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ELECTROLUX AB-SER B
ELECTROLUX AB-SER B
Net cash situation, higher dividend
01 Feb 17
Q4 16 was rather in line with expectations despite some weakness at the top-line. Organic sales were down 3%, the operating income reached SEK1,616m (vs SEK-202m which included SEK-1,659m of extraordinary costs related to GE Appliances in Q4 15) and the operating margin was 5% of sales (vs 4.6% of sales restated in Q4 15). A significant increase in the dividend (+15% to SEK7.5/share) is proposed. Q4 16 figures: Group sales reached SEK32.1bn (+1.1% including a positive currency effect). Organic sales growth was down 3% due to no growth in Major appliances EMEA (+0.3%), a decline in Major appliances North America (-2%), the collapse in Major Appliances Latin America (-18%) and a decrease in Small appliances (-4%) altogether not offset by the higher organic sales in Major appliances Asia/Pacific (+1.7%) and strong growth in Professional products (+7.2%). The operating income reached SEK1,616m (+11% restated), representing 5% of sales (+0.4pt restated). Higher profitability was attributable to Major appliances North America (+24% to SEK610m reflecting lower raw material costs, higher efficiency), Major appliances Asia/Pacific (+41% to SEK173m thanks to a positive product-mix, higher efficiency), Small appliances (SEK154m vs SEK-92m including SEK190m restructuring costs in Q4 15) and Professional products (+13% to SEK293m). Conversely, there were operating losses in Major appliances Latin America (SEK-187m vs SEK69m in Q4 15). FY2016 figures: Sales were SEK121.1bn (-2%, o/w -1% attributable to currency fluctuations, +0.1% to acquisitions and -1.1%% organically). The operating income reached SEK6,274m vs SEK2,741m which included SEK-2,059m of extraordinary costs related to GE Appliances in FY2015. The operating margin improved to 5.2% of sales (+1.3pts restated). Electrolux benefited from a positive volume/price/mix effect (SEK311m) and lower raw material costs (SEK901m) at the EBIT level. The huge negative currency impact (SEK-1,662m at the EBIT level, o/w SEK-1,470m transaction effect) was offset by cost efficiencies (SEK1,670m). Group net profit was SEK4,493m (vs SEK1,568m in FY2015) after net financial costs of SEK-693m and an income tax rate of 19%. The operating cash flow reached SEK10,165m (+23%) and FCF surged to SEK6,775m (+46%) after lower investments in fixed assets (-7% to SEK3,390m). The group had a net cash situation at year-end 2016 (SEK-3,809m vs net debt of SEK1,898m at year-end 2015).
Positive effect of cost efficiencies
28 Oct 16
Q3 16 was globally a good quarter despite the weakness of the top-line in North America in a flat core appliances market and the continuing poor environment in Latin America. The group had net cash on 30 September 2016. Q3 16 results: Group sales reached SEK30,852m (-1.4%). There was a slight currency effect (+0.2%). Organic sales were down (-1.6% vs +2.1% in Q3 15) in line with our expectation. This was attributable to a decrease in Major Appliances North America (-4.6% vs +7.1% in Q3 15), Major Appliances Latin America (-6.2% vs -5.1% in Q3 15) and Small Appliances (-10.3% vs -0.5% in Q3 15) which were not offset by organic sales growth in Major Appliances EMEA (+2.1% vs +5.4% in Q3 15), Major Appliances Asia/Pacific (+10.7% vs -13% in Q3 15) and Professional Products (+4% vs +1.1% in Q3 15). Operating income surged to SEK1,826m (+21%), corresponding to a margin rate of 5.9% of sales (+1.1pts), above our expectation. The increase in the operating income was attributable to higher contributions from Major Appliances EMEA (SEK680m, +12%), Major Appliances North America (SEK824m, +11%), Major Appliances Asia/Pacific (SEK208m vs SEK54m in Q3 15) and Professional Products (SEK234m, +10%). Only two divisions out of six had lower contributions, i.e. Major Appliances Latin America (SEK19m vs SEK110m in Q3 15) and Small Appliances (SEK34m, -17%). In addition, the basis of comparison was also favourable as the Q3 15 operating result included transaction costs of SEK-128m related to GE Appliances. There was a negative currency impact of SEK-120m at the operating level (vs SEK-225m in Q3 15), o/w SEK-88m was related to a transaction effect, mainly related to the weakness of the British pound. Group net income was SEK1,267m (+25%) after net financial costs (SEK-101m, -30%) and a higher income tax rate (26.5%, +1pt). 9-month results: Electrolux posted sales of SEK88,949m (-3% and -0.4% organically), operating income of SEK4,658m (+58%) corresponding to a margin rate of 5.2% of sales (+2pts) and group net profit of SEK3,221m (+64%) after net financial costs of SEK-322m (+2%) and an income tax rate of 25.7% (+0.4pt) The cash flow from operations increased to SEK7,140m (+4%) after a lower improvement in the change in WCR and capex decreased to SEK2,113m (-12%). On 30 September 2016, Electrolux had a strong balance sheet with net cash of SEK1,471m (vs net debt of SEK2,126m on 30 September 2015 and SEK1,898m at year-end 2015) and shareholders’ equity of SEK15,714m.
