Preliminary Report on 1998 Operations

PRESS RELEASE FROM ESSELTE AB February 10, 1999 Preliminary Report on 1998 Operations * Esselte's income before tax was SEK 1,147 m. (413). * Sales increased 6 percent to 13,721. * Income per share was SEK 18.00 (6.50). ESSELTE GROUP Sales Sales of the Esselte Group in 1998 totaled SEK 13,721 m. (13,001). Adjusted for changes in currency rates, sales increased 3.4 percent. Fourth-quarter sales was flat, based on comparable exchange rates and compared with the corresponding quarter last year. Earnings Income before tax was SEK 1,147 m. (413). Income included items affecting comparability totaling SEK 491 m. (-174). Excluding these items, income increased 12 percent. Income before tax excluding items affecting comparability in the fourth quarter increased 12 percent to SEK 190 million (169). Income after tax for the full year was SEK 615 m. (222). Income per share was SEK 18.00 (6.50). Profitability and cash flow Return on capital employed was 23.2 percent (10.1). Excluding items affecting comparability the return on capital employed was 13.8 percent. Return on shareholders' equity increased to 19.7 percent (7.4). Cash flow from operations, before acquisitions and divestments, totaled SEK 480 m. (1,208). Acquisitions and divestments affected cash flow in the amount of SEK 2,467 m. (212). The equity/assets ratio declined to 26.8 percent (40.5) as a consequence of acquisitions. Debt/equity ratio increased to 1.1 (0.4). Net financial items and tax expenses Net financial expense was SEK 68 m. (net expense of 41). Financial expense increased since previous gains on hedging contracts have decreased in amount and because of additional financing needs for acquisitions (Leitz and CoStar). 2 The effective tax rate for operations was 45 percent of income before tax, excluding items affecting comparability. In addition, income was charged with SEK 180 m. in tax expenses related to the sale of Nielsen & Bainbridge, and with SEK 58 m. in expenses for implementing changes to the Group's legal structure. Structural changes in the Group Esselte continues to focus and streamline operations. The sale of Nielsen & Bainbridge was finalized at year-end, resulting in a pretax capital gain of SEK 491 m. Nielsen & Bainbridge is not included in the consolidated balance sheet as per December 31, 1998. The cash portion of the payment for Nielsen & Bainbridge is reported in the year-end financial statements as a financial receivable. These funds were received in January and have been used to reduce Esselte's financial liabilities and have increased the Group's equity/assets ratio to 29 percent as a result. The previously announced change to the legal structure of the Esselte Group was essentially completed in the fourth quarter and the Group now consists of two independent subgroups, Esselte Office Products and Meto. The plan to demerge Meto is continuing on schedule. After the demerger, Esselte will consist of Esselte Office Products and parts of the present head office functions in the Parent Company. 3 ESSELTE OFFICE PRODUCTS Esselte Office Products (EOP) is a world-leading provider of solutions for improved office productivity and efficiency. The three regional divisions that comprised the Office Products operations of the Esselte Group were transformed into a global company in 1998. An effective organization for increased growth has been created as a result. A number of key people have been recruited to strengthen the company. The SEK 227 m. restructuring program that was approved in the autumn of 1997 is being carried out according to plan. Two strategically important acquisitions were made during the year, Leitz and CoStar. Leitz is Germany's leading office products producer with a strong and established brand name in Central Europe. As a result of the acquisition, Esselte is now the world's largest supplier of office products with a dominant position in Europe. Substantial cost synergies are being achieved through the coordination of Esselte's and Leitz's operations. CoStar is a U.S. company that develops systems to produce office labels with personal computers. CoStar's operations have been integrated with the Dymo product area, which has been supplemented with new products and technological development capacity as a result. Sales EOP's sales totaled SEK 9,110 m. (8,715). Sales increased more than 3 percent, based on comparable exchange rates. Sales in the fourth quarter increased to SEK 2,508 m. (2,396). Leitz has been consolidated since December 1, 1998 and contributed SEK 222 m. in sales in December. Based on comparable exchange rates and units, fourth-quarter sales decreased 6 percent, compared with the corresponding period last year. Based on comparable exchange rates, sales increased more than 10 percent in 1998 within the product categories Identification Labeling and Presentation Products, and 6 percent in Organization and Filing Products while Computer Products decreased 3 percent. In Computer Products, the Curtis range showed growth, while traditional paper-based products decreased, relative to 1997. Sales in non-core areas decreased more than 20 percent, as planned, due to disinvestments and other measures. Sales increased strongly in Southern Europe and Eastern Europe. Sales in North America increased less than last year. Sales decreased in Asia. Earnings Operating income increased to SEK 422 m. (242). Adjusted for items affecting comparability, income in 1998 was 4 percent higher. The ongoing rationalization program has had a positive impact on income, while lower earnings in Computer Products had a negative effect. Operating income in the fourth quarter was unchanged, compared with last year. The consolidation of Leitz had a neutral effect on income. The operating margin in 1998 was 4.6 percent (4.7). EOP's return on capital employed was 12.6 percent (12.8). 4 METO Meto is a leading worldwide provider of intelligent labeling solutions to improve customer sales and processes. During the year Meto continued its cost reduction and capital rationalization program that has been in progress during the past few years. Meto continued to increase its market penetration and sales in the growth areas Barcoding Systems and Anti-theft Systems. The plan to develop Meto into an independent company was implemented during the year and Meto now has a clearly defined strategy, good profitability and the appropriate management structure. Four acquisitions were made during the year to complement operations. Sales Sales increased 7 percent to SEK 3,142 m. (2,956). Sales increased 5 percent, based on comparable exchange rates. Fourth-quarter sales increased to SEK 851 m. (800). Within Meto's product categories, Barcoding Systems sales increased 9 percent and Anti-theft Systems sales 16 percent. Hand-held Price Marking decreased 4 percent, which was at a lower rate than before. Sales increased in all countries except Germany, where sales were largely unchanged. Earnings Operating income increased 30 percent to SEK 226 m. (177). The sharp increase in income was mainly attributable to strong sales with good margins in Anti- theft Systems and Barcoding Systems, together with a favorable trend of sales in Hand-held Price Marking. Operating income increased to SEK 66 m. in the fourth quarter (46). The operating margin for the full year increased to 7.2 percent (6.0). The steady improvement in profitability continued in the fourth quarter and Meto's return on capital employed was 23.9 percent in 1998 (18.0). Stockholm, February 10, 1999 Jan Kvarnström President and CEO 5 Auditing The Company's auditors have not examined this report. Definitive report on 1998 operations The definitive report for the full year 1998 is expected to be released on March 10, 1999. 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 these matters. All shareholders are invited to submit their proposals or views to Arne Karlsson, Ratos AB, Box 1661, SE-111 96 Stockholm, Sweden. For further information please contact Bengt Wikander, Senior Vice President, Corporate Communications, at Esselte AB. Phone +46 8 545 21 900 (switchboard), +46 8 545 21 904 (direct line) or +46 708 92 24 31 (mobile phone). Attachments: Tables, 2 pages. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/02/10/19990210BIT00260/bit0001.doc http://www.bit.se/bitonline/1999/02/10/19990210BIT00260/bit0002.pdf http://www.bit.se/bitonline/1999/02/10/19990210BIT00260/bit0003.xls Tables