Electrolux report for the first three quarters of 1998

REPORT FOR THE FIRST THREE QUARTERS OF 1998 - Continued improvement in results - operating income rose by 30% Nine months Third quarter 1998 1997 Change 1998 1997 Change, , % % Net sales, SEKm 89,391 85,179 4.9 28,516 27,906 2.2 Operating income excl. items affecting comparability, 4,470 3,430 30.3 1,425 1,102 29.3 1) SEKm Margin, % 5.0 4.0 5.0 3.9 Operating income, SEKm 5,275 1,534 243.9 1,675 1,102 52.0 Income after financial 4,304 486 785.6 1,381 750 84.1 items, SEKm Income before taxes, SEKm 4,342 453 858.5 1,399 764 83.1 Net income, SEKm 2,882 64 985 462 113.2 Net income per share, SEK 7.90 0.15 2.70 1.25 Return on equity, % 18.7 0.4 Items affecting comparability in 1998 include capital gains totalling approximately SEK 805m, and in 1997 a capital gain of SEK 604m as well as a provision of SEK 2,500m for the current restructuring program. Higher sales and earnings in Europe and North America Increased operating income for all business areas. Substantial improvement for white goods Restructuring program on track Divestment of non-strategic operations Net sales and income Sales for Electrolux in the first nine months of 1998 amounted to SEK 89,391m, as against SEK 85,179m for the corresponding period in 1997. This corresponds to an increase of 5%, of which +1% refers to changes in exchange rates, -1% to changes in Group structure, and +5% to price/mix/volume. For changes in Group structure, see page 4. Operating income including items affecting comparability rose to SEK 5,275m (1,534), corresponding to 5.9% of sales, and income after financial items rose to SEK 4,304m (486), corresponding to 4.8% of sales. Income before taxes improved to SEK 4,342m (453), corresponding to 4.9% of sales. Net income rose to SEK 2,882m (64), which corresponds to SEK 7.90 (0.15) per share. Items affecting comparability in 1998 comprise capital gains of approximately SEK 805m on divestment of operations. In 1997 these items included a capital gain of SEK 604m as well as a provision of SEK 2,500m for the ongoing restructuring program. Exclusive of the above items, operating income rose by 30% to SEK 4,470m (3,430), income after financial items rose by 47% to SEK 3,499m (2,382), and income before taxes rose by 51% to SEK 3,537m (2,349). During the second quarter of 1998 a charge of SEK 175m was taken for doubtful receivables and adjustments in Brazil and Asia. Income by business area and geographical region All three business areas reported improved operating income over the previous year, with Household Appliances and Professional Appliances showing the biggest increases. See page 6. In geographical terms, operating income for the Group rose in Europe and North America, but declined in Latin America and Asia. Third quarter Group sales for the third quarter of 1998 amounted to SEK 28,516m, as against SEK 27,906m for the third quarter of 1997. This corresponds to an increase of 2%, of which +1% refers to changes in exchange rates, -2% to changes in Group structure, and +3% to price/mix/volume. Operating income rose by 52% to SEK 1,675m (1,102), income after financial items rose by 84% to SEK 1,381m (750), and income before taxes rose by 83% to SEK 1,399m (764). Net income for the quarter improved by 113% to SEK 985m (462), which corresponds to SEK 2.70 (1.25) per share. Items affecting comparability in the third quarter comprise a capital gain of approximately SEK 250m on the divestment of the European operation in kitchen and bathroom cabinets. Exclusive of the above item, operating income rose by 29% to SEK 1,425m (1,102), income after financial items rose by 51% to SEK 1,131m (750), and income before taxes rose by 50% to SEK 1,149m (764). The improvement in operating income is traceable mainly to the Household Appliances business area, although Professional Appliances and Outdoor Products also reported higher income than in the third quarter of 1997. Cash flow The cash flow generated during the first