Weak sales, strong results boosted by cost efficiencies
20 Jul 16
Q2 16 was a satisfactory quarter despite weak sales. The overall performance was mainly driven by the Major Appliances EMEA (volume growth, better product-mix, cost efficiency) and North America (product-mix improvement, cost efficiency). Q2 16 earnings - Group sales were down 4.4% to SEK29,983m and -0.9% organically. Organic sales grew only in two divisions, i.e. Major Appliances EMEA (+5.2%) and Professional Products (+1.1%). Organic sales decreased in the other divisions, i.e. Major Appliances North America (-1.5%), Major Appliances Latin America (-6.7%), Major Appliances Asia/Pacific (-2% due essentially to the repositioning and the reduction in sales in China), and Small Appliances (-12.3% given the exit of unprofitable product categories in North America). - Operating income surged to SEK1,564m (+70%) corresponding to a margin rate of 5.2% of sales (+2.3pts). There was a negative currency impact of SEK-478m, o/w a transaction effect of SEK-425m. Almost half of the increase in operating income (up SEK643m) came from the Major Appliances North America division (up SEK341m to SEK742m) followed by the Major Appliances EMEA division (up SEK141m to SEK567m). In addition, the group’s common costs decreased by 47% to SEK192m taking into account that there was some transaction and integration costs related to GE Appliances in Q2 15. - Group net income was SEK1,079m (+77%) after stable income tax rate (25.5%). - The group’s operations generated strong cash flow (SEK4,015m +17%) and free cash flow surged to SEK3,337bn (+32%) due to lower capex (SEK678m, -24%). H2 16 earnings - Group sales were SEK58,097m (-3.9% and +0.3% organically), operating income surged to SEK2,832m (+97%) corresponding to a margin rate of 4.9% (+2.5pts) and group net income was SEK1,954m (vs SEK947m in H1 15). - The cash flow from operations increased by 11% to SEK3,702m taking into account an increase in the change in inventory in Q1 16. Free cash flow surged by 41% to SEK2,388m due to lower capex (SEK1,314m, -20%). - On 30 June 2016, the financial net debt was low at SEK1,271m (vs SEK1,898m on 31 December 2015, SEK5,148m on 30 June 2015) and represented 9% of shareholders’ equity.
Strong growth in the two largest divisions
28 Apr 16
Electrolux released a good set of figures which included strong organic sales growth and margin improvement in EMEA, the return to a ‘normalised’ situation in North America vs Q1 15 which was affected by non-recurring costs, lower performance in Latin America and a significant adverse currency impact at the operating level. Q1 16 earnings Sales decreased to SEK28,114m (-3.3%) due to a negative currency impact (-5.2%). Organic growth was +1.8% (vs -0.5% in Q1 15) driven by Major Appliances EMEA (+7.1% vs +3% in Q1 15), Major Appliances North America (+5.7% vs -3.6% in Q1 15)) and Professional products (+4.3% vs +3% in Q1 15). Impressive growth in EMEA reflected volume increases, the improvement of the product mix and the gain in market shares which more than offset further price pressure. North America reversed the negative trend vs Q1 15 with strong growth on the back of dynamic market demand (+8% for core appliances). The emerging geographic areas (-11.3% in Latin America due to adverse macro-economics in Brazil, -5.4% in Asia/Pacific) and Small Appliances (-6.1%) weighed negatively on overall organic growth. Gross profit increased by 12% to SEK5,770m. The gross margin improved significantly to 20.5% of sales (+2.9%) thanks to a combination of volume increases, satisfactory pricing and product mix, no pressure on raw material costs and further cost efficiencies. Group operating income rebounded to SEK1,268m (vs SEK516m in Q1 15), representing a margin rate of 4.5% of sales (vs 1.8% of sales in Q1 15). The bulk of the improvement came from Major Appliances EMEA (SEK553m, +49%) and Major Appliances North America (SEK495m vs SEK-57m in Q1 15) which suffered from additional costs related to the transition of products to comply with new energy requirements and the slower than expected ramp-up of the new cooking facility in Memphis last year. Major Appliances Latin America was the only division with lower operating income (SEK31m, -82%). The currency effects were negative on the operating income, or SEK-720m (vs SEK-277m in Q1 15), o/w SEK658m related to transactions. This was mainly due to the stronger $ vs various Latin American currencies and the euro. Group net profit was SEK875m (vs SEK339m in Q1 15), after higher net financial costs (SEK-105m, +59%) and similar income tax rate (24.8%). The negative cash flow from operations deteriorated (SEK-313m vs SEK-93m in Q1 15) due principally to an increase in the change in inventories. Capex decreased to SEK636m (-16%). On 31 March 2016, financial net debt amounted to SEK3.1bn (vs SEK5.6bn on 31 March 2015 and SEK1.9bn at year-end 2015) representing 22% of shareholders’ equity.
