Electrolux: First Quarter Report, 2002 (with link)


STOCKHOLM, Sweden, April 18, 2002 (PRIMEZONE) -- Electrolux (Nasdaq:ELUX):


 Amounts in SEKm,                           First      First   Change
 unless otherwise stated                  quarter    quarter
                                             2002       2001
 Net sales                                 33,580     33,670    -0.3%
 Operating income(1)(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 items(1)(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, SEK(3)                9.00       3.10    +190%
 Net income per share, excl. items                                   
 affecting comparability, SEK(2)(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
                          Provision  up to Q1    in Q1  2002    2003
 
 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 world           40         10        4      38      47
 
 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.

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The following files are available for download:


 www.waymaker.net/bitonline/2002/04/18/20020418BIT00830/wkr0001.doc
 The full report

 www.waymaker.net/bitonline/2002/04/18/20020418BIT00830/wkr0002.pdf
 The full report


            

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