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The Global Appliance Company
Annual Report 1998

Table of contents

  • Page 1
    Annual Report 1998 The Global Appliance Company

  • Page 2
    ... sales and average number of employees, by country 58 60 62 65 66 68 Board of Directors Group organization Electrolux shares Human resources The Group's environmental activities Annual General Meeting Financial reports in 1999 Investor Relations and Financial Information Consolidated results Annual...

  • Page 3
    ... in white goods, and is the third largest white-goods company in the US.The Group is the world's largest producer of floor-care products, absorption refrigerators for caravans and hotel rooms, and compressors for refrigerators and freezers. Electrolux is also the largest or second largest company in...

  • Page 4
    ...in refrigerators, washing machines and compressors was established with Voltas Ltd in India. Electrolux has thus become the largest manufacturer of refrigerators in the Indian market.The Group's annual sales of white goods in India will be doubled, to approximately SEK 1,500m. The Board of Directors...

  • Page 5
    ... by business area % -10 Household Appliances Professional Appliances Outdoor Products Other Common Group costs -1.2% -7.2% 11.9% 29.5% 0 10 20 30 40 50 60 72.0% 67.0% Net sales by region Employees by region North America 35.1% Latin America 5.9% Africa 0.9% Asia 4.4% Oceania 0.9% Rest of Europe...

  • Page 6
    ... sales Business areas' share of net Group sales, by region, %1) Household Appliances Professional Appliances Outdoor Products Business areas' share of Group Household employees, by region, %1) Appliances Professional Appliances Outdoor Products EU Rest of Europe North America Latin America...

  • Page 7
    ...of Group sales No. of employees Africa Net sales SEK 1,078m 0.9% 441 Share of Group sales No. of employees EU Net sales SEK 52,871m 47 ,928 Share of Group sales 45.0% No. of employees North America Net sales SEK 41,270m 24,786 Share of Group sales 35.1% No. of employees 5 Electrolux Annual Report...

  • Page 8
    ...and leaf blowers. Market position Forestry and garden equipment World's largest in chain saws, with global market share of about 40%. World's largest producer of such items as lawn mowers, garden tractors and lawn trimmers. Major Brands Flymo, Husqvarna, Poulan, Rally, WeedEater 6 Electrolux Annual...

  • Page 9
    7 Electrolux Annual Report 1998

  • Page 10
    ... in North America, i.e. floor-care products and leisure appliances. A large share of the increases in sales and operating income reported by the Group for 1998 refers to the North American operation, which achieved higher operating margin overall than did the Group as a whole. 8 Electrolux Annual...

  • Page 11
    ... of a plant for floor-care products in the UK and of two units for refrigerators and freezers, in Finland and Hungary. Comprehensive rationalization was also implemented in the German white-goods operation, in both the production and sales organizations. In Professional Appliances, seven production...

  • Page 12
    ... made within white goods in Europe. In order to achieve better coordination of this operation and above all to improve service to large pan-European customers, we have decided to establish a new company, Electrolux Home Products, which will be the main company for white goods in Europe. Considerable...

  • Page 13
    ... to a common Electrolux culture. Changes in management and the Board of Directors Two members of the Group's executive management retired with pensions in 1998, and another will leave early in 1999. We will thus have three new members in executive management. The Annual General Meeting in April...

  • Page 14
    ...can offer pan-European service. Electrolux is the largest white-goods manufacturer in Europe, with broad geographical coverage and several of the most valuable brands. An extensive product range and a large number of brands enables offering a high degree of differentiation to specific customers. The...

  • Page 15
    ... in Europe and North America, there is still room for expansion in a number of countries and product areas. About one-third of the world market for white goods is in Asia and Latin America, which today account for 10% of total Group sales, and for even less of white-goods sales. The short-term goal...

  • Page 16
    ... the US. The Group is also the second largest producer of white goods in Brazil. The Group is also the world leader in floor-care products, absorption refrigerators for caravans and hotel rooms, and compressors for refrigerators and freezers. The Electrolux range of built-in ovens for the European...

