Electrolux 1996 Annual Report Download - page 26

Group operations
US economy remains strong.
Downturn in Europe
Economic activity in the OECD countries
has weakened continuously following a
peak in 1994, when the growth rate
reached almost 3%. Improved basic eco-
nomic conditions, including reduced public
deficits, weak inflation trends and low
interest rates have led to more limited
cyclical variations. Despite a downturn
in the business cycle, overall growth in
the OECD countries has risen by more
than 2% annually, although there have been
marked differences between countries
and regions. The increase in total OECD
production in 1996 refers mainly to the
US and Japan, while growth in Europe
was weaker.
In the US, where growth has been
smooth and stable since 1991, production
increased by over 2.5% in 1996. A slackening
in overall demand was noted during the year.
However, a sizable increase in inventories
contributed to stabilization of production.
Investment remained at a high and stable
level throughout 1996, but housing starts
slackened in the autumn. The sustained
growth in the US has led to high capacity
utilization, low unemployment and only
weak tendencies to wage-driven inflation.
Western Europe showed weak eco-
nomic activity during most of the year,
with growth of about 1.5%. Demand and
production were dampened by the restric-
tive financial policies applied in most coun-
tries in order to meet the Maastricht bud-
get criteria for 1997, as well as by the
delayed effects of previously high interest
rates and unfavorable exchange rates
against the dollar for most European cur-
rencies. Construction activity remained at
a low level. The downturn in business con-
ditions led to additional deterioration of
the labor market, and unemployment rose
to about 11.5%. Growth was relatively
strong in the UK, The Netherlands, Norway
and Finland, but was comparatively weak in
such countries as Germany, Switzerland,
Austria, Italy and France.
Growth in the Swedish economy was
only about 1%, as against 3.6% in 1995.
Private consumption increased somewhat,
although from a low level, and unemploy-
ment remained very high.
The economic situation in the Eastern
European countries improved steadily.
Inflation has declined, although from very
high levels, and most countries showed
growth during the year.
Economic growth in China and the
developing markets in Southeast Asia
remained at 7–8% in 1996. High capacity
utilization and an increase in their aggre-
gate current account deficits led to more
stringent economic policies in most coun-
tries in order to bring growth rates down
to more sustainable long-term levels.
In 1997, somewhat weaker growth is
expected in the US. Demand will probably
be restrained by a stronger dollar together
with financial and monetary policies that
may be more restrictive in order to main-
tain inflation at the present low level. In
Western Europe, however, business condi-
tions may be strengthened by a combina-
tion of continued low inflation, the delayed
effects of falling interest rates, and depre-
ciation of European currencies.
However, insufficient measures for
continued reduction of budget deficits,
particularly in Western Europe, may lead
to higher interest rates and instability in
the currency markets, which can in turn
dampen the recovery.
Changes in exchange rates affect
financial statements
The Swedish krona appreciated against
most other currencies during the first
three quarters of 1996, which generated
adverse effects on Group sales and income
in connection with translation of financial
statements in foreign subsidiaries. The
krona weakened in the latter part of the
year, however, and on December 31 was
largely unchanged from year-end 1995,
according to the TCW index. However,
there were strong movements during the
year in certain currencies which are impor-
tant to the Group. By year-end the British
pound had risen against the krona by
12.8%, the Italian lira by 7.3% and the
US dollar by 3.2%. The German mark fell
by 4.7% against the krona.
In the key ratios that express liquidity,
net assets, inventories and accounts receiv-
able as percentages of Group sales, exchange-
rate effects have been eliminated by trans-
lating these items at year-end rates.
For information on the effects of
changes in exchange rates and other
factors, see the sections below on Sales
and Income and profitability, as well as
page 28 under Currency risk.
Sales
Sales for the Electrolux Group in 1996
amounted to SEK 110,000m as against SEK
115,800m in the previous year, of which
92% (92) or SEK101,654m (106,704) was
outside Sweden. Of the 5% decline in sales,
changes in exchange rates accounted for
–6%, acquisitions and divestments for +4%
and volume and price/mix for –3%. The
Brazilian white-goods company Refripar is
included in the accounts as of February 1,
and the Electrolux share in the motor
operation in FHP Motors as of September 1.
The divested operation in materials-hand-
ling equipment is included up to the end
of the first quarter.
Exports from Sweden in 1996
amounted to SEK 9,661m (10,159), of
which SEK 5,984m (6,092) was to Group
subsidiaries. The Swedish plants accounted
for 15% (16) of the total value of Group
production.
Information on Group sales by land
and region is given on page 50.
Total Competitiveness Weighted Index 
1995 –February, 1997
Source: Bank of Sweden
95 96 97
100
105
110
115
120
125
130
135
140
Index Index Nov. 18, 1992 = 100
The TCW index reflects the value of the krona in
relation to Sweden’s global competitiveness situation.
The index showed a continued appreciation of
the krona during the first three quarters of 1996,
followed by a decline during the rest of the year.
On December 31, 1996, the krona was at about
the same level as at year-end 1995.
The Group’s long-term financial goals
Operating margin 6.5–7%
Return on equity 15%
Inventories plus accounts
receivable as % of sales 30%
Net debt/equity ratio <1.0
Dividend as % of net income 30–50%
For definitions of the above concepts, see page 48.
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Electrolux Annual Report 1996