Electrolux 1997 Annual Report Download - page 11

7
Electrolux Annual Report 1997
Report by the President and CEO
Market conditions in Europe improved
gradually during the year in most of our
product areas, with the exception of
Germany and neighboring countries.
Demand in the US remained at a high
level. On the other hand, Brazil and
Southeast Asia showed a sharp decline
in market demand, particularly during
the second half of the year.
Electrolux achieved good sales
growth in both Europe and the US.
In terms of comparable units and after
adjustment for exchange-rate effects,
sales in the third and fourth quarters
rose by 8% and 9%, respectively. The
sales increase for the full year was 5%.
During the second quarter, Group
operating income was charged with a
provision of SEK 2,500m for the on-going
restructuring program. Exclusive of non-
recurring items and Gränges, operating
income rose by 13% to SEK 4,550m,
although with an unchanged low margin
of 4%. Net financial items were adversely
affected by a reduced interest-rate differ-
ential between the Swedish krona and
foreign currencies, as well as by higher
interest costs resulting from a stronger
dollar. Income after financial items rose
by 7% to SEK 3,128m. Minority interests
were lower than in the previous year,
as the Brazilian subsidiary reported a
substantial decline in income, and the
Group increased its share of capital in
the company. Group income before
taxes increased by 17% to SEK 3,179m.
Of our business areas, Outdoor
Products continued to report good
growth in sales and operating income,
as well as an improved operating margin
of 8.9%. It is also gratifying that white
goods in North America reported a
strong increase in results. White goods
in Europe also achieved higher income,
despite weak demand and a less favor-
able product mix in the important
German market. We also achieved
very good growth in white goods and
other product areas in new markets
in Eastern Europe.
Disappointments during the year
naturally include market trends in
Brazil and Asia, which had a substantial
adverse effect on income, particularly in
Household Appliances. In addition to the
effects of lower sales volume and prices,
we took a charge of SEK 150m during
the fourth quarter for adjustments in
response to lower demand in these mar-
kets. The performance of Professional
Appliances also continued to be weak.
The important task of streamlining
the Group’s structure continued during
the year and involved a number of
divestments. In addition to distributing
Gränges to shareholders, we divested
Husqvarna Sewing Machines and the
operation in goods protection. In Janu-
ary, 1998 an agreement was reached for
divestment of the operation in agricul-
tural implements and the SIA group,
which markets and sells items for inte-
rior decoration. These operations had
total annual sales of approximately
SEK 10,300m. Of the non-strategic
units outside Household Appliances,
Professional Appliances and Outdoor
Products, the only remaining operation
is Gotthard Nilsson, a recycling
company with annual sales of almost
SEK 2,000m.
Restructuring program authorized
For some years, Electrolux has reported
weak income growth and an unsatis-
factory return on equity. Following
an improvement in 1994–95, both
operating margin and return on equity
showed negative trends in 1996 and
early 1997. For the full year 1997, the
operating margin exclusive of non-
recurring items was 4.0% and the return
on equity was 7.9%.
In June we decided to implement
a comprehensive restructuring program
in order to create a framework that
will enable the Group to achieve its
long-term goals of an operating margin
of 6.5 –7% and a return on equity
of 15%. The program is aimed at
increasing capacity utilization and
productivity, and reducing operating
costs. The program does not involve
discontinuation of any product area
or geographical market.
The restructuring program will be
implemented over two years and will
involve personnel cutbacks of about
12,000, or 11%, through the shutdown
of about 25 plants and 50 warehouses
Sales and income
North America
93 94 95 96 97
0
30,000
45,000
60,000
75,000
90,000
15,000
Europe
Net sales in
Europe and North America, SEKm
12-month figures
Operating income,
excl. non-recurring items
Income after financial items,
excl. non-recurring items
93 94 95 96 97
Net sales 12-month figures
0
40,000
60,000
80,000
100,000
120,000
20,000
Income
0
2,000
3,000
4,000
5,000
6,000
1,000
Net sales
Net sales and income, SEKm