  • Page 17
    up front in America In 1996, Electrolux launched the front-loaded Frigidaire Tumble Action Washer in the US. Sales have grown impressively, a considerable achievement in a market where front-loaded washers are unfamiliar. Built on a European product platform and adapted to the needs of the US ...

  • Page 18
    ... white goods increased in volume by 4.5%. The upturn referred mainly to the first and second quarters. All Western European countries except Austria showed growth. In terms of specific product areas, the largest increases were reported for tumble-dryers, ovens, hobs, dishwashers and washing machines...

  • Page 19
    ...three largest producers of white goods in the Indian market, and the largest in the refrigerator product area. Other Household Appliances Demand for floor-care products rose in both Europe and North America, although primarily at the low end of the market. Total sales for this product line declined...

  • Page 20
    ...4.1 3,476 11.5 8,958 237 Share % Operating income and return on net assets SEKm 750 625 500 375 250 125 0 Average number of employees Capital expenditure, SEKm Net sales by product line Food-service equipment Laundry equipment3) Refrigeration equipment Cleaning equipment4) Total 5,891 2,380 2,564...

  • Page 21
    ... laundry, video rentals and a wide range of personal care products. Electrolux delivers the refrigeration systems, laundry appliances and food-service equipment that keep Mango on the road. Another example of how Electrolux helps professional customers to develop their businesses. 19 Electrolux...

  • Page 22
    ... high end of the world market, such as chain saws for professional users. Flymo concentrates on electric-driven garden products for the European market, and the operation in Frigidaire Home Products includes mainly garden tractors, lawn mowers, lawn trimmers and leaf blowers, as well as light-duty...

  • Page 23
    ...ability. It is the result of a successful collaboration between Husqvarna in Europe and Frigidaire Home Products in the US. The TrioClip tractor is a good example of how Electrolux applies its experience and knowledge of different markets to build superior products. 21 Electrolux Annual Report 1998

  • Page 24
    Report by the Board of Directors for 1998 Net sales Net sales for the Electrolux Group in 1998 rose to SEK 117,524m, as against SEK 113,000m in the previous year, of which 95% (95) or SEK 111,873m (107,115) was outside Sweden. Of the 4% increase in sales, changes in the Group's structure accounted ...

  • Page 25
    ... 19971) 667 667 355 355 1.85 1.85 0.95 0.95 1) Excluding items affecting comparability. In 1998, these include net capital gains totalling SEK 964m and in 1997 a capital gain of SEK 604m as well as a provision of SEK 2,500m for the current restructuring program. 23 Electrolux Annual Report 1998

  • Page 26
    .... Outdoor Products also reported higher income than in 1997, and unchanged margin. Household Appliances The market for white goods in Western Europe showed growth in volume of 4.5% for the year as a whole. The increase refers primarily to the first and second quarters. Operating income by business...

  • Page 27
    ..., 25 Electrolux Annual Report 1998 but the market in Western Europe also weakened considerably during the second half. Demand in the US remained good. Sales for Husqvarna were largely on a level with 1997. Operating income was unchanged and margin remained high. The US market for hobby chain saws...

  • Page 28
    ... series of washing machines in the European white-goods operation. Costs for research and development in 1998 amounted to SEK 1,535m (1,585), corresponding to 1.3% (1.4) of net sales. Household Appliances Professional Appliances Outdoor Products Other Total 1998 SEKm Share % 1997 SEKm Share % 2,932...

  • Page 29
    ... cabinets product line, which in 1997 had total sales of SEK 2,137m and about 2,200 employees, have thus been divested. As of October 1, the Group divested the operation in professional cleaning equipment, including vacuum cleaners, wet/dry cleaners and scrubbers, which had annual sales of SEK 850m...

  • Page 30
    ... of Voltas' operation in April 1999, annual Group sales of white goods in India will amount to approximately INR 7,900 million (approximately SEK 1,500m). Electrolux will thus become one of the three largest producers of white goods in the Indian market, and the largest in the refrigerator product...

