First Quarter Report 2002

FIRST QUARTER REPORT, 2002 Amounts in SEKm, First First Change unless otherwise stated quarter quarter 2002 2001 Net sales 33,580 33,670 -0.3% Operating income1) 2) 3,791 1,852 +105% Operating income, excl. items affecting comparability 1,906 1,852 +2.9% Margin, % 5.7 5.5 Income after financial items1) 2) 3,682 1,499 +146% Income after financial items, excl. items affecting comparability 1,797 1,499 +20% Margin, % 5.4 4.5 Net income per share, SEK3) 9.00 3.10 +190% Net income per share, excl. items affecting comparability, SEK2) 3) 3.75 3.10 +21% Value creation, excluding items affecting comparability 609 290 +319 Return on equity, % 39.6 15.6 Return on equity, excl. items affecting comparability, % 16.4 15.6 1) New accounting principle for R&D had positive impact of SEK 80m on income for Q1 2002. 2) In 2002, income includes items affecting comparability in the amount of SEK 1,885m (see page 2). 3) Based on an average of 329.6 (341.1) million shares after buy- backs. · Higher operating income and margin for Consumer Durables in Europe · Improved income in North America, production of new refrigerators normalized · Continued positive trend in income and margin for Professional Outdoor Products · Ongoing restructuring measures proceeding according to plan · Net sales and income Net sales for Electrolux in the first quarter of 2002 amounted to SEK 33,580m, as against SEK 33,670m for the same period last year. This corresponds to a decrease of -0.3%, of which -3.4% refers to changes in Group's structure, +4.2% to changes in exchange rates, and -1.1% to price/mix/volume. Operating income increased to SEK 3,791m (1,852), corresponding to 11.3% (5.5) of sales, and income after financial items increased to 3,682m (1,499), corresponding to 11.0% (4.5) of sales. Net income rose to SEK 2,962m (1,066), which corresponds to SEK 9.00 (3.10) per share. Items affecting comparability The above income-figures for the first quarter of 2002 include items affecting comparability amounting to SEK 1,885m (0). These items comprise a capital gain of SEK 1,800m on the divestment of the remaining part of the leisure-appliances product line, and a capital gain of SEK 85m on the divestment of the European home-comfort operation. New accounting principle for R&D A new Swedish accounting standard, RR 15 Intangible assets, came into effect as of January 1, 2002. According to this standard, costs for development of products and software should be capitalized. Development costs of SEK 80m referring to projects started during the first quarter have been capitalized. Income for the previous year has not been adjusted in this respect. Five other Swedish accounting standards issued by The Swedish Financial Standards Council effective as of January 1, 2002 have not had any material effect on the Group's accounts. Income excluding items affecting comparability Excluding items affecting comparability, operating income increased by 3% to SEK 1,906m (1,852), representing 5.7% (5.5) of net sales. Income after financial items increased by 20% to SEK 1,797m (1,499), corresponding to 5.4% (4.5) of net sales. Net income increased by 15% to SEK 1,228m (1,066), which corresponds to SEK 3.75 (3.10) per share. Effects of changes in exchange rates Compared with the first quarter of last year changes in exchange rates, i.e. in terms of both transaction and translation effects, had a net positive impact on income after financial items of approximately SEK 175m. The impact is traceable mainly to the weakening of the Swedish krona against the US dollar and the British pound. Financial net Net financial items amounted to SEK-109m (-353). The improvement is mainly due to lower interest rates and reduced net borrowings. Financial items in the first quarter of 2001, were negatively impacted by foreign exchange losses on loans in USD. Cash flow The cash flow generated by operations amounted to SEK -2,792m (-899), after adjustment for exchange-rate effects. The deterioration is traceable mainly to an increase in accounts receivable, and the final payment of USD 94million (approximately SEK 990m) related to the PBGC pension litigation. Cash flow inclusive of investments improved as a result of divestments. Cash flow is normally weak during the first half of the year as a result of a build-up of inventories and accounts receivable referring to a seasonal increase in sales of outdoor products, room air-conditioners, refrigerators and freezers. Financial position Equity Equity as of March 31, 2002 amounted to SEK 30,913m (28,417), which corresponds to SEK 93.80 (83.30) per share. The return on equity was 39.6% (15.6). Excluding items affecting comparability, the return on equity was 16.4% (15.6). Net assets Average net assets for the period decreased to SEK 38,581m (42,760), mainly as a result of restructuring and divestments. Average net assets after adjustment for items affecting comparability amounted to 39,923m (44,625). The return on net assets was 39.3% (17.3) or 19.1% (16.6) excluding items affecting comparability. Net debt/equity and