Preliminary report on 2000 operations

PRELIMINARY REPORT ON 2000 OPERATIONS * Operating Income recovered substantially to SEK 451 million compared with a reported operating loss of SEK 131 million last year * Operating income before depreciation was SEK 924 million (585). Income after tax was SEK 164 million (-231). * Strong sales growth in Americas and in Eastern Europe compared with 1999. Sales increased for all major product categories in 2000. * Restructuring has been accelerated and the larger part of the costs for this, as projected in the beginning of 2000, has been charged to income. * Earnings per share increased to SEK 4.80 (-6.70). * Sales growth for Identification Labelling and Workspace was more than 15% in fourth quarter compared with 1999. "Having concluded year 2000 with a strong fourth quarter, we have now raised the profit level in Esselte substantially. The focus going forward is on capturing the further potential of financial improvement that exists. We are now accelerating actions in that direction" comments Anders Igel, President and CEO. Results for fourth quarter Operating income for the quarter increased by 45% to SEK 190 million. Operating income previous year was SEK 131 m before restructuring items and SEK -184 million after restructuring costs. Sales for the fourth quarter were SEK 2,964 million (2,901), an increase of 2.2%, compared to the last quarter of the previous year. Change in sales for comparable exchange rates and units was -1.7%. Filing & Document Management's sales in the quarter were flat compared to the same period last year. Identification Labelling and Workspace both had very strong sales growth of more than 15% in the fourth quarter. Newer Esselte markets like Poland, China, Mexico and Portugal continued to report strong sales growth in the quarter. The gross margin was 27.6% (28.5%) in the fourth quarter. The decrease is explained later in the release under Europe. Sales and marketing expenses were down by 8% compared to last year. Administrative expenses decreased by 12% due to continuing efforts to reduce these costs at both operational and headquarter levels. Results for the full year Strong sales growth in North America Sales for the year were SEK 11,095 million (11,192) representing a decrease of 0.9%. Divested units in the UK, USA, Sweden and Belgium decreased sales by 2.4% while changes in currency rates had a positive impact of 1.8%. Change in sales for comparable exchange rates and units was -0.3% compared to last year. Sales in the USA and Canada increased strongly in 2000. The operations in the Nordic countries, France and Australia had a weak development in sales. The gross margin was 27.5% (26.8%). The increase was among other things due to improved product mix. Turnaround of Operating Income Operating Income was SEK 451 million in 2000 which is in line with the Group's internal objective for improved results in 2000. The 1999 operating income of SEK-131 million was affected by restructuring costs of SEK 383 million. Selling and marketing expenses decreased by 3% compared to previous year while administrative expenses decreased by 11%. Operating income includes goodwill amortization and depreciation on goodwill allocated to fixed assets in relation to the acquisition of Leitz of a total of SEK 171 million (382). Depreciation on goodwill allocated to fixed assets is included in cost of goods sold with SEK 77 million (68). Operating income before depreciation was SEK 924 million, an increase of SEK 339 million compared to 1999. The operating margin was 4.1% (-1.2%) for the year. Items affecting comparability Esselte received in cash SEK 42 million from pension surplus funds from SPP (Swedish Staff Pensions Society) in September. Further surplus funds of SEK 146 million were sold externally in December at a price of 86% of the nominal value or SEK 125 million. The remaining SEK 22 million has been discounted to SEK 18 million. Total income from SPP's surplus funds is SEK 185 million. Accruals of SEK 35 million related to divestments in previous years have been released. In 2000, items affecting comparability include costs of SEK 224 m for restructuring of the European supply chain. The net impact of items affecting comparability is SEK -4 million. Restructuring of European supply chain accelerated and larger part of costs taken The company indicated in the beginning of 2000 an estimate of future restructuring costs and costs for divestitures of non-performing businesses in the range of SEK 300 - 500 million to be taken in the next 3-5 years. These restructuring programmes have been accelerated and will not last longer than an additional 2 years. The costs associated therewith will be in the lower range, and the larger part has already been charged to income. Income before and after tax Income before tax was SEK 274 million (-228). The net financial expenses include non-recurring hedge gains of SEK 45 million (40) and a capital gain of SEK 5 million from divestments of shares in the listed company iManage. The hedge gains are a consequence of Esselte's decision to discontinue the practice of hedging equity in foreign currencies. All equity hedge contracts have now been settled. Income after tax was SEK 164 million compared with SEK -231 million last year. Cash flow The cash flow from operations was SEK 647 million (405). The working capital for the Group increased by SEK 177 million mainly due to decreased accounts payables which was only partly compensated by reduced accounts receivables. The gross investments have decreased from SEK 399 million in 1999 to SEK 265 million mainly due to reduced investments in intangible assets. The Swedish krona weakened during 2000 with 12 % against the US-dollar and with 2 % against