In 2015, Electrolux two largest markets, Western Europe and North America, showed solid market growth. At the same time, demand in several, for Electrolux important, emerging markets deteriorated, most notably in Brazil. Therefore, the financial performance in our six business areas showed a mixed pattern, with strong earnings improvement in Major Appliances EMEA and Professional Products.
1.1 % 2014
6.6 SEK bn 2014
1) Excluding costs of SEK 2 billion related to the not completed acquisition of GE Appliances.
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.
Electrolux vision is to be the best appliance company in the world as measured by our customers, employees and shareholders. We create customer value by developing innovative products at an increasing pace across the globe. In 2015, two of the 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, we introduced the world’s first connected steam oven. Operational excellence begins with the right people. As a company with global reach and scale, we can attract dedicated employees from diverse backgrounds. For our shareholders we create value by focusing on profitable growth, a stable cash flow and an optimal capital base.
Our mission – our financial goals – remains unchanged. We aim to reach an EBIT margin of 6% for the Group, with an asset turnover of 4 times, leading to a return on net assets in excess of 20%. These targets are combined with a goal of 4 % organic growth over a business cycle. We also target growth in our operations through profitable acquisitions. We will achieve our vision and mission through a strong focus on a well-defined strategy based on four pillars: profitable growth, innovation, operational excellence and people and leadership. The strategy is described in more detail in this report.
Our operations in Europe showed good organic growth in 2015 driven by higher volumes and an improved product mix. The work to actively manage the product portfolio provided good results. At the same time, 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. We expect the Western European market 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. 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%. We expect 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, we continued to increase prices and to take cost actions. Other markets in Latin America, including Argentina, showed positive growth. We expect the Brazilian market to remain weak in 2016. In Asia/Pacific, we took actions to exit unprofitable segments and categories in China. At the same time, it is encouraging to note that Australia – our fourth largest market – continued to generate good earnings and margins.
Professional Products demonstrated a solid, positive trend throughout the year. Sales increased in several markets within food-service equipment and laundry solutions. Strategic initiatives to grow in new markets and segments have contributed to the positive trend.
During the latter part of the year, we initiated a cost reduction program within the Small Appliances business area with the aim of restoring profitability. Operations have been negatively impacted by lower volumes in several key markets and severe currency headwinds. We expect these actions to reach full effect from end of 2016, with estimated annual cost savings of SEK 120m.
All our business areas showed an improved mix in 2015. In 2016, Electrolux will 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 we provide. 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.
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.
High performance in all areas of sustainability is an enabler for our 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. Over the past year, management has engaged in setting the priorities and objectives, which we believe will deliver a positive impact for the business. Examples of activities include a groupwide Code of Conduct and anti-corruption training program. Once again we were recognized by the Dow Jones Sustainability Index as the industry leader. Electrolux is a signatory of the UN Global Compact.
Electrolux will 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.
Stockholm, February 2016
President and Chief Executive Officer