Esselte Preliminary Report on 1999 Operations

Press Release from ESSELTE AB January 20, 2000 Preliminary Report on 1999 Operations (Comparisons for 1998 exclude the divested businesses of Meto and Nielsen & Bainbridge) * Esselte's Operating Income before restructuring items was SEK 253 m (344). * Restructuring items of SEK 383 m included in 1999. * Loss per share was SEK -7.00. * SPP surplus funds of SEK 210 m are allocated to Esselte. Sales Sales in 1999 totalled SEK 11.192 m (9.110). The growth was due to the acquisition of Leitz in November 1998. For comparable units and adjusted for changes in currency rates sales decreased by 1.3 percent. Fourth quarter sales grew by 1.4 percent for comparable units and currency rates. The business area Identification Labelling grew by 27% for the full year as a result of the successful launches of the Dymo Letratag and the Dymo PC Labelwriter. Esselte's largest area, Filing & Document Management grew by 37 percent. Excluding Leitz, sales were flat. The Computer Products business area's sales were disappointing, 29 percent below 1998. Sales continue to grow strongly in Eastern Europe while Esselte's three largest markets USA, Germany and France recorded only modest organic growth over last year. The gross margin on sales continued to improve quarter by quarter during 1999. For the full year the margin was 26.8 percent, an improvement over 1998 by 2.0 percentage units. The improvement is due mainly to favourable product-mix development and cost-rationalizaton in the supply chain. Restructuring Items The full year 1999 includes restructuring items as earlier forecasted of SEK 145 m and additional items of SEK 238 m. The additional items include goodwill write-offs of SEK 168 m and a provision for expected redundancies of SEK 70 m. The total for restructuring items in 1999 are SEK 383 m, whereof SEK 197 m are included in Items affecting comparability and SEK 186 m are included in operating expenses. Earnings Operating income before restructuring items was SEK 253m (344), a 26 percent decrease on 1998. After restructuring items the operating loss was SEK -130 m (344). Loss before tax was SEK -225m. Excluding the additional restructuring of SEK 238 m the income before tax was slightly positive which is in line with the earlier communicated expectation. Cash flow and Financial Items Cash flow from operations remains healthy at SEK 267m. Net financial expense was SEK 95m (68), including a non-recurring positive effect of the Meto - divestment of SEK 40 m. The increase over last year is a result of Esselte's acquisition of Leitz for cash. Overfunded pensions in Sweden Esselte has been notified by SPP (Swedish Staff Pension Society) that SEK 210m of SPP's surplus funds has been allocated to Esselte companies. The amount represents excess pension premiums paid to SPP in prior years. The timing and conditions regarding use of the allocated funds have yet to be determined. Esselte's 1999 financials do not include this refunding. Auditing The company's auditors have not examined this report. Definitive report on 1999 operations The definitive report for the full year 1999 is expected to be released on February 16, 2000. Nomination of board members To activate and facilitate the nomination of board members and auditors for the upcoming Annual General Meeting , as well as their proposed compensation, the board has appointed Arne Karlsson, President of Ratos AB, as the, contact person for those matters. All shareholders are invited to submit their proposals or views to Arne Karlsson, Förvaltnings AB Ratos, Box 1661, S-111 96 Stockholm, Sweden. For further information please contact: Anders Igel, CEO +44 (0)1895 878 711 or +46 70 519 1378 Mats Lönnqvist , CFO +44 (0)1895 878 770 or +46 70 591 5563 Esselte is the leading provider of office supplies word-wide. A global group with annual sales exceeding 11bn SEK, subsidiaries in 31 countries, selling office products in over 100 countries and employing over 7,000 people. Esselte brings innovation, efficiency and style to the way people work in the office and at home. Our principle brands are: Dymo; Pendaflex; Leitz and Curtis. Esselte AB is listed on the Stockholm and London stock exchanges. To learn more about Esselte, visit our website at www.esselte.com. Press Release from Esselte AB January 20, 2000 The new CEO Anders Igel comments on the 1999 Preliminary Results and on Esselte Strategy going forward * Underlying results for 1999 in line with forecast - short term priority to restore profits in 2000 * Become No 1 or 2 in all categories addressed - more attention to growth business and divestment of sub-critical business * Increased business control by well-defined profit centers * Further major restructuring of European supply chain to continue when profits restored * Leverage the web to improve market position and reduce transaction costs The preliminary 1999 result is an operating income of MSEK 253 before restructuring items. After the earlier identified restructuring initiatives of MSEK 145 the income before tax, MSEK 13, is in line with the forecast. Sales in total decreased for comparable units, however, Dymo business grew by more than 