the Euro. In an Esselte-weighted currency rates index for capital employed, the weakening was 4%, resulting in an increase of capital employed of SEK 233 million. Very strong development in Americas Profit margins in the USA have developed positively due to more balanced prices and discount programmes with the large customers. Volumes have developed favourably and so far the change in the US economy has not had any major effect on our volumes. In addition substantial cost savings have been made in the production units. A new factory in Mexico has been opened. Earlier profitability problems in the Canadian market have been resolved. The Australian subsidiary showed profit problems during 1999 which have been partly resolved through a cost cutting program successfully implemented during 2000. Europe, further improvement potential The Dutch and Belgian subsidiaries have continued their strong development in profitability. A lower than expected sales in Germany have led to over capacity in the production units with a negative impact on operating income. Cost reduction programmes are underway to rectify the situation and one factory has been closed during the year. These activities in Germany and other countries are expected to have a positive impact on the company's cost base going forward even if the 4 th quarter gross margin was negatively impacted by supply chain disturbances in connection with rationalisation activities. The Austrian subsidiary has been able to turnaround its profitability through cost reductions. Monti in Belgium was divested since it did not belong to the Group's core business areas. The Scandinavian markets showed a lower volume development than expected during 2000. A cost reduction potential exists in the Scandinavian operations. Profitability in the Finnish subsidiary during 2000 has substantially improved. Profitable growth in the eastern European markets has continued and there has been a strong increase in efficiency in the Polish factory. A new start up operation in Russia has been launched. The French subsidiary had in 1999 and in the beginning of 2000 severe logistical problems with lost sales as an outcome. The logistical issues have been resolved and confidence with customers has been restored. In aggregate the European factories show at the end of 2000 record figures in terms of delivery service level to customers. The Spanish operation has continued its profitable sales development while the Italian volumes have been flat. The Turkish operation commenced the year strongly but growth suffered in the 4 th quarter due to the rapid deterioration in the Turkish economy. In the UK a substantial cost reduction program was initiated during 2000. One factory has been divested to one of our major suppliers and further cost reductions are being implemented during 2001. The UK subsidiary has also renegotiated a number of customer contracts and exited unprofitable products business. In the beginning of 2000 Esselte's organisation was changed into a profit centre organisation with clear objectives and incentive schemes tied thereto. Positive effects from this change have been seen in many areas including cost reductions and accountability in the supply chain units. Product categories Filing & Document Management Sales grew by 2% to SEK 6,523 million (6,368). The sales growth was very good in the USA, Canada, Belgium, Poland and Mexico while the sales development in France, UK and Australia were weak. File folders and suspension filing reported healthy sales growth. Identification Labelling Sales of Dymo branded products grew by 7% to SEK 1,372 million (1,287). Canada, USA, Germany and UK reported the highest sales growth. The markets in the Nordic countries and Italy had a lower than expected development of sales. Sales of PC driven Label Writers grew by 26%. Consumer products were held back to a modest 4% growth as the primary focus was put on more profitable professional products. Dymo launched somewhat delayed, a full new model program during 2000. These products have been well received in the distribution channels and will be included in relevant customer catalogues in 2001. Workspace Workspace includes products such as staplers, perforators and moulded plastics. Sales increased by 2% to SEK 800 million (783). Sales were flat in the two largest markets Germany and Spain while Belgium, Denmark, Poland and Italy had high sales growth for the year. Development categories The two development categories are Binding & Lamination and Curtis Computer Products. Combined sales for development categories were flat at SEK 479 million (481). However Binding and Lamination developed well with 20% sales growth. Curtis sales decreased by 6% compared to 1999 although with substantially improved operating results. Other products Other products include traded articles and the separate businesses such as Bensons, Letraset and Tarifold. Sales decreased to SEK 1,921 million (2,273) due to divestments and exit in product categories with low margin. Divestments in 1999 and 2000 have reduced sales by SEK 277 million. Esselte is the leading provider of office supplies world-wide. A global group with annual sales exceeding SEK 11 billion, subsidiaries in 31 countries, selling office products in over 100 countries and employing approximately 6 000 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. For further information please contact: * Anders Igel, CEO +46 70 5191378 * Ulrik Svensson, CFO +44 1895 878770 Attachment: Tables, 2 pages ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/01/24/20010124BIT00840/bit0001.doc http://www.bit.se/bitonline/2001/01/24/20010124BIT00840/bit0002.pdf The full report http://www.bit.se/bitonline/2001/01/24/20010124BIT00840/bit0003.xls Figures