liquid funds Net borrowings decreased to SEK 11,835m (22,797), primarily due to a reduction of interest-bearing liabilities during the last three quarters of 2001, and proceeds from divestments. The net debt/equity ratio decreased to 0.37 (0.78). Liquid funds at the end of the period amounted to SEK 10,282m (10,956). Value creation The total value created during the first quarter of 2002 amounted to SEK 609m, as compared with SEK 290m in the first quarter of the previous year. The increase refers mainly to an improvement in operating margin to 5.7% (5.5), which is traceable to higher income and margin, for primarily Consumer Durables in Europe and Professional Outdoor Products. The capital turnover rate increased to 3.36, as compared with 3.02 in the previous year. The Group's weighted average cost of capital (WACC) has been lowered from 14% to 13% before tax, to reflect the decline in the risk-free interest rate since value creation was first included in the Group's financial reporting in 2000. On the basis of an unchanged WACC, value created would be approximately SEK 100m lower. The table below shows value created by business area. SEKm First First Change quarter quarter 2002 2001 Consumer Durables Europe 374 133 241 North America 307 266 41 Rest of the world -346 -256 -90 Total Consumer Durables 335 143 192 Professional Products Indoor 31 108 -77 Outdoor 288 230 58 Total Professional Products 319 338 -19 Common group costs, etc. -45 -191 146 Total 609 290 319 Value created is defined as operating income excluding items affecting comparability, less a weighted average cost of capital (WACC) on average net assets. As of 2002, the Group's WACC has been changed from 14% to 13% before tax. Operations by business area Consumer Durables Total industry shipments of core appliances in Europe declined by about 1%. Western Europe showed a decrease of 3% and Eastern Europe an increased of 8%. Sales for the Group's European operation within Electrolux Home Products were largely unchanged. Operating income and margin improved, mainly as a result of lower costs for materials, a slightly better mix, and restructuring. Income in the previous year was negatively impacted by the devaluation of the Turkish lira. In the US, industry shipments of core appliances increased in volume by about 10%, compared with a weak first quarter in 2001. Shipments of major appliances, i.e. including room air-conditioners and microwave ovens, increased by approximately 6%. Group sales of core appliances in North America through Electrolux Home Products showed good growth over last year. Operating income improved substantially as a result of higher volumes and an improved mix. Sales of air conditioners were considerably lower than last year, however, and operating income in this product area showed a marked downturn. Demand for core appliances in Brazil declined and sales for the Group's appliance operation were lower than last year. Operating income showed a considerable downturn and was negative, mainly as a result of lower volumes, higher costs for materials and a negative product mix. Income for the Brazilian operation was also negatively impacted by lower exports to Argentina. Sales in both India and China increased over the previous year. Operating income improved in India but declined in China, and was negative in both markets. The Group's Australian appliance operation, which was consolidated as of February 1, 2001, showed a positive trend in sales and operating income. Overall, operating income for appliances outside Europe and North America declined from 2001 and was negative. The market for floor-care products declined in volume in the US, and was unchanged in Europe. The Group achieved higher sales volume in both markets. However, both operating income and margin for the floor-care product line declined somewhat, mainly due to increased price pressure in the US market. Demand for outdoor products for the consumer market in Europe increased over last year due to favorable weather. Sales and operating income for the Group's European operation improved substantially, mainly as a result of higher volumes and implemented restructuring. In the US, the season started slightly later than in 2001. Group sales declined somewhat in volume. Operating income was in line with the previous year. Overall, sales for the Consumer Durables business area were higher than in the first quarter of 2001. Operating income and margin improved. Professional Indoor Products Demand for food-service equipment in Europe was lower in several of the Group's major markets. Sales for food-service equipment increased in the Nordic countries, but declined in Germany and other markets. Operating income improved, however, as a result of the divestment of a loss-making operation in the second half of 2001. Sales of laundry equipment were largely unchanged, with lower volumes in Western Europe and higher volumes in Scandinavia and the US. Operating income improved. Demand for compressors continued to be weak. The Group reported a slight increase in sales