Interim Report January - June 2008 HL Display AB (publ)

HL Display * Sales during the second quarter of 2008 amounted to MSEK 404 (389), operating profit amounted to MSEK 44 (39) and profit before tax to MSEK 44 (36). Net profit was reported as MSEK 31 (25) and profit per share after dilution was SEK 1.01 (0.81) for the same period. * Net sales for the period amounted to MSEK 787 (779). Operating profit was MSEK 75 (77) and profit before tax was MSEK 72 (73). Net profit amounted to MSEK 52 (51). * EBITA for the second quarter was 10.8% and for the period 9.5%. * Profit per share after dilution amounted to SEK 1.67 (1.64) for the first six months of the year. * A 4:1 share split was carried out with record date on 28 April. * Revised sales forecast for 2008.
Statement by the Managing Director Sales for HL Display during the second quarter increased by 4% and EBITA was 10.8%. In spite of a development in a positive direction the sales and profit growth is not yet in line with the long term objectives for the company. Sales during the first six months of 2008 amounted to MSEK 787, an increase of one percent compared to the same period 2007. Operating profit during the first six month of 2008 amounted to MSEK 75, a decrease of two percent compared to the same period last year.

The gross margin had a positive development during the first six months, from 46 percent 2007 to 49 percent 2008. On the other hand the operating expenses and the freight costs had a negative development during the year. The reason for the improved gross margin is that efficiency of production has continued to increase, and that we introduced price increases at the year end.

Greater efficiency of production Over the last few years, HL Display has introduced a raft of successful measures to increase efficiency of production, something which is continuing to show positive effects for the company. The range rationalization work that has been in progress over the last two years has resulted in longer production series, fewer tool changes and faster production processes.

Increased operating and freight costs have negative effect After a two-year period with falling operational expenses in relation to net sales - a result of our concentrated efforts to increase resource utilization within the organization - operating expenses have increased again during the first half of 2008. This has affected profitability negatively during the period and has counteracted some of the positive effects of the increased gross margin. Work is ongoing to correct this. Primarily is the company's logistic set up and freight cost under evaluation.

Market and sales development The development in the global retail industry has during the first half of 2008 been showing signs of a slowdown. It is HL Display's view that the primary reason for this is a more cautious attitude because of a general weakening business cycle. Usually HL is not affected by this type of tendency. However for the current year, we cannot exclude an indirect effect from the rather flat retail sales of our customers. Sales over the last six months have not fulfilled our expectations. On certain markets, not least in Western Europe, growth has been absent, and in some cases sales have decreased compared to the same period last year. In France, HL Display's single largest market, sales fell by 9 percent during the first six months. ur work of reversing development in those sales companies that previously made losses has been successful. We can note that we fairly quickly achieved the result effects we wanted. On the other hand, it has taken longer than we initially believed to reverse sales development on these markets, among them large markets, such as the United Kingdom and Germany. Now the changes have been brought in, we have new sales company managers and new organizations in several of the countries, and our ambition is to be better able in future to benefit from the opportunities that exist on each market.

Positive development in Nordic As opposed to the development in Western Europe, sales in the Nordic countries have developed very positively, with growth of 19 percent, whereof 10 percent organic. As during 2007, development has been particularly strong in Norway, with a sales increase of 28 percent. It is very gratifying that we can record such growth in mature markets.

Continued growth in rapidly growing markets The sales growth in Russia and Asia was 14 and 17 percent respectively. This is lower than last year, but still relatively good. In Russia radical changes have been made in order to create a platform for developing the business further. Today, the sales company in Russia has a new office, a new warehouse, the right organization and new systems. This means that we are confident of the future there.

Strengthened offering to the customer segment brand manufacturers In conjunction with EuroShop, the world's largest international retailing trade fair, held in February, HL Display launched a number of new products, among them Hero Shelf and Side Kick. These products are primarily aimed at brand manufacturers. Together with the products that were included in the acquisition of Display Team in 2007, the new launches mean that we, as planned, have considerably strengthened our offering to brand manufacturers, a customer segment with good potential for HL Display.

New production lines in China In February, manufacturing within the production method injection moulding started at the factory in Suzhou in China. This will further strengthen our price competitiveness in the region. Production in Karlskoga was augmented with the newly launched Hero Shelf and Side Kick, and certain products from the range acquired from Display Team, which were previously supplied by sub-contractors. At the same time, other labour-intensive production was moved to the factory in Suzhou.

In the annual report for 2007, we wrote about the ambition to start up production in Russia for the Russian market. Preparations are continuing, but are taking longer than expected. However, we hope that production can start towards the end of the year, and come into full operation during next year.

Acquisitions The work in finding suitable acquisition candidates continues. A number of alternatives are being evaluated.

Focus on profitability and improved sales work In conclusion, I note that our result for the first half year is equal to an EBITA margin of 9.5 percent to be compared with our long-term goal of 12 percent. We will continue to focus strongly on improving the profitability of the operation, by increased work on operating costs among others. At the same time, we have noted that sales development has been less good than expected and that we must improve our sales work, which is an important task for the remainder of 2008.

Stockholm, July 2008 Gérard Dubuy

Interim report

Net sales and result for the second quarter of 2008 Net sales for the Group amounted to MSEK 404 (389) for the second quarter, an increase of 4 percent compared to the same quarter 2007. Operating profit for the same period was MSEK 44 (39) and profit before tax amounted to MSEK 44 (36). The result has been affected by one-off costs amounting to MSEK 4 as a result of adaptation to agreements with a new employee counterpart. Net interest for the second quarter amounted to MSEK -1 (-2), while exchange rate effects amounted to MSEK 1 (-1).

