STOCKHOLM, Sweden, April 18, 2002 (PRIMEZONE) -- Electrolux (Nasdaq:ELUX), speech by Michael Treschow:
Honored Stockholders and Guests,
After five years at Electrolux, this is the last time I'll stand in front of you here at the AGM and talk about our activities. My years here have indeed been eventful.
When I first started at Electrolux, I knew I was dealing with a major corporation. I knew it had strong brands, good products and international presence. With my background in other major corporations, I had a rough idea what this meant. However, it wasn't until I got to know Electrolux better that I grew more and more impressed with its size and position: Electrolux sells almost two products every second -- every tick of the clock, 24 hours a day, year in, year out.
To understand the magnitude, I find it thrilling to reflect on what is happening at this very moment today, in the world of Electrolux.
Our products are in the homes of 400 million consumers. While standing here, talking to you today, 40 million people around the world are opening an Electrolux refrigerator.
Our colleagues at our major refrigerator factory in Changsha, China have gone home a few hours ago. More refrigerators have been sold in China today than in the U.S. One out of every ten comes from Electrolux.
Several thousand Chinese purchased a refrigerator from us today. They've removed the cardboard boxes with the attractive Electrolux logo and installed them in their living rooms. For Chinese, a fridge is considered furniture; they rarely fit in their small kitchens.
In India, our colleagues have also left for the day whereas Electroluxers in Sweden, Italy or Germany are getting ready to call it a day. Just today, about 70,000 consumers in Europe have purchased Electrolux products. They've walked into the shops, viewed the selection, and walked out, having purchased an Electrolux product.
One out of three woodcutters in the world uses Electrolux products.
About half of all the best restaurants in Europe today prepare their food, using Electrolux equipment, and about 25% of all clothes cleaning outfits use Electrolux equipment.
Today, approximately 15,000 consumers around the world are visiting our Websites on the Internet to learn more about our products and company.
At this moment, shoppers are getting ready to start their day on the West Coast in the U.S. In a couple of hours, consumers in San Francisco may select a Eureka vacuum cleaner, a Frigidaire cooker or a PoulanWeedEater chain saw. One out of every five household products purchased in the U.S. is from Electrolux.
In Brazil, there too, it's still morning. And just about now, cleaners are most likely taking out their Electrolux cleaning equipment. More than two-thirds of those who own a vacuum cleaner in Brazil have purchased one from Electrolux.
To make all these products, an enormous amount of material is utilized.
In the space of one day alone, we use over 4,000 tons of steel and about 1,200 tons of plastic in our 109 factories around the world.
I could go on and on, telling you the story of one day in the life of Electrolux.
Holding a strong, global position such as we do is an enormous asset. It is truly an impressive company you own.
At the same time, Electrolux is a different company compared to that of five years ago. In a nutshell, this means that we are
-- more focused -- more effective and -- more profitable
Those operations in the Group lacking potential to become leading or profitable, or not in line with our core areas, have been divested. We have chosen to focus on consumer durables sold via retailers. We also have a number of professional applications, sold through entirely different distribution channels.
One of the main divestments has been that of our Leisure Appliances, concluded at the beginning of 2002. In these past five years, we've sold off operations totaling 26 billion Swedish Kronor. Those businesses where conditions were sub-optimal for becoming a world leader, or were not in line with our core areas, are better left to other owners. In connection with the divestment, over 25,000 of our former employees have new employers. Many now work for companies that have better positions within their respective areas, or that focus on the specific industry.
Consequently, they have greater potential to develop and become profitable.
While having divested a number of operations, our core areas have increased by nearly 50 billion Swedish Kronor. We have expanded both in Professional Products and Consumer Durables. Thanks to more consumers selecting our products, we have grown on the basis of our own strength.
We have expanded by acquiring numerous companies. The main acquisition was that of Email in Australia which we bought in February 2001. This increased our market share to about 50% for major appliances in Australia.
In outdoor products for consumers, major acquisitions were McCulloch in 1999, and Marazzini in 2001. After having acquired a number of companies in outdoor products for professional users, we are not only the world leader in chain saws and trimmers, but also a major supplier of power cutters, diamond equipment and turf care equipment.
We have these past five years, worked very hard on improving the Group's cost structure and productivity.
Consolidation has led to closure of over one-fifth of our factories-33 in all. The creation of an improved product flow allowed us to close down over 50 warehouses. This cost us approximately six billion Swedish Kronor. An unfortunate consequence of this was also the loss of over 21,000 jobs. It has mostly been a painful process, but a necessity for us in order to reduce our cost outfit, allowing us to create a solid base upon which to further build.
Restructuring has, however, saved us nearly eight billion Swedish Kronor so far -- roughly the equivalent of a year's profit. A good yardstick for understanding how productivity has increased in concrete terms, is the sales per employee. We have witnessed an impressive improvement in sales per employee from approximately 1 million, to nearly 1.6 million Swedish Kronor during this five-year period. A number of our competitors have done so likewise.