nine months by business operations after capital expenditure, adjusted for exchange-rate effects, increased substantially to SEK 5,892m (3,958). The improvement is traceable mainly to higher operating income, lower capital expenditure and higher proceeds from the divestment of operations. Equity and net debt/equity ratio Group equity as of September 30, 1998 amounted to SEK 22,744m (19,940), which corresponds to SEK 62.10 (54.50) per share. The return on equity after taxes was 18.7% (0.4), and the return on net assets was 16.3% (4.6). Excluding items affecting comparability, the return on equity rose to 13.8% (8.2), and the return on net assets to 13.4% (10.3). Net borrowings declined to SEK 17,611m (19,063) and the net debt/equity ratio improved to 0.74 (0.87). Liquid funds at the end of the period amounted to SEK 10,077m (10,206). The above figures include items affecting comparability, unless otherwise indicated. Major changes in the Group Current restructuring program The current two-year restructuring program was authorized by the Board in June 1997 and has proceeded according to plan. The program involves personnel cutbacks of about 12,000 based on the shutdown of about 25 plants and 50 warehouses, as well as substantial changes in the Group's marketing and sales organizations. As of September 30, 1998, about 8,100 employees had left the Group. Personnel cutbacks during the first nine months of 1998 amounted to about 4,300, of whom about 1,000 during the third quarter. Approximately SEK 1,320m has been utilized of the provision of SEK 2,500m that was made for the program during the second quarter of 1997. SEK 620m of this provision was utilized during the first nine months of 1998, of which about SEK 140m during the third quarter. Fifteen plants had been shut down or sold as of September 30, 1998, of which three during the third quarter. Negotiations have also been started or completed regarding four more units. In addition, 26 warehouses have been shut down, of which four during the third quarter. Decisions have been made regarding the shutdown of another thirteen. Acquisitions and divestments since June 30, 1998 The operation in professional cleaning equipment was divested as of October 1. This product line includes vacuum cleaners, wet/dry cleaners and floor scrubbers, and has annual sales of approximately SEK 850m and about 850 employees. The divestment will involve a capital gain of approximately SEK 200m during the fourth quarter. At the start of October an agreement was reached regarding a joint venture in India with Voltas Ltd, which will transfer its business in refrigerators, washing machines and compressors to a new company, in which Electrolux has a 74% stake and Voltas 26%. The new company will be coordinated with the Group's existing operation in white goods in India. The transfer of the Voltas operation will be completed by April 1999, after which the Group's sales of white goods in India will increase to approximately INR 7,900m (SEK 1,500m) on an annual basis. Electrolux will thus become one of the three largest white- goods companies in India and the largest producer of refrigerators. The year 2000 Since 1996, Electrolux has been working on solutions for problems that may arise in the Group's computer systems, electronic components, etc. in connection with the turn of the century. Each individual operating sector within Electrolux has established a schedule for conversion or replacement of IT applications in plants and offices, where relevant. The operating sectors are currently identifying major suppliers and customers with a view to ensuring that they are year-2000 compliant. Contingency plans will be prepared if warranted by the final evaluation of the readiness of critical suppliers. Approximately half of the Group's applications in plants and offices have been modified or replaced to date, and in many cases this has involved upgrading. Costs to date for implemented changes amount to approximately SEK 