AI Annual Report 2019 1
KEY EVENTS DURING THE YEAR On the 12th of Februar
y Bavaria Haugesund AS acquired 51 percent of the shares in MPS Micropaint Haugesund AS. The company is a service and repair shop for vehicles. On the 18th of February Hedin Belgien Bil AB acquired a body and paint shop next to our dealership in Lier, Belgium. GS Bildeler AS acquired 91 percent of the shares in EBC Brakes Norge AS on 26th of February. EBS Brakes is a wholesaler of automotive brakes and vehicle care products. On June 7, Bavaria Norge AS entered into an agreement to acquire three BMW dealerships in Ålesund, Molde and Kristiansund in Norway from Brages Bil AS. The acquisition was completed on 14th of August. On the 21st of August, Hedin Belgien Bil AB took over two full-service facilities for Mercedes-Benz located between Antwerp and Ghent. On the 22nd of August, Hedin Belgien Bil AB entered into an agreement to acquire one full-service facility for Mercedes-Benz located between Antwerp and Brussels. The acquisition was completed on September 16. On December 1, the assets were acquired in a FordStore facility in Västerås from HermiBil i Mälardalen AB in bankruptcy. This is the eighth facility held by Hedin Mölndal Bil AB. EVENTS AFTER THE END OF THE FINANCIAL YEAR On January 30, Anders Hedin Invest AB and Stern Groep NV. the Dutch listed automotive group, announced that they are in exclusive negotiations on a merger between their respective automotive operations, including I.A. Hedin Bil AB. Due to Covid-19, it was decided in March 2020 to postpone further discussions until the car industry returns to normal. On April 1, sales of used cars were launched under the trademark Car Store, in a separate company - Car Store Sweden AB. The first sale facility is located in Täby. EXPECTED FUTURE DEVELOPMENT The overall market has been strong in recent years and for next year a slight decline on our markets is expected. A high level of uncertainty has arisen in the industry following the outbreak of Covid-19, leading to an expected decline in sales during the spring and summer of 2020. Our home markets all face different challenges based on government actions to control the spread of the virus, labour legislation, government stimulus bills, and customer behaviour. The Belgian authorities has decided on a temporary shutdown of non-critical operations, which means that our facilities are closed as of March 18 except for certain emergency repair business. A government salary guarantee covers most of the costs of our employees. Return to ordinary business is preliminary set to April 20. In Norway, deliveries have decreased in March while the orders has increased. Demand for our aftermarket services is still strong. Due to the market uncertainties and expected disruption in the supply, part-time working is introduced for 30-50 percent of the staff. This ratio is continuously reassessed. In Sweden, our new vehicle sales were down by approx. 15 percent in March compared to last year. Used car sales decreased by just under 4 percent and after sales services is so far unaffected. Countermeasures include part-time working and layoffs. All businesses have increased preparedness, with more frequent monitoring and forecasting of performance and cash flow based on different scenarios and focus on releasing working capital. Cost saving programmes are implemented to right size the business to new market conditions. All actions are taken to be prepared for a prolonged recession with as little negative impact on the business as possible. Still, it is important to note that the negative effect on our home markets, excluding Belgium, has so far been limited. RISKS Car sales are dependent on the economic climate and this creates sensitivity in Group sales. Effective processes and control of the inventory situation are required with the purpose of reducing the sensitivity in profitability. Agreements with importers are on a rolling two-year or five-year term. This highlight even further the importance of maintaining a good relationship and to build long-term partnership between the importer and the dealer. Hedin Group aims to be a strategic partner for each of its importers and to build up a strong sense of trust between the parties. The creation of a complete concept that includes financing, insurance, servicing, credit cards and different forms of ownership, is a key factor in promoting customer loyalty. Through a wide range of brands, the risks arising from excessive exposure on individual brands also decrease. At the same time, the expansion of recent years has mainly focused on the premium segment and in well-functioning markets, which reduces and spread the risks in a positive way. Opportunities are created to widen and spread the risks, through Group operations in several sectors of the automotive industry, including sales, service centres, car rental and spare parts. As explained under the heading "Expected future development", the Covid-19 outbreak has already affected our operations. The uncertainty in the market is causing a decline in business activity and the longterm impact on the Group's operations is currently unknown. The most important risks associated with the uncertain situation are the following; - Demand: Although the impact so far has been limited compared to several other retail industries, there is a risk that consumption of capital goods, including vehicles, will decrease to a significantly lower level over a longer period of time. Cost saving packages has been submitted to meet the risk of such a development. - Inventory values: If there is an oversupply in the market, there is a risk of price adjustments downwards in the pricing of vehicles. We continuously analyze existing inventory and trade-in value to ensure that the inventory is competitive. - Ability to deliver: Most automotive factories in Europe were closed at the end of March and are expected to open again in April/May. This can affect our delivery capacity in the short term. - Financing and liquidity: If the decline becomes prolonged, there is a risk that refinancing of the current credit portfolio will not be possible. There is an ongoing dialogue with our creditors to ensure long-term cooperation. In our current terms of lending, there are no special covenants that have a negative impact on financing. CORPORATE GOVERNANCE REPORT The supreme decision-making body in I.A. Hedin Bil Group lies with the Shareholders General Meeting. The Shareholders General Meeting appoints the board, which has the ultimate responsibility to ensure that the internal control functions are working satisfactorily so that the quality of the financial reporting can be ensured. The Board of directors is responsible to ensure that the company's organization is designed in such a way that the accounting, funds management and the company's financial conditions are controlled in a satisfactory manner. The Board regularly evaluates the CEO's work. The CEO's task, together with the CFO, is to examine and ensure the quality of the financial reporting. Clear guidelines are communicated to the subsidiaries to ensure applied rules and 46 I.A. HEDIN BIL AB / ANNUAL REPORT / 2019