As a result of this increased focus and streamlining, we have become more profitable. Our operating margin of 4% in 1996 reached 6.5-7% in 2000, spelling achievement of our goal. In the same period, return on equity improved from 8% to 18.5%.
What then happened in 2001? Deterioration of our financial performance in the previous year proves how difficult it is to perpetuate continual improvements. Did the trend change, or is it just a chip in the curve? I think it's just a temporary phase. As you can see on the slide, the trend looks positive for now.
The year 2001 has been a tough one for Electrolux. Profits per share decreased by 16%, to 11.10 Swedish Kronor per share. Our balance sheet however, has never shown stronger signs as it does now. In light of this, the Board therefore proposes that the AGM raise the dividend by 50 ore per share. The total return-the share development added to the dividend -- has on average, been 18% annually. This is striking if you compare to the average total return of the Stockholm Stock Exchange, which, for the corresponding period, was slightly above 13%.
Cash flow has shown a very positive development. This, in conjunction with our strong balance sheet, has contributed to the Board also proposing our continual buyback of shares. Swedish law allows a mere 10% ownership of the shares, which means that a substantial number of shares must be voided. Consequently, the remaining shares will become more valuable -- positive for the stockholders.
Value creation is, as you know, our means of measuring success in the Group. To calculate this, we take operating income excluding items affecting comparability, and subtract the cost of our net assets. You then see that we have created 262 million Swedish Kronor in value in the previous year however, still a sharp drop compared to 2000.
A negative determinant of the previous year was the major costs arising from the phase-in of a new generation of refrigerators in our North American factories. This amounted to a whopping one billion Swedish Kronor over budget. Fortunately, it is operating just fine now, but not without having paid a high price.
Additionally, the retailers' strategy of significantly de-stocking was also a major cause of our decline in income there.
Furthermore, we've been faced with major problems in Components. Price pressure in this industry is colossal. On the whole, it's a tough industry to operate in. We are doing everything in our means to stop this unfortunate trend.
The economic climate in Latin America has left much to be desired. But good news has also come from there. We managed to carry out a very successful product launch of our new ELSA refrigerator in Brazil. You can view the model right here outside the auditorium. Women constituted the target market there since they account for 75% of the purchasing decision for these types of products. By creatively applying the knowledge gained from consumer research findings, along with the strength of a global Group, "The world's No. 1 choice"; we succeeded in increasing our market share from 4% to 49% for frost-free refrigerators!
The washing machine you've just seen is one among many captivating products we've started selling in Europe. Our performance there has also improved.
This washing machine is very ergonomic, its drum and front inclined. In fact, it has won awards for its superior design.
The perhaps most talked about launch has been that of the world's first, cordless, automated vacuum cleaner, which we've named the Trilobite. We are infinitely proud of this vacuum cleaner- a tribute to the unique combination of automation, state-of-the art technology and unique design. Isn't it fantastic that a vacuum cleaner can function entirely on its own, doing the chore for you? If you haven't already seen it on display at one of our retailer's, please take the opportunity to do so in our exhibition area today.
In Food Service Equipment, sales also rose and operating income improved as well. A novel product designed by our people in that sector is a Cyber Fridge prototype -- a refrigerator for professional application that opens on voice command.
Sales also rose in Laundry Equipment. Operating income and margin improved substantially. A main contributor to our success was the new Wascator Generation 3000 washing machine, on exhibit outside this auditorium today. Compared to earlier models, energy consumption is 20% more efficient. The number of parts has also been reduced - as much as 40%, which means greater reliability and easier repairs.
Professional Outdoor Products, mostly known under the Husqvarna brand name, achieved continued, satisfactory growth both in sales and income.
We are the world leader in chain saws and trimmers. The ad clip you're about to see, is a witness to what we can make happen with these products.
We also make novel consumer outdoor products. One example is our new Flymo Turbo Compact Vision, which you've just seen in the ad clip. This lawn mower actually compresses the cut grass, thus minimizing frequent removal. And even better, a specially designed window allows the viewer to gauge when it's time to empty the compartment.
We anticipate exciting opportunities for outdoor products targeted at consumers. To focus on this area, "Electrolux Outdoor Products", a new business area, was founded the previous year. We are the world leader in consumer lawn mowers, garden tractors, trimmers and chain saws. We anticipate great opportunities for strong growth hereinafter.
We have the pleasure to welcome four new members to the Group Management who joined us 2001-2002.
Fredrik Rystedt took office as head of Group Staff Controlling, Accounting, Taxes, Auditing, IT in April 2001. Nina Linander followed in September as head of Group Staff Treasury. Andrew Bentley, head of White Goods outside Europe and North America, has joined as an associate member. Our most recent addition is Magnus Yngen who, very recently, joined us as the new sector head of Floor Care, as Hans Straberg will now be assuming his new role as President and CEO of Electrolux.