20%. Sales in filing and document management were in line with market development. During 1999 sales did not increase according to plans and in relation to this marketing expenses increased too early. When taking up the position of CEO within Esselte on Nov 1, I initiated a thorough review across the Group, resulting in an additional restructuring charge of MSEK 238 in 1999 related to goodwill write-off and redundancies. The review also resulted in a refinement of the Esselte strategy going forward. Focus on restoring profits The year 2000 will be a year of consolidation with short-term priority on restoring profits in Esselte. Further major restructuring of European manufacturing and logistics will be postponed. Acquisitions will, in most cases, not be considered initially. Marketing expenses will not continue to increase until our profit level allows improves. Focus will be on launching new products in the pipeline based on investments in 1999, the number of new products being three times larger than any year during the last five years. Corporate and other operating expenses will be trimmed down as a result of simplified and decentralised responsibilities. Focus will be on execution and delivery of results. Dymo and Workspace growth areas No major change in strategic direction will occur. However we will focus our business more than before. Ultimately we should be No1 or 2 in all categories that we address. In doing this we will move towards higher margin categories. This means that we will divest non-core, sub-critical or non-performing businesses in specific categories and countries. As soon as our profit level allows, our ambition is to lead the restructuring of the Office Supplies industry to become a larger player dominating in our categories with branded products. The global Dymo business has significant growth opportunities and is given more independence to allow it to better capture such opportunities. The global Leitz and Esselte branded businesses in desktop moulded plastics, perforators and staplers - together named Workspace, have also good growth opportunities. Workspace will integrate traditional and computer related moulded plastics categories. Both Dymo and Workspace will be managed for growth, with a minimum required profit level, while the traditional filing and document management business, which is growing only nominally, will be managed to maximize profitability. Esselte managed by profit centers Current responsibilities within Esselte are simplified by removing the matrix organisation, replacing it with well-defined profit centers, to which responsibilities are decentralised. As a result corporate headquarters and services will be slimmed down to focus on strategic direction, control and value added services. The profit centers are the country based operations, Dymo, Workspace and other global businesses. Marketing, R&D, manufacturing and logistics are included in these profit centers. Global account customers increase in importance and will be given more attention to secure a positive development of sales and profits for Esselte. Global account managers will provide major European or global accounts with a single interface to Esselte. Further major restructuring of European manufacturing and logistics, beyond the Leitz integration programme, will resume when we have demonstrated an increased profit earning capability. We estimate that the costs for such restructuring and for divestiture of non-performing business will amount to MSEK 300-500 within the next 3-5 years, which will be managed to steadily improve profits. Web opportunities Ultimately the whole Office supplies industry will be re-engineered by internet technology both in the interface to customers as well as in the internal processes. Web-enabling of Esselte is a major element of our strategy. Most important is web-based business with existing distributors to improve our market position, complemented by direct sales to end users in selected cases and in agreement with our existing distributors. The top management team will focus on delivery of results, with a short- term priority to restore profits followed by a more balanced priority, steadily improving profits further. This team will have a long-term incentive program linked to the Esselte share price and a bonus arrangement for 2000 related to achieving a quick return to restored profits. For further information please contact: Anders Igel, CEO +44 1895 878711 or +46 70 519 1378 From Sweden, alternatively 020 021 4796 Esselte is the leading provider of office supplies world-wide. A global group with annual sales exceeding 11bn SEK, subsidiaries in 31 countries, selling office products in over 100 countries and employing over 7,000 people. Esselte brings innovation, efficiency and style to the way people work in the office and at home. Our principal brands are: Dymo; Pendaflex; Leitz and Curtis. Esselte AB is listed on the Stockholm and London stock exchanges. To learn more about Esselte, visit our website at www.esselte.com. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/2000/01/20/20000120BIT00430/bit0001.doc http://www.bit.se/bitonline/2000/01/20/20000120BIT00430/bit0002.pdf