volume, however. Operating income showed a marked improvement from a low level in the previous year, as a result of implemented restructuring and the launch of a new compressor within the European operation. Total sales for Professional Indoor Products declined from the previous year, mainly due to divestments. Operating income and margin improved somewhat for comparable units. Professional Outdoor Products Demand for professional chainsaws showed an upturn in Europe, but declined in the US. Total Group sales of chainsaws increased over last year. Pre-seasonal sales of lawn and garden equipment for the professional market were lower than in 2001, while sales of power cutters and diamond tools were largely unchanged. Overall, sales reported by Professional Outdoor Products were in line with the previous year. Operating income and margin increased due to an improved product mix with higher sales of chainsaws. Major changes in the Group As of January 1, 2002 the Group divested the remaining parts of the leisure-appliance product line within the Professional Indoor Products business area. These operations had sales in 2001 of approximately SEK 1,300m and about 1,400 employees. The divestment generated a capital gain of approximately SEK 1,800m. As of January 1, 2002, the Group divested its European home comfort operation, which was part of the Consumer Durables business area. This operation had sales in 2001 of approximately SEK 850m, and about 280 employees. The divestment generated a capital gain of approximately SEK 85m. Ongoing restructuring and cost adjustments The restructuring measures announced in 2001 are proceeding according to plan. The changes refer mainly to operations in components and major appliances, and include plant shutdowns as well as rationalization of sales organizations and administration. During the quarter the Americold compressor plant in Cullman, Alabama was closed. Of the total provision of SEK 3,261m in 2001, approximately SEK 2,019m had been utilized as of March 31, 2002. Savings in the first quarter of 2002 amounted to approximately SEK 159m. Changes implemented to date have involved personnel cutbacks of approximately 2,300, of which approximately 1,240 in the first quarter of 2002. Provisions in 2001, SEKm Utilized Savings Estimated savings Provisio up to in Q1 2002 2003 n Q1 Major appliances, Europe 997 279 22 206 552 Floor care, Europe 19 16 - 9 17 Garden products, Europe 157 75 12 51 96 Major appliances, North America 114 13 24 157 210 Major appliances, Rest of the 40 10 4 38 47 world Total Consumer Durables 1,327 393 62 461 922 Food-service equipment 168 153 20 89 89 Components 1,710 1,438 70 273 343 Other 56 35 7 33 36 Total 3,261 2,019 159 856 1,390 Parent company Net sales for the parent company, AB Electrolux, for the first quarter of 2002 amounted to SEK 1,730m (1,808). Income after financial items was SEK 1,676m (-81), including dividends from subsidiaries in the amount of SEK 1,658m (400). Capital expenditure was SEK 30m (32). Liquid funds at the end of the period amounted to SEK 2,941m (4,500) as against SEK 4,281m at the start of the year. Proposed dividend The Board of Directors proposes a dividend for 2001 of SEK 4.50 (4.00) per share, for a total dividend payment of SEK 1,483m (1,365). The proposed dividend corresponds to 41% (30) of net income per share for the year 2001, excluding items affecting comparability. Proposal for cancellation of shares to enable additional buybacks The Board will propose that the Annual General Meeting approve a new share-repurchase program and the cancellation of previously repurchased B shares, excluding shares required to meet obligations under the Group's personnel stock-option programs. The proposal for cancellation of shares will enable additional repurchasing of own shares. The proposal indicates that a maximum of 10% of the total number of shares may be repurchased and that shares in possession may be sold. The purpose of the cancellation and additional buybacks is to continually maintain the capability to adapt the capital structure to the needs of the Company, thereby contributing to increased shareholder value, or to use the repurchased shares for financing potential corporate acquisitions and the personnel stock-option programs. Outlook The outlook for the year remains unchanged. Market demand in 2002 is expected to be generally flat compared with the previous year in both Europe and North America. However, there is still uncertainty regarding consumer confidence and spending, particularly in North America. Notwithstanding the above expectations for flat market demand, on the basis of the previously announced internal restructuring the Group should achieve an improvement in operating income and value creation for the full year 2002, excluding items affecting comparability. Stockholm, April 18, 2002 Michael Treschow President and CEO ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/04/18/20020418BIT00830/wkr0001.doc The full report http://www.waymaker.net/bitonline/2002/04/18/20020418BIT00830/wkr0002.pdf The full report