500 2,500 3.0 9.9
10 110.0 49.1 44.6 16.5 26.3 6.3 5.7 8,25
0 2,600 3.2 18.1
20 120.0 53.5 44.6 18.0 26.3 9.2 7.7 9,00
0 2,704 3.3 25.6
30 130.0 58.0 44.6 19.5 26.3 12.2 9.4 9,7
50 2,812 3.5 32.5

• Growth driven earnings
• High turnover rate
• Fast track to positive cash flows

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Creating a unique franchise offering
Advantages for BoConcept
Advantages for franchisee

• Full control with concept and product offering
• Economies of scale by utilising core competences
  within sourcing and supply chain management
• Franchisee carries risk on store lease
• Franchisee to finance the investment in store
  build up and showroom
• Franchisee as employer of sales staff
• Franchisee as primary stakeholder in value
  creation

• Proven and certified franchise concept
• Local supporting market organisation
• Brand and traffic-generating marketing kit
• A full product collection offering coordinated
  and affordable design
• No inventory (handled centrally by BoConcept)
• Positive cash flow from day one normal credit
  from BoConcept A/S and prepayments from customer
• Access to BoConcept University department
  creating the educational platform for sales staff

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LATEST FINANCIAL DEVELOPMENT1H 2008/09
RESPECT always show you careTHINK SMARTER
always look for the better solutionPLAY THE TEAM
always use your freedom responsiblyLOVE CITY
LIVE always know whats going on
OUR CORE VALUEShow we always act

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Same-store-sales influenced by unfavourable
development in global economic climate

• Revenue at DKK 562.8m - down 5 YoY
• Most importantly due to phasing out of product
  customers and Studios
• Revenue generated by Brand Stores at par with
  last year (all Stores)
• Same-store-sales reduced by 10 (YoY)
• Revenue heavily impacted by negative global
  macro-economic development with declining growth
  rates, consumer confidence and purchasing power
• Markets in Spain, US , UK and Denmark hit the
  hardest
• The launch of the new range and increased
  marketing initiatives have not been able to
  off-set the negative market conditions
• Traffic to Brand Stores reduced considerably
  which has led to a slow down in order-intake in
  2Q 2008/09

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Brand Stores' pipeline intact

• Brand Stores as the primary sales channel
• Generated 90 of revenues in 1H 2008/09
• Net-addition of 15 Brand Stores in 1H 2008/09
• New openings in main markets in France, US,
  Japan, Denmark and China
• Considerable interest from both new and existing
  franchisees to open new Brand Stores
• New additions will primarily occur in existing
  markets, but also in new growth markets as Mexico
  and Singapore

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Gross margin increases, EBIT-margin is down

• Gross margin up to 40 from 39 (YoY)
• Intensified focus on making basic costs variable
• Increased use of sourcing and adapting costs to
  activity level has reduced number of employees
• EBIT-margin down from 8.3 to 6.1 (YoY)
• Revenue decline influences EBIT-margin
• Increased provisions for losses on receivables
  reduces EBIT by DKK 6m compared to last year
• EBIT-margin for 2Q 2008/09 at 6.3

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Pre-tax profit below expectations

• Net losses on financial items of DKK 9.2m
  mainly attributable to unrealised losses on
  forward contracts on JPY (DKK 11.2m)
• Pre-tax profit at DKK 21.9m for 1H 2008/09
  compared to DKK 42.1m last year
• Profit after tax at DKK 15.8m for 1H 2008/09
  compared to DKK 29.6m last year

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Increased receivables affects cash flow

• Total balance sheet at DKK 594.1m after 1H
  2008/09 (DKK 30.1m up from last year)
• Receivables up due to increase in number of
  credit days
• Acquisition of two Brand Stores (DK and S), one
  sold (UK)
• Fewer investments in no-current assets than
  budgeted
• Equity at DKK 196.6m equity ratio of 33.1
• Negative cash flow of DKK 42.5m as a consequence
  of increased working capital and reduced earnings

Cash flow before instalments on non-current
debt items
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TARGETS, STRATEGY AND SHORT TERM ACTIONS- FOCUS
AND DIRECTION REMAINS
CUSTOMISEDURBAN DESIGN
OUR BRAND SOULthe most singular way to describe
our brand

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Growth strategy...