75m. The total cost of changes in IT-applications is estimated at approximately SEK 250m. It is not expected that any significant problems will arise with respect to current or previously sold products. It is not anticipated that possible negative effects related to the year-2000 issue will have any material impact on the Group's income or financial position. Operations by business area Household Appliances During the first nine months of 1998 the market for white goods in Western Europe expanded in volume by about 5% in comparison with the corresponding period in 1997. In the third quarter, the market increased by about 1%. Both the UK and German markets showed a decline during the quarter. The Group's sales of white goods in Europe increased over last year. Operating income improved substantially on the basis of higher sales volume and internal actions. However, a fire that caused extensive damage to the refrigerator plant in Hungary in August and a considerable decline in deliveries to Russia had an adverse effect on sales and income during September. The white-goods market in the US expanded by about 11% in volume. Frigidaire Home Products reported continued strong growth in sales, and a marked improvement in operating income. The market for white goods in Brazil declined by about 25% in volume, although the downturn was not as sharp in the third quarter. Operating income for the Brazilian operation declined as a result of lower sales volumes, costs related to personnel cutbacks, and charges for doubtful receivables. Overall operating income for the Group's white-goods operation was substantially higher, for the period as a whole as well as in the third quarter. For other household appliances, demand for floor-care products increased somewhat in both Europe and the US. Group sales declined from 1997, mainly as a result of lower volume in Asia and Brazil. This product line nevertheless reported higher operating income and margin on the basis of cost reductions, particularly in the US operation. The leisure appliances and components product lines also reported higher sales and income. Total sales and operating income for the Household Appliances business area were higher than in 1997 with an improved margin. Professional Appliances The market for food-service equipment in Europe was largely unchanged from 1997, and Group sales showed only a small increase. This product line reported a marked improvement in operating income on the basis of restructuring, although from a low level last year. The operation in food and beverage vending-machines achieved continued strong growth in sales and income. Demand for laundry equipment increased in several countries in Europe. Demand in the US and Oceania declined, however. Group sales were lower than last year, mainly because of the divestment of the operation in heavy-duty laundry equipment. Operating income improved over 1997. Sales of refrigeration equipment rose in Europe as well as in new markets in Asia and Latin America. Higher sales volume and the effects of restructuring led to a considerable improvement in operating income for this product line in comparison with the low level of 1997. Sales for the Professional Appliances business area showed only a slight increase in comparison with last year, but both operating income and operating margin improved. Outdoor Products The market for professional chainsaws rose in volume during the period as a whole in both Europe and the US. However, demand during the third quarter was lower than in the same quarter last year. Markets in Southeast Asia and Oceania showed a sharp decline. Husqvarna achieved higher sales than in 1997, and operating income improved. The American market showed lower volume for hobby chainsaws. However, demand for garden equipment in the US increased in several areas. The Group's US operation reported higher sales and some improvement in operating income. Demand for garden equipment in Europe was higher than in 1997, and the