Solid growth in Europe and North America
Electrolux AB has reported strong results for its Major Appliances and Professional Products division in the 2016 Annual Report with operating margin improved to 3.9% (3.2) excluding costs related to the uncompleted GE Appliances acquisition.
The company said that while weak demand in emerging markets had impacted earnings, all business areas showed mix improvements during 2015 as a result of launches of new products and a strong focus on the most profitable product categories. Price increases also contributed to organic sales growth of 2.2%.
The operating income amounted to SEK 2.7 billion and includes costs for the not completed acquisition of GE Appliances of SEK 2 billion. Excluding these costs, the Group achieved an operating margin of 3.9%.
President and CEO Jonas Samuelson said, “We continued to generate a good cash flow of SEK 7.5 billion. Excluding the costs related to GE Appliances, the operating cash flow was SEK 9.5 billion.”
In 2015, he said that two of the company’s most successful launches were a new family of appliances in Australia under the Westinghouse brand and a new washing machine, myPRO, adapted to smaller businesses. In Europe, Electrolux introduced the world’s first connected steam oven.
A spokesperson for Electrolux Australia and New Zealand, told Appliance Retailer today that managing director Mike Putt, was invited to address the Capital Markets Day on Feb 28 audience on the continued success of the Australian operations. “This was the first time that this has happened since Electrolux acquired the Australasian major appliances business (Feb 2001) and was acknowledgement of how the Australasian operations continually ‘punch above their weight’ in terms of per capita sales and EBIT. It was also acknowledged for its maintenance of market leadership (40%) in major appliances despite the continual entry of new competitors.
Mixed performance
In Asia/Pacific, the company took actions to exit unprofitable segments and categories in China. At the same time, it said it was “encouraging to note that Australia, its fourth largest market, continued to generate good earnings and margins.”
The company’s European operations showed good organic growth in 2015 driven by higher volumes and an improved product mix while continued cost savings contributed to earnings. Demand for appliances grew in all markets in Western Europe. Most markets in Eastern Europe, outside of Russia and Ukraine, also showed positive growth.
The Western European market is expected to grow by 2–3% in 2016 and the market in Eastern Europe by approximately 2%, although the development in Russia and Ukraine remains uncertain. In North America, improved price/mix and higher volumes contributed to earnings.
However, the transition of refrigerators and freezers to comply with new energy requirements continued to have a negative impact in the first half of 2015, although profitability was restored during the latter part of the year.
The US market remained healthy and demand for appliances increased by more than 6%. The company now expects the market to remain solid in 2016 and forecast demand to grow by 3–4%. Earnings in Major Appliances Latin America were significantly affected by the weak macro-economic environment in Brazil and demand for appliances fell sharply. To mitigate these market conditions and currency headwinds, Electrolux continued to increase prices and to take cost actions. Other markets in Latin America, including Argentina, showed positive growth. Electrolux said it expects the Brazilian market to remain weak in 2016.
The operating income amounted to SEK 2.7 billion and includes costs for the not completed acquisition of GE Appliances of SEK 2 billion. Excluding these costs, the Group achieved an operating margin of 3.9%. “We continued to generate a good cash flow of SEK 7.5 billion. Excluding the costs related to GE Appliances, the operating cash flow was SEK 9.5 billion,” Samuelson said.
Cost reduction program in Small Appliances
During the latter part of 2015, the company initiated a cost reduction program within the Small Appliances business area with the aim of restoring profitability. It said that operations had been negatively impacted by lower volumes in several key markets and severe currency headwinds. Samuelson said he expected these actions to reach full effect from end of 2016, with estimated annual cost savings of SEK120m.
Improved mix and lower costs
In 2016, Electrolux said it would continue to launch new product ranges with innovative features and designs, with the goal of being a leader in providing consumers with great experiences from the products and services it provides. Furthermore, work to strengthen cost competitiveness through continuous improvements and a higher degree of common platforms continues.
“These are important areas for future profitable growth for Electrolux, Samuelson said.
Acquisition of GE Appliances not to be completed
In September 2014, Electrolux announced an agreement to acquire GE Appliances from General Electric (GE). However, in December 2015, GE took the decision to terminate the agreement.
“Although we are disappointed that the acquisition is not being completed, we are confident that the Group has strong capabilities to continue to grow and develop the position as a global appliance manufacturer. Electrolux will continue to grow profitably, supported by a strong balance sheet and good cash generation,” Samuelson said.
Sustainability high on the agenda
High performance in all areas of sustainability will be an enabler for business success. “For instance, when developing new products, focus is not only on design and features but also on consumer requirements in relation to energy and water efficiency,” he added.
Well positioned ahead of 2016
Electrolux said it would continue to increase its focus on providing consumers a “great experience”.
“The accelerated digitization of consumers’ lives gives rise to new requirements and opportunities in how we market, sell and distribute our products. It also creates new opportunities to give consumers a better experience from their products over time through, for example Smart Connected Appliances.
“We will also continue to improve operational excellence, with focus on cost, quality and flexibility through, for example, modularization of product designs and automation of manufacturing processes.
“Finally, I would like to thank my predecessor Keith Mcloughlin for his great contributions throughout his years in Electrolux. I am now taking on the role as President and CEO, and I am confident that Electrolux will achieve its vision, with the contribution from 58,000 dedicated employees globally, to be the best appliance company in the world as measured by our customers, employees and shareholders,” Samuelson concluded.