  • Page 31
    ... the number of Group employees, salaries and remuneration is given in Note 23 on page 46. Information on the Group's holdings in shares and participations is given in Note 24 on page 47. New pension funds In 1997 the Board of Electrolux decided that as of 1998, PRI pensions in the parent company and...

  • Page 32
    ... the Group. The environment Electrolux operates 135 manufacturing facilities in 26 countries. The manufacturing operations consist mainly of assembling components made by suppliers. Other processes include metal The program is being implemented by the business sectors with support from Group staff...

  • Page 33
    .... The possible problems vary in terms of the level of a country's development, and for Electrolux it is probable that millennium planning in countries where the Group has manufacturing facilities will be more complex than in those with sales organizations only. The business sectors have been...

  • Page 34
    ... borrowings declined to SEK 17,966m in 1998. 1) Includes currencies in Canada, Hong Kong, Taiwan, Singapore, Oceania and the Latin American countries where the Group operates. 2) Includes currencies in Benelux as well as Denmark, Finland, France, Spain and Austria. 32 Electrolux Annual Report 1998

  • Page 35
    ... in Sweden, Italy and Singapore. A new internal bank was established in Brazil during the year, with responsibility for liquidity and financing. Electrolux Financial Services Electrolux Financial Services supports the Group's operations with financial solutions for customers and suppliers, and...

  • Page 36
    Consolidated income statement (SEKm) 1998 (Note 2) 1997 Net sales Cost of goods sold Gross operating income Selling... taxes Income before taxes Taxes Net income Net income per share, SEK 117,524 -86,899 30,625 -18,058 -6,336... 5,926 -1,951 3,975 (Note 9) 10.85 34 Electrolux Annual Report 1998

  • Page 37
    Consolidated... expense and accrued income Short-term placements Cash and bank balances Total current assets T O TA L A ... 1998 Equity Share capital Restricted reserves Retained earnings Net income Minority interests Provisions Provisions for pensions and similar commitments...Electrolux Annual Report 1998

  • Page 38
    ...company income statement (SEKm) 1998 1997 Net sales Cost of goods sold Gross operating income Selling expense Administrative expense Other operating income Other operating expense Operating income Group... 3) (Note 4) (Note 23) (Note 7) (Note 7) (Note 17) (Note 8) 36 Electrolux Annual Report 1998

  • Page 39
    ...Prepaid expense and accrued income Short-term placements Cash and bank balances Total current assets T O TA L A S ...31, 1998 Equity Share capital Statutory reserve Retained earnings Net income Untaxed reserves Provisions Provisions for pensions and similar commitments ...Electrolux Annual Report 1998

  • Page 40
    ...payment Change in minority interests Cash flow from financing Total cash flow Liquid funds at beginning of year Exchange-rate differences referring to liquid funds Liquid funds at year-end ...758 568 123 -3,191 -915 - -3,983 -3,415 6,574 - 3,159 -3,538 2,490 - -1,048 38 Electrolux Annual Report 1998

  • Page 41
    ...Any differences between the acquisition price and the acquisition value are reported as goodwill or negative goodwill. Definition of Group companies The consolidated financial statements include AB Electrolux and all companies in which the parent company at year-end directly or indirectly owned more...

  • Page 42
    ...the financial statements specific sales taxes, returns and trade discounts. In most cases, sales of projects are not reported as operating income until the project has been fully invoiced. In certain exceptional cases referring to particularly large projects extending over several accounting years...

  • Page 43
    ... of SEK -29m (8). In the consolidated accounts, exchange differences in the parent company on loans and forward contracts intended as hedges for equity in subsidiaries have been taken directly to equity after deduction of deferred taxes. The net change in equity is SEK -864m (-991). Group interest...

  • Page 44
    ...) Net income per share, SEK Group 1998 1997 3,975 10.85 352 0.95 Parent company Total Brands, etc. Note 10. I N T A N G I B L E A S S E T S (SEKm) Opening balance Acquired during the year Sold during the year Depreciation for the year Exchange-rate differences, etc. Closing balance Three items...