European operation reported higher income. Sales and operating income for the Outdoor Products business area were higher than in the previous year, and the margin was unchanged. Uncertain market conditions Demand has been good so far this year in both the European and US markets, which account for approximately 85% of Group sales. However, the rate of market growth declined towards the end of the period. The Group nevertheless has been able to compensate for this through internal activities Stockholm, October 29, 1998 Michael Treschow President and CEO CONSOLIDATED INCOME STATEMENT, SEKm Nine months Third quarter Full year 1998 1997 1998 1997 1997 Net sales 89,391 85,179 28,516 27,906 113,000 1) Cost of goods sold -66,520 -62,940 -21,034 -20,611 -83,144 1) Selling expenses -13,689 -13,820 -4,575 -4,485 -18,850 Administrative -4,575 -4,754 -1,407 -1,649 -6,201 1) expenses Other operating income/ -137 -235 -75 -59 -255 expense Operating income before 4,470 3,430 1,425 1,102 4,550 items affecting * comparability Margin, % 5.0 4.0 5.0 3.9 4.0 Items affecting 805 -1,896 250 - -1,896 comparability Operating income 5,275 1,534 1,675 1,102 2,654 Margin, % 5.9 1.8 5.9 3.9 2.3 Financial items, net -971 -1,048 -294 -352 -1,422 Income after 4,304 486 1,381 750 1,232 financial items Margin, % 4.8 0.6 4.8 2.7 1.1 Minority interests in income before taxes 38 -33 18 14 51 Income before taxes 4,342 453 1,399 764 1,283 Margin, % 4.9 0.5 4.9 2.7 1.1 Taxes -1,460 -389 -414 -302 -931 Net income 2,882 64 985 462 352 * Including depreciation in -3,102 -3,246 -995 -1,071 -4,266 the amount of: 1) The principles for distributing costs have been revised and the figures for 1997 have been adjusted accordingly. CONSOLIDATED BALANCE SHEET, SEKm September 30, September 30, 1998 1997 Fixed assets 26,926 27,302 Inventories 16,898 16,143 Accounts receivable 24,032 22,226 Other receivables 4,043 3,934 Liquid funds 10,077 10,206 Total assets 81,976 79,811 Shareholders' equity 22,744 19,940 Minority interests 920 1,995 Interest-bearing liabilities and 27,688 29,269 provisions Non-interest-bearing liabilities 30,624 28,607 and provisions Total shareholders' equity and 81,976 79,811 liabilities STATEMENT OF CHANGES IN FINANCIAL POSITION, SEKm Nine months, Nine months, 1998 1997 Operating income excl. capital 4,470 2,849 gains Depreciation according to plan 3,102 3,246 Changes in operating assets -1,287 96 and liabilities Divestment of operations 1,465 925 Capital expenditure -2,509 -3,057 Other 651 -101 Liquid funds generated by 5,892 3,958 operations Change in long-term loans -1,116 -3,471 Financial items -971 -1,048 Taxes paid -1,212 -1,391 Dividends -915 -915 Exchange-rate differences referring 95 -260 to net liquidity Change in net liquid funds 1,773 -3,127 NET SALES BY BUSINESS AREA, SEKm Nine months Change, Third quarter Change, Full year, % % 1997 1998 1997 1998 1997 Household Appliance 62,997 60,568 4.0 21,345 20,809 2.6 81,419 s Professio nal 8,481 8,379 1.2 2,760 2,814 -1.9 11,413 Appliance s Outdoor Products 16,193 14,701 10.1 3,790 3,819 -0.8 18,087 1) Other 1,720 1,531 12.3 621 464 33.8 2,081 Total 89,391 85,179 4.9 28,516 27,906 2.2 113,000 1) Gotthard Nilsson, etc. OPERATING INCOME BY BUSINESS AREA, SEKm Nine months Change, Third quarter Change, Full year, % % 1997 1998 1997 1998 1997 Household 1) Appliances 2,749 2,086 31.8 1,057 728 45.2 2,943 Margin, % 4.4 3.4 5.0 3.5 3.6 Professional Appliances 503 210 139.5 177 116 52.6 340 Margin, % 5.9 2.5 6.4 4.1 3.0 Outdoor Products 1,587 1,448 9.6 348 343 1.5 1,680 Margin, % 9.8 9.8 9.2 9.0 9.3 2) Other -59 46 -35 35 67 Common Group 3) costs -310 -360 -122 -120 -480 Items affecting 805 -1,896 250 - -1,896 comparabilit y Total 5,275 1,534 243.9 1,675 1,102 52.0 2,654 1) Including a charge of SEK 175m in Brazil and Asia and excluding the operation in SIA. 2) Gotthard Nilsson, etc. 3) As of the first quarter of 1998 these items are not distributed among the different business areas. The figures for the previous year