Report on operations for the six months ended June 30, 2000

Report on operations for the six months ended June 30, 2000 * Successful turnaround in the second quarter from an operating loss of SEK -7 million in 1999 to a profit of SEK 45 million in 2000 * Continued strong sales in Esselte's largest market USA * Cost containment activities decreased second quarter selling expenses by 7% and administration expenses by 13% * Operating income for the first six months increased by 81% to SEK 205 million (113) * Earnings per share for January-June increased by 73% to SEK 2.60 (1.50) Sales Total sales for the first six months amounted to SEK 5.486 million (5.699) as a result of Esselte's strategy of divestments and discontinuation of businesses, products and contracts not belonging to the core activities or not meeting the profitability criteria. The total decline of 3.7% also included a 0.6% negative currency effect. The two largest core product categories, Filing & Document Management and Identification Labelling grew in the first half of 2000 by 1.9% and 3.8% respectively. Sales in the US continued to grow strongly in the second quarter, compensating for softness in some European markets. Markets with solid sales growth over 10% for the first half of 2000 were in order of magnitude USA, Canada, Poland, Turkey, China, Mexico, Hungary, Portugal, Czech Republic and Brazil. During the second quarter, Esselte established a business presence in Russia with growing sales. The gross margin on sales in the second quarter was 27.7% (26.1%). This is the seventh consecutive quarter with improvement over the corresponding quarter last year. The gross margin of the second quarter is lower than that of the first quarter due to the seasonality of Esselte's sales with lower sales in quarters two and three than in quarters one and four. Operating income The operating income improvement of 81% to SEK 205 million (113) is in line with Esselte's internal objective for the first half of 2000. It is a step towards the short-term objective to restore profits in Esselte and it has been achieved without the benefits of overall organic sales growth. The combination of improved gross margin and cost containment regarding operating expenses led to a significant improvement in operating income for the second quarter from a loss of SEK -7 million in 1999 to a profit of SEK 45 million in 2000. Selling and marketing expenses are down by 7% and administrative expenses are down by 13% compared to the second quarter 1999. Compared to the first quarter 2000, selling and marketing are down 8% and administration 3%. These are net savings including the redirection of resources to the Dymo division and Esselte's web initiatives, where the spending is considerably higher than last year. The capital gain from the divestment of ITC was included in the first quarter with SEK 18 million. In the second quarter the divestment of the accounting book-product line in Germany resulted in a capital gain of SEK 12 million. Non-recurring cost items of SEK 28 million are also included in the other operating expenses of the second quarter. The main items are write-off of a warehouse system in France and write-offs and rent provisions for properties in the UK. The operating income for January-June after goodwill amortization of SEK 77 million corresponds to an operating margin of 3.7% (2.0%). Items affecting comparability Surplus funds from SPP (Swedish Staff Pension Society) have been allocated to Esselte companies in Sweden. Esselte include these funds in the P&L according to the recommendation of the Swedish Financial Accounting Standards Council at a discounted value of SEK 168 million. Of that amount, SEK 42 million are expected to be paid in cash to Esselte by SPP during the third quarter 2000. The SEK 168 million are included in the balance sheet as financial assets. As earlier communicated, the further restructuring of European manufacturing and logistics beyond earlier established programs will resume when Esselte has demonstrated an increased profit earning capability. The total costs for such restructuring and for divestment of non-performing businesses are expected to amount to SEK 300 - 500 million within the next 3 - 5 years. This will be managed in the context of steadily improving profits. In the second quarter a provision of SEK 168 million pertaining to the accelerated restructuring of the European supply chain has been included. This provision forms part of the above SEK 300 - 500 million. The SEK 168 million are included in the balance sheet as operating provisions. Income before tax Income before tax for the first half of the year was SEK 148 million (93), an improvement by 59%. The net financial expenses for the second quarter included SEK 25 million non-recurring hedge gains. The first quarter included similar hedge gains of SEK 20 million. In the first half of 1999 hedge gains of SEK 40 million were included. All the above hedge gains resulted from Esselte's decision to discontinue the practice of hedging equity in foreign currencies and the subsequent closure of outstanding hedges. The last of these contracts were terminated during the second quarter and there will be no future gains or losses of this kind. Cash flow The cash flow from operations was SEK 253 million (341). The main reason for the decline is increased working capital, especially higher inventories. This is addressed by a capital rationalization effort being initiated by management. Product categories Filing & Document Management Sales for the second quarter grew by 3% to SEK 1.471 million (1.428). Filing & Document Management sales have grown in line with GDP in most markets with the major exception of the USA where sales of products under the Pendaflex brand developed very strongly. The Filing & Document Management category represents 59% of Esselte's total sales. Identification Labelling Sales of Dymo branded products grew by 4 % during the first half of the year. For the second quarter sales decreased to SEK 305 million (327). The explanation for the decrease is the very high sales of the Dymo Letratag during the launch in the second and third quarters of 1999, which constitutes a tough comparison. The other products within Dymo, and especially the PC LabelWriter, reported healthy sales growth in the second quarter. Identification Labelling accounts for 12% of Esselte's sales. Workspace The workspace products (staplers, perforators, moulded plastics) were affected by the soft market in Germany, which is the largest market for the category. The weak EURO also impacted negatively on sales. The sales in the second quarter increased by a modest 2% to SEK 187 million (183). Workspace sales are 7% of total Esselte sales. Development categories The two development categories are Binding & Lamination and Curtis Computer Products. The small category of Binding & Lamination developed well with 25% sales growth. Continued efforts within Curtis have improved results, which are however still not satisfactory. In the second quarter, sales were marginally down on last year due to planned cancellations of unprofitable contracts and products. Second quarter sales of Development categories increased by 2% to SEK 133 million (130). The Development categories are 5% of Esselte's sales. Other products Among Other products Esselte includes sales of separate businesses such as Bensons, Monti, Letraset and Tarifold. Sales in the second quarter declined to SEK 475 million (594). Divestments in 1999 and 2000 have decreased sales by SEK 44 million. The remaining decrease is due to discontinuation of some traded articles and a declining demand for certain products. 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. For further information please contact: Anders Igel, CEO +46 70 5191378 Mats Lönnqvist+46 70 5915563 Attachments: 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/2000/07/21/20000721BIT00160/bit0001.doc http://www.bit.se/bitonline/2000/07/21/20000721BIT00160/bit0002.pdf http://www.bit.se/bitonline/2000/07/21/20000721BIT00160/bit0003.xls