Many have approached me, wondering how to run a company that requires major changes. When I look back at my years here at Electrolux, several, particularly salient points come to mind.
First of all, there is the need for a clear aim.
When I first started at Electrolux, I saw the need to raise profitability. I perceived our main aim to be one of lowering costs and increasing effectiveness.
In everything you do, it is vital, from the very outset, to gain an understanding of what exactly your aim is, and what the main issues are.It's very easy to skip this part, but you must ensure lengthy discussions about required outcomes, expectations, staff appraisal, and finalization of the aim. This should be crystal clear so as to avoid speculation and a waste of energy.
Secondly, there is the need for clear, measurable goals. These goals should be easy to follow up on. In our case, we decided to keep to the financial goals established long before then.
There should be no doubt as to whether the goals have been achieved or not. Besides, goals need not be only financial in nature; they could just as well be quality goals. For instance, we, here at Electrolux, measure the level of staff diversity. We keep track of the number of women, youth, etc. that we employ. This is paramount for a consumer-oriented company. For every customer segment that there isn't a representative in the company, we run the risk of committing an error.
Knowledge about the business is essential to establishing appropriate goals, and maximizing organizational resources. To the extent possible, participation in goal setting should be encouraged. As such, work will be carried out with an even greater sense of commitment to attain those goals. It's a question of not being afraid to aim high. In doing so, just that little extra bit of effort can determine making it, or breaking it.
A revealing example of this was at our first Group Management Meeting in 1997. We had to come up with ideas on how to achieve the financial goals that had already been set up. After agreeing on the need to cut costs by five billion Swedish Kronor, the rest was easy. Identifying how this was to be done was accomplished in rapid succession.
Precisely how goals are to be attained is up to one's colleagues. Rather than dictate how this is to be done, it's better to ask what their thinking is behind a certain issue to be solved. It helps having an open dialogue and communication that aids understanding of what is to be done. As a leader, it's mostly about creating the proper conditions, and clearing hurdles out of the way.
Thirdly, a clear division of responsibility must exist. Once clear goals have been established, it is equally important to know who will actually do the job. Who feels committed to the goals? Joint responsibility is no responsibility. Devastating for an organization is all the coordination that takes place. The word "coordination" should actually be prohibited.
In my opinion, too much coordination in an organization can lead to too little action.
Our sector heads have a clearly defined responsibility. They are allowed, conditionally, to set up their targets that are then followed up on a monthly basis. The goals are clearly defined and they have all the means at their disposal to accomplish those goals. There should be no excuses. There's the risk of sub-optimization of course, but the advantages have outweighed the risk. These unequivocally clear responsibilities have been instrumental in improving our financial performance.
By clearly allocating responsibility, employees feel a sense of security in their respective roles. This is fundamental as they represent the company's most vital resource. I'm not just paying lip service here, trying to sound good. No, it makes pure business sense because it is the one asset that is active. People are vital for activating all the other assets.
In order for employees to feel motivated, it is also important that they feel visible. Visibility is ensured through follow up. Feedback is therefore essential -- give credit where credit is due, and acknowledge a good job done.
In my opinion, strong, clear leadership is what makes the difference in all organizations, not just at Electrolux. And this applies not only to senior managers, but also to all levels in an organization, and to major as well as minor projects.
It's now time to hand over the reigns to Hans Straberg. I am filled with a sense of excitement to take on yet other, new challenges. However, at the same time, leaving Electrolux, I am filled with a sense of nostalgia.
A company is like a never-ending storybook. The book consists of different chapters. We've gone through a five-year chapter together, following on the heels of earlier, fantastic chapters of the Electrolux story.
You are the owners of an impressive company. Today, Electrolux is a company that has good conditions for profitable growth. As a stockholder of Electrolux, the knowledge that I'm leaving the company in very good hands feels good. I'm convinced that Hans, with his extensive background and experience, will be able to look at Electrolux with fresh eyes, bringing new ideas on how to further develop the Group.
I'd like to express my deep gratitude for these rewarding years. It has been an exciting and rewarding adventure to work for Electrolux.
Hans please come and join me here on center stage.
Electrolux is the world's largest producer of powered appliances for kitchen, cleaning and outdoor use, such as refrigerators, washing machines, cookers, vacuum cleaners, chain saws, lawn mowers, and garden tractors. In 2001, Group sales were SEK 135.8 billion and the Group had 87,000 employees. Every year, customers in more than 150 countries buy more than 55 million Electrolux Group products for both consumer and professional use. The Electrolux Group includes famous appliance brands such as AEG, Electrolux, Zanussi, Frigidaire, Eureka, and Husqvarna.
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