have been adjusted accordingly. KEY RATIOS Nine months Nine months Full year, 1997 excl. items affecting comparability 1998 1998 excl. 1997 1997 excl. items items affecting affecting comparability comparabil ity Net income per 1) share, SEK 7.90 6.25 0.15 3.75 4.85 Return on 18.7 13.8 0.4 8.2 7.9 2) equity, % Return on net 3) assets, % 16.3 13.4 4.6 10.3 10.2 Net debt/equity 0.74 0.74 0.87 0.80 0.86 4) ratio Capital expenditure, 2,509 2,509 3,057 3,057 4,329 SEKm Average number of employees 100,1 100,100 107,1 107,100 105,950 00 00 Sales outside 95 95 95 95 95 Sweden, % Third quarter Third quarter 1998 1998 excl. 1997 1997 excl. items items affecting affecting comparability comparabilit y 1) Net income per share, SEK 2.70 2.10 1.25 1.25 Capital expenditure, SEKm 875 875 1,000 1,000 Average number of employees 98,400 98,400 107,400 107,400 Sales outside Sweden, % 95 95 95 95 1) After a stock split of 5:1 the number of shares amounts to 366.2 million. Figures for the previous year have been adjusted accordingly. 2) Annualized net income for the year, expressed as a percentage of opening equity. 3) Annualized operating income, expressed as a percentage of average net assets. 4) Net borrowings, i.e. interest-bearing liabilities less liquid funds, in relation to adjusted equity. The latter is defined as equity including minority interests. NET SALES AND INCOME PER QUARTER st nd rd th 1 qtr 2 qtr 3 qtr 4 qtr Full year Net sales, SEKm 1998 28,567 32,308 28,516 1997 26,345 30,928 27,906 27,821 113,000 Operating income, 1998 1,376 2,224 1,675 SEKm Margin, % 4.8 6.9 5.9 1997 1,004 -572 1,102 1,120 2,654 Margin, % 3.8 -1.8 3.9 4.0 2.3 1) 1997 1,004 1,324 1,102 1,120 4,550 Margin, % 3.8 4.3 3.9 4.0 4.0 Income after financial items, 1998 1,060 1,863 1,381 SEKm Margin, % 3.7 5.8 4.8 1997 683 -947 750 746 1,232 Margin, % 2.6 -3.1 2.7 2.7 1.1 1) 1997 683 949 750 746 3,128 Margin, % 2.6 3.1 2.7 2.7 2.8 Income before taxes, SEKm 1998 1,075 1,868 1,399 1997 600 -911 764 830 1,283 1) 1997 600 985 764 830 3,179 Net income, SEKm 1998 667 1,230 985 1997 355 -753 462 288 352 1) 1997 355 562 462 403 1,782 Income per share, 1998 1.85 3.35 2.70 SEK 1997 0.95 -2.05 1.25 0.80 0.95 1) 1997 0.95 1.55 1.25 1.10 4.85 1) Excluding costs of SEK 2,500m for the current restructuring program and a capital gain of SEK 604m. NET SALES BY BUSINESS AREA, PER QUARTER, SEKm st nd rd th 1 2 3 4 Full qtr qtr qtr qtr year Household 1998 20,140 21,512 21,34 Appliances 5 1997 18,886 20,873 20,80 20,851 81,419 9 Professional 1998 2,722 2,999 2,760 Appliances 1997 2,406 3,159 2,814 3,034 11,413 Outdoor Products 1998 5,157 7,246 3,790 1997 4,617 6,265 3,819 3,386 18,087 1) Other 1998 548 551 621 1997 436 631 464 550 2,081 1) Gotthard Nilsson, etc. OPERATING INCOME BY BUSINESS AREA, PER QUARTER, SEKm st nd rd th 1 2 3 4 Full qtr qtr qtr qtr year 1) Household 1998 879 813 1,057 Appliances Margin, % 4.4 3.8 5.0 1997 783 575 728 857 2,943 Margin, % 4.1 2.8 3.5 4.1 3.6 Professional 1998 103 223 177 Appliances Margin, % 3.8 7.4 6.4 1997 -52 146 116 130 340 Margin, % -2.2 4.6 4.1 4.3 3.0 Outdoor Products 1998 488 751 348 Margin, % 9.5 10.4 9.2 1997 441 664 343 232 1,680 Margin, % 9.6 10.6 9.0 6.9 9.3 2) Other 1998 1 -25 -35 1997 -48 59 35 21 67 Common Group 1998 -95 -93 -122 3) costs 1997 -120 -120 -120 -120 -480 1) Including a charge of SEK 175m in Brazil and Asia and excluding the operation in SIA. 2) Gotthard Nilsson, etc. 3) As of the first quarter of 1998 these items are not distributed among the different business areas. The figures for the previous year have been adjusted accordingly. This report has not been audited. The year-end results for 1998 will be published on February 16, 1999. Financial information from Electrolux is also available on the Internet at www.electrolux.com ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are ready for download: http://www.bit.se/bitonline/1998/10/29/19981029BIT00240/bit0001.pdf http://www.bit.se/bitonline/1998/10/29/19981029BIT00240/bit0002.doc