• Focus in all parts of the company is on
  maximizing positive customer experience
• Increased focus on brand building
• Improve customer satisfaction
• Develop new ROM tools to improve Brand Store
  profitability
• Optimise IT platform
• Focus on career and educational opportunities via
  BoConcept University
• Organic growth to be realized via (prioritised)
• Same-store-sale
• New stores by existing franchises
• New stores in existing markets by new franchisees
• New markets
• Attractive opportunities which will also increase
  market dispersal and hence minimize cyclical
  sensitivity
• Maximum three new markets a year2008
  Switzerland, Italy and Egypt2009 India, Mexico
  and Singapore/Malaysia

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...that focuses on further improving
profitability to be continued...

• Economy of scale in additional sales to grow
  EBIT-margin
• Strong focus on SCM and production optimisation
  as value driving vehicles
• Increased sourcing and improved productivity to
  maintain gross margin
• Own production of board furniture all other
  production is sourced, primarily from Eastern
  Europe and China
• Introduction of Best Practise tools to make
  supply chain costs flexible and dependable on
  demand
• Future capacity expansion by increasing
  outsourcing of inventories and distribution
  planned
• Limited investments in non-current assets as
  growth is not capital intensive

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...but current market conditions are demanding

• Situation
• Decreasing global growth and consumer confidence
  reduces traffic to Brand Stores and adds pressure
  on order-intake and same-store-sales
• Positive reception of new collection has not been
  able to off-set the negative impact from the
  recent macro-economic development
• Absence of additional sales limits EBIT-margins
  as Economy of Scale is not achieved

• Actions from BoConcept
• Focussed effort to increase same-store-sales
• Tactical marketing to increase traffic to Brand
  Stores
• Local activities (low cost)
• Market aligned 2009/10
• Interior decoration set-up to be rolled out by
  Feb. 2009
• Working pipeline to increase net-additions of
  Brand Stores on all markets
• Intensify efforts to make production costs
  variable
• Increase sourcing
• Adjust own-production
• General cost cuts
• 90-100 in head count reductions since beginning
  of financial year

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Own-production consolidation

• BoConcept will close its board furniture factory
  in Herning and concentrate production on Ølgod
  facility
• Will ensure future cost-efficient operation
• Focus on utilising capacity and introduce a more
  technology advanced production process
• Administrative functions remains in Herning
• The concentration of production in Ølgod will
  happen gradually and be fully in effect by Feb.
  2009
• Closing down production in Herning is expected to
  bring about annual savings of min. DKK 10m p.a.
  from 2009/10
• In 2008/09 restructuring costs incidental to the
  shutdown are expected to amount to DKK 10m

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Downgraded forecast for 2008/09

• Visibility very low, but no signs of change in
  the current market conditions - Global recession
  and financial instability expect to remain for
  the rest of 2008/09
• Same-store-sales not expected to improve in 2H
  2008/09, and the effect of new openings in
  2007/08 and 2008/09 will not be enough to off-set
  decline in same-store-sales

FY2007/08 DKK 1,141m 0 70 6.9 DKK 67.7m DKK
42.8m 14.5 DKK 49.5m 4.3 36.6 224 units
Revenue Same-store-sales Sourcing EBIT-margin Pro
fit before tax CAPEX ROCE Cash flow Cash
flow/rev. Equity ratio Brand Store
FY2008/09(E) -2 to -5 -8 70 5.5-6.0 DKK
40-50m DKK 30-35m Slightly neg. 3.0 30-40 259-
264 units
FY2011/12(E) DKK 2bn gt5 gt75 12.0 gt30 - 6.0
30-40 400 units
Including restructuring costs of DKK 10m
Cash flow before instalments on non-current debt
items
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In summary

• BoConcept's design and concept is perfectly
  aligned with global mega-trend market position
  in high end of mid-market continues to expand
• BoConcept's business model, concept and core
  competencies showed their strength
• Attractive franchise model enables strong future
  growth in number of Brand Stores
• Momentum and profitability to be secured and
  grown via an increased number of sales units,
  adjusted marketing and product mix as well as
  continued focus on sourcing and improved
  productivity in own-production
• 2008/09 will be a challenging year influenced by
  macro economic set-back on main markets in USA
  and Western Europe (ex. France)
• Strong focus on marketing efforts and customer
  experience to increase traffic to shops, and on
  growing net-additions to Brand Stores base
• Further develop production efficiency to maintain
  gross margins
• Strategy and targets of the long term growth plan
  maintained
• Road to steep and profitable non-capital
  intensive growth paved

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QAFOR FURTHER INFOMATION VISIT OUR
WEBSITEwww.boconcept.dk
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