  • Page 45
    ..., Swedish Group companies: Buildings SEK 545m (784), land SEK 116m (128). Accumulated write-ups on land at year-end: SEK 18m (45). Parent company Acquisition costs Opening balance Acquired during the year Transfer of work in progress and advances Sales, scrapping, etc. Closing balance Accumulated...

  • Page 46
    ... include fiscally permissible allocations referring to receivables in subsidiaries in politically and economically unstable countries. Opening balance Allocations Closing balance 19 68 320 31 3 21 112 574 -6 -64 4 -3 49 -6 - -26 13 4 324 28 52 15 112 548 44 Electrolux Annual Report 1998

  • Page 47
    ... funds were established for the Group's Swedish companies in order to secure pension commitments related to the ITP plan, i.e. PRI pensions. The Electrolux Group's 1997 fund secures pensions through 1997, and the Electrolux Group's 1998 fund secures pensions from 1998 onward. During the year SEK...

  • Page 48
    ... employees Boards and Presidents Other employees Salaries and remuneration by geographical area, for Board members, etc. and other employees (SEKm) Sweden Parent company Other Total Sweden EU excluding Sweden Rest of Europe North America Latin America Asia Africa Oceania Total outside Sweden Group...

  • Page 49
    ... Holding, % Book value, SEKm Other companies Email Ltd, Australia Mutual Fund Investment, Deferred compensation program, USA Sidème S.A., France Winful J/V, China Nordwaggon AB, Sweden Kotimaiset Kotitalouskoneet Oy, Finland Inox Taglio SRL, Italy Other 47 Electrolux Annual Report 1998 5.1 - 34...

  • Page 50
    ... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Belgium Brazil Canada China Denmark Finland France Germany Hungary India Italy Luxembourg Mexico The Netherlands Norway Spain Sweden Switzerland United Kingdom USA White Consolidated Industries, Inc. 48 Electrolux Annual Report...

  • Page 51
    ...-forwards in acquired companies is deducted by the Group from the current year's tax costs. According to US GAAP, this tax benefit should be booked as a retroactive adjustment of the value of acquired intangible assets. Pensions According to the American recommendations for pensions known as FAS...

  • Page 52
    ... share in SEK according to US GAAP, excluding divested operation Approximate net income per share in SEK according to US GAAP (No. of shares in...SEKm) Equity as reported in the consolidated balance sheet Adjustments: Acquisitions Pensions Securities Timing differences...50 Electrolux Annual Report 1998

  • Page 53
    Proposed distribution of earnings According to the consolidated financial statements, the Group's unappropriated earnings amount to SEK 11,222m. No allocation to restricted equity is required. Thousands of kronor The Board of Directors and the President propose that net income for the year and ...

  • Page 54
    ... Annual General Meeting of the shareholders of AB Electrolux (Reg. no. 556009-4178) We have audited the parent company and the consolidated financial statements, the accounts and the administration of the Board of Directors and the President of AB Electrolux for the 12-month period ending December...

  • Page 55
    ... the contribution made by a company's production, i.e. the increase in value arising from manufacture, handling, etc. within the company. It is defined as sales revenues less the costs of purchased goods and services. Sales revenues for the Electrolux Group in 1998 totalled SEK 117,524m (113,000...

  • Page 56
    ... number of shares for the year. Number of shares The number of shares in 1998 amounted to 366,169,580 after a 5:1 stock split. 54 Electrolux Annual Report 1998 In computation of key ratios where capital is related to net sales, the latter are annualized and converted at yearend exchange rates...

  • Page 57
    ...Net sales are annualized. 8) Last price paid for B-shares. 9) As of 1992, adjusted for exchange-rate effects. 10) As of 1992, calculated as annual average. 11) As of 1991, the minority's share is included in income before tax. 1988-90 has not been recalculated. Return on equity Net income expressed...

  • Page 58
    Net sales and average number of employees, by country 1998 EU Net sales, SEKm % of Group total Net sales, SEKm 1997 % of Group total 1998 Number of employees 1997 Number of employees Germany UK Italy France Sweden Spain Denmark The Netherlands Finland Belgium Austria Ireland Portugal Greece ...