Earnings significantly impacted by the cancelled GE Appliances acquisition
28 Jan 16
Q4 15 earnings were impacted by SEK1,659m of costs (o/w a termination fee of SEK1,493m paid to General Electric) related to the non-completion of the acquisition of GE Appliances in the US. +Q4 15 figures+ Group sales reached SEK31.8bn, +1.3% including a positive currency effect of +1%. Sales were fairly flat organically considering the strong organic growth in the Major appliances Europe/Middle East/Africa (+6.1%) and North America (+4.2%) and the drop in Latin America (-10.7%) and Asia/Pacific (-5.2%), a good development in the Professional products division (+3.4%) and lower organic sales in Small appliances (-10.1%) attributable to lower volumes of vacuum cleaners sold in the US, Brazil and Asia/Pacific. Electrolux posted an operating loss of SEK-202m (vs SEK1,395m in Q4 14) due to the GE Appliances-related costs. Excluding this item, the operating margin improved to 4.6% of sales (+0.2pts). The best operating performances were in the Major appliances EMEA (SEK765m, +51%) and North America (SEK493m vs SEK134m in Q4 14) and the Professional products (SEK260m, +38%). The contribution from the Major appliances in Latin America and Asia/Pacific dropped sharply (respectively -86% to SEK69m and -39% to SEK123m) and Small appliances turned negative (SEK-92m vs SEK173m in Q4 14) after restructuring charges of SEK190m. The Group net result was negative at SEK-394m after higher net financial expenses (SEK-323m vs SEK-103m in Q4 14) due to funding costs (SEK-187m) arising from the bridge facility for the acquisition of GE Appliances which was cancelled. +FY2015 figures+ Sales were SEK123.5bn, +10.1% o/w +7.8% attributable currency fluctuations and +2.2% organically. The reported operating income decreased by 23% to SEK2,741m. The failure of the acquisition of GE Appliances was expensive as the total cost (termination fee, transaction cost, preparatory integration work) reached SEK2,059m at the EBIT level and SEK2,246m at the pre-tax profit level including funding costs arising from the bridge facility (SEK-187m). This explains why Group net profit fell to SEK1,566m (-30%). Electrolux's strength was its ability to offset the huge negative currency impact at the EBIT level (SEK-1,418m o/w SEK-1,879m transaction effect) by a positive price/mix policy (SEK+1,812m). The main negative currency effect was attributable to Latin American currencies (SEK-1,315m). Operating cash flow improved (+5.7% to SEK8,267m) despite the cash-out related to GE Appliances. This was the combination of the improvement of the operations, lower trade receivables and a positive change in accounts payable. FCF surged to SEK4,955m (+20%) after lower investments in fixed assets (-10% to SEK3,312m). Electrolux paid a stable dividend to shareholders. At year-end 2015, the financial net debt had been significantly reduced to SEK1.9bn (vs SEK4.9bn at 31 December 14) and represented c.13% of shareholders’ equity (vs c.30% on 31 December 14).
New President and CEO at Electrolux
11 Jan 16
President and CEO of Electrolux Keith McLoughlin (60 years old) has notified the board of directors that he has decided to retire from the company. Jonas Samuelson is appointed new President and CEO of Electrolux and will take up his position on 1 February 2016. Keith McLoughlin said that his decision was motivated by returning to his family in the US. Last year, there were rumours about his departure when Electrolux was fighting against the DOJ in order to complete the acquisition of GE Appliances. He said that he will support Electrolux in North America on a consultancy basis.
Outperformance in the bag
24 Mar 17
IG Design has had a very good second half trading and has issued a year-end update indicating that numbers will exceed market estimates. We have lifted our FY17 and FY18 numbers by 8-10% at the pre-tax and EPS levels, following an 11% uplift to earnings with the interims. Particularly notable is the comment on strong cash flow, with the group reaching its target of average leverage less than 2.5x EBITDA two years ahead of plan. With the earnings and cash flow momentum, strong balance sheet and progressive dividend, there is good potential for further share price upside.
24 Mar 17
We note the share transaction yesterday, and think the stock will benefit from the increased liquidity. We continue to believe there is good valuation upside to the shares. However, we are terminating coverage of Watkins Jones from this morning and withdrawing our forecasts from the market.
Management hopes for a better 2017
21 Mar 17
BMW’s final 2016 accounts were, compared to what we had anticipated, slightly disappointing. We had said so when preliminary numbers were released earlier this month. Today’s guidance for 2017 shows slight growth in all categories, i.e. volume, revenue and consolidated pre-tax earnings are all projected to go up. Reading between the lines, the statement suggests that the EBIT margin generated by the Automobiles division is likely to fall further (it was down from 9.2% to 8.9% in 2016). Whether Financial Services can again increase its margin (it was up by 0.1pp to 8.4% last year) remains to be seen and will also depend on the price development of used vehicles.
The Slide Rule
12 Jan 17
What is The Slide Rule? The Slide Rule has been designed to dramatically simplify the identification of the best companies in the UK small/mid-cap sector by making a quantitative assessment of the relative potential of each company. At its core, The Slide Rule aims to identify those companies that create genuine shareholder value through strong returns on capital and solid growth, but also present a value opportunity with the potential tailwind of earnings momentum. Companies are assessed within a Quality, Value, Growth and Momentum (QVGM) framework.