Net sales and result for the first half of 2008 The Group's net sales amounted to MSEK 787 (779) for the first half, an increase of 1 percent compared to the same period in 2007. The change in the value of the krona vis-a-vis the export currencies has not affected net sales in comparison with last year.

Operating profit for the first six months was MSEK 75 (77) and profit before tax amounted to MSEK 72 (73). The change in value of the krona compared to last year has had a positive effect amounting to MSEK 2 on operating profit. Net interest for the period amounted to MSEK -1 (-5), while exchange rate effects amounted to MSEK -2 (2). 1.5 MSEK of the exchange rate effects is explained by the changeover to the current method. HL Display's most important export currencies are Euro, British pounds and Russian roubles.

Gross margin has improved, thanks to a favourable product mix and price increases introduced as from the year end. Raw material prices have remained high during the six month period. However, the efficiency improvements carried out at the factories have well counteracted any negative effects on the result. Expenses have increased with MSEK 24 or 8% in comparison with last year. Around MSEK 13 related to newly acquired subsidiaries and the building up of sales companies on growth markets. Around MSEK 4 are costs related to the retailing trade fair EuroShop, which is held every third year.

Sales growth by market Sales on the markets in which HL Display operates has in total been weaker than expected during the first half of 2008. The exception has been the Nordic countries, which developed better than expected and showed a growth in sales of 19 percent. Sales in Western Europe decreased by 6 percent, mainly explained by turbulence in connection with organizational changes. Sales in Eastern Europe increased by 9 percent. Sales in Asia increased by 17 percent during the first six months of 2008.

Seasonal effects HL Display is normally affected negatively by seasonal variations during December and January. The reason is that customers, who consist mainly of retailing companies, do not plan any changes during the Christmas shopping period. In 2007, Easter fell during the first quarter and in 2008 in the second quarter, which affects the comparison between the quarters.

Investments During the first half, net investments in fixed assets totalled MSEK 19 (54). Net investments for 2007 included the acquisition of Display Team. Depreciation according to plan amounted to MSEK 19 (21).

Cash flow and financial position As at 30 June 2008, liquidity amounted to MSEK 159 (147); at the start of the year to MSEK 177. Interest-bearing net receivables, which at the beginning of the year amounted to MSEK 49, amounted to MSEK 36 (8) on the balance sheet date. Dividend decided upon amounting to MSEK 43 (27) has been paid during the period. Cash flow from operating activities fell to MSEK 42 (75), primarily as a result of a negative change in working capital. Cash flow from operating activities for the second quarter amounted to MSEK 47 (34). Operational cash flow amounted to SEK 1,56 (2,39) per share; during the second quarter to SEK 1,44 (1,02). The equity ratio on the balance sheet date amounted to 53 (49) percent; at the beginning of the year to 53 percent.

Employees The average number of employees during the period was 991 (949). The number of employees on the balance sheet date was 999 (956) and at the beginning of the year 972. The increase in employees is concentrated to the factory in Suzhou in China.

Information about risks and uncertainty factors Variations in raw material prices and exchange rate differences constitute uncertainty factors, but not significant risks. For a closer description of the risks and uncertainty factors facing HL Display, please see the risk and sensitivity analysis on page 32 of the annual report for 2007.

Parent company The parent company's result after financial items for the first half of 2008 amounted to MSEK -46 (-33). No significant changes have been noted in the income statement and balance sheet.

Annual general meeting The Board's proposal for dividend for 2007 amounting to SEK 5.50 (3.50) per share was adopted by the annual general meeting, which was held on 2 April 2008. The AGM also decided to carry out a 4:1 share split, which means that each share gave entitlement to three new shares. The record date was 28 April and the total number of shares is now 30,939,088. Anna Ragén and Lars-Åke Rydh were elected as new members of the Board. Lis Remius resigned from the Board.

Prospects for the remainder of 2008 In the previous quarterly report the organic growth for 2008 was expected to fall within the interval 5-10 percent. Due to the uncertainty that today prevails on the market combined with the outcome for the first six months the forecast for present year is now being revised. Sales for 2008 are expected to be in line with 2007 or slightly above. As in the last few years, profitability will be prioritized. Further cost rationalization within freight and logistics is planned. HL Display plans to continue strengthening the company's offering and market position through acquisitions. A detailed forecast for the full year will be provided as usual in conjunction with the quarterly report for the third quarter.

The contents of this report have not been the subject of examination by the company's auditors.

The Board and the Managing Director confirm that the interim report provides a true overview of the parent company and the Group's operation, position and result and describes significant risks and uncertainty factors facing the parent company and the companies that are part of the Group.

The information was released for publication on 16 July 2008 at 8.40 am.

Stockholm, July 16th, 2008

Anders Remius Chairman of the board

Jan-Ove Hallgren Stig Karlsson Mats-Olof Ljungkvist Member of the board Member of the board Member of the board

Åke Modig Anna Ragén Lars-Åke Rydh Member of the board Member of the board Member of the board

Magnus Jonsson Kent Mossberg Member of the board, Employee repr Member of the board, Employee repr

Gérard Dubuy Member of the board, Managing Director and CEO

The full report including tables can be downloaded from the enclosed link.



LINK: http://hugin.info/1092/R/1236104/263632.pdf

HL Display

http://www.hl-display.com

ISIN: SE0000214058

Stock Identifier: XOME.HLB