  • Page 59
    ... ASIA Net sales, SEKm % of Group total Net sales, SEKm 1997 % of Group total 1998 Number of employees 1997 Number of employees Far East China Japan India Thailand Malaysia Hong Kong South Korea Taiwan Indonesia Singapore Vietnam The Philippines Other Total Middle East Saudi Arabia United Arab...

  • Page 60
    ... in food-service equipment. Elected 1998. Shareholding in AB Electrolux: 500,000 A-shares. Louis R. Hughes Born 1949, B.S., M. Eng., MBA. Executive VicePresident, General Motors Corporation, Detroit, Michigan, USA. Board Chairman: Saab Automobile AB. Board Member: Deutsche Bank AG, Swiss-American...

  • Page 61
    ... 1953. Representative of the Federation of Salaried Employees in Industry and Services. Elected 1996. Shareholding in AB Electrolux: 500 B-shares. Hans Werthén Born 1919, M. Eng., Hon. Tech. D. President of AB Electrolux 1967-1973, and Chairman of the Board 1974-1991. Honorary Chairman since 1991...

  • Page 62
    ... White goods and Outdoor products North America Born 1943, Graduate in Law, Denver College, Colorado, USA. President Roper Corporation, USA 1985 and American Yard Products, USA, 1988. President Frigidaire Home Products, 1997. Executive Vice-President AB Electrolux 1997. Shareholding in AB Electrolux...

  • Page 63
    ...-President AB Electrolux since 1988. President Frigidaire Company and Product-line Manager outdoor products North America 1991. Head of the business sector Floor-care, Leisure and Complementary products 1997. Retired with a pension in October 1998. Hans G. Bäckman Ulf Magnusson General Counsel for...

  • Page 64
    ...capital gain At year-end 1998, the price/equity ratio for Electrolux B-shares was 2.09. The Board of Directors propose an increase of the dividend to SEK 3.00 per share. Net income per share including items affecting comparability increased to SEK 10.85 in 1998. 62 Electrolux Annual Report 1998

  • Page 65
    ... 1,831 1,831 1,831 6 13 Electrolux B, monthly high/low, SEK General index Trading volume, thousands of shares (c) SIX Findata Per-share data 1989-19981) Year-end trading price, Highest trading price, B-shares, SEK Lowest trading price, B-shares, SEK Change in price during the year, % Equity...

  • Page 66
    ...actual shareholders are not officially registered. Shareholders by country Source: DN Ägarservice Distribution of shareholdings in AB Electrolux USA 30% Sweden 43% Shareholding No. of As % of shareholders shareholders 1-1,000 1,001-10,000 10,001-100,000 100,001- Total 42,173 7,419 678 259 50...

  • Page 67
    ... 1998 within white goods in Europe. PEP is aimed at enabling employees to work toward common goals, and comprises four main phases: • Individual planning sessions between employees and managers, devoted to evaluation, feedback and career planning Team planning sessions for enhancing group morale...

  • Page 68
    ... 130 plants had been certified by year-end. Resource-efficiency is also an important feature of the Group's products. Although top-loading washing machines with vertical axes have dominated the North American market, Frigidaire Home Products' Gallery Tumble Action Washer, a front-loading water...

  • Page 69
    ... introduced a system for energy labeling of white goods that covers refrigerators, freezers, washing machines, tumble-dryers and combination washers/tumble-dryers. As of 2000 the system will also apply to dishwashers. Corresponding systems have been introduced in North America. In the EU, limits for...

  • Page 70
    ... by mail to AB Electrolux, Dept. C-J, SE-105 45 Stockholm, Sweden, or by telephone at +46 8 738 67 93 or 738 63 38. Notice can also be given at: www.electrolux.com/agm Notice should include the shareholder's name, registration number, if any, address and telephone number. Shareholders participating...

  • Page 71

  • Page 72
    SE-105 45 Stockholm, Sweden Telephone +46 8 738 60 00 Telefax +46 8 656 44 78 www.electrolux.com New visiting address as from July 1, 1999: S:t Göransgatan 143, Stockholm 5991413-52/6