Electrolux 1997 Annual Report Download - page 10

Report by the Chairman of the Board
6
Electrolux Annual Report 1997
ANDERS SCHARP
Chairman of the Board
Electrolux product areas are exposed to
sharp competition even when market
conditions are good. High internal effi-
ciency and continuous product improve-
ments are required in order to achieve
good profitability.
In white goods, and in other Group
product areas as well, there is a trend
toward larger companies with increas-
ingly more global operations in both
production and distribution. The cost
benefits obtainable by large producers
through coordination of e.g. product
development, product platforms and
purchasing across different markets will
lead to an even more severe competitive
situation for smaller and local companies.
At Electrolux, we have imple-
mented an acquisition strategy in order
to build positions of leadership in the
global market and obtain sufficient vol-
umes in our core areas. In recent years
we have focused on streamlining the
Group to comprise fewer business areas
in order to better utilize these competi-
tive advantages and concentrate our
resources. Since 1994 thirteen opera-
tions with total annual sales of about
SEK 20 billion have been divested,
while a number of investments have
been implemented in our core areas.
Streamlining is complete
Operations in Electrolux are now
focused on household appliances, corre-
sponding products for professional
users, and outdoor products. Our judge-
ment is that with this structure the
Group has a good potential for provid-
ing shareholders with sustained, com-
petitive growth in the value of their
invested capital.
The final major change was the dis-
tribution of shares in the Gränges sub-
sidiary to shareholders, which was
authorized by the Annual General
Meeting in April, 1997. Gränges was
listed on the Stockholm Stock Exchange
in May. Despite the downturn on the
stock market at the end of last year,
shareholders who retained their Gränges
shares have enjoyed an increase in
value of 27% during 1997, from SEK 98
per share to SEK 124.50, and the
increase has continued during 1998. The
Electrolux share also performed well
during 1997, increasing in value by 39%.
New President and CEO
Michael Treschow became President and
CEO of Electrolux at the Annual Gen-
eral Meeting, succeeding Leif Johansson,
who assumed the corresponding positions
at Volvo. Michael Treschow has broad
industrial and international experience
and comes to Electrolux from the engi-
neering company Atlas Copco where he
was President and CEO since 1990. As
Chairman of the Board for Atlas Copco
as well, I can report that the company
performed very well under his leadership.
Michael Treschow has implemented
a number of changes in the Electrolux
Group and initiated a comprehensive
restructuring program in June. Since
then, some of our competitors in the
white-goods sector have announced
similar rationalization programs, which
should have a favorable effect on profit-
ability in this sector.
Increased voting rights for B-shares
The share capital in Electrolux com-
prises A- and B-shares, the former bear-
ing one vote and the latter one thou-
sandth of a vote. B-shares were origi-
nally introduced in 1928 in connection
with acquisition of foreign sales compa-
nies. B-shares were also issued during
the 1980s in connection with the
Group’s strong international expansion.
The virtually non-existent voting
power of B-shares has generated increas-
ingly more negative perceptions among
investors in the capital markets. The
Board has therefore decided to propose
a change in the Articles of Association
at the Annual General Meeting, whereby
the voting right for a B-share will increase
to 1/10.
Both A- and B-shares are listed on
the Stockholm Stock Exchange. B-shares
are also listed on a number of interna-
tional exchanges, including London as
well as Nasdaq in the US. The increased
voting right will hopefully generate
greater interest in Electrolux shares and
have a positive effect on the market’s
valuation of them.
The Board has also decided to pro-
pose a stock split of 5 to 1, which means
that the par value of the Electrolux share
will be changed from SEK 25 to SEK 5.
Financial goals and restraints
Electrolux has shown unsatisfactory
profitability for several years. We antici-
pate that the restructuring program will
enable the Group to achieve its previ-
ously established goal of an operating
margin of 6.5–7% and an after-tax
return on equity of 15%.
Other financial goals include a net
debt/equity ratio, i.e. net borrowings in
relation to adjusted equity, that does not
exceed 1.0. However, our intention is to
tighten this restraint somewhat in com-
ing years. With a dividend to sharehold-
ers that shall continue to correspond to
30–50% of net income, the Group still
has sufficient room for expansion. Over
the next few years we should be able to
achieve a reduction in tied-up capital
and an improved cash flow.
Unchanged dividend
In the light of the current restructuring
program and the costs associated with
it, the Board has decided to propose an
unchanged dividend of SEK 12.50 for
1997 at the Annual General Meeting.
The Board’s decision also reflects cau-
tion with respect to the crisis in Asia
and its possible effects on our main
markets in Europe and North America.
The past year was an eventful
one for Electrolux in many ways, and
featured a number of changes which
I am convinced will contribute to the
Group’s favorable development. I would
like to thank all our employees for a
good performance in 1997.