2014 was a good year for Electrolux. In challenging markets, operating income increased by 18 percent to SEK 4.8 billion and the EBIT margin rose to 4.3 percent from 3.7 percent in 2013. We generated a good cash flow of SEK 6.6 billion during the year, corresponding to a cash conversion of 140 percent. The earnings improvement is primarily the result of the strong operational recovery in Europe.
In 2014, we took yet another step towards the achievement of our vision to be the best appliance company in the world as measured by our customers, employees and shareholders. Our mission – our financial goals – is to reach an EBIT margin of six percent with an asset turnover of four times, leading to a return on net assets in excess of 20 percent. Combined with four percent organic growth over a business cycle we aim to generate significant value for our stakeholders. Growth can also be achieved through acquisitions. Although we did not accomplish all our financial goals, we saw a good operational and financial recovery. Our strategy to reach our vision and financial goals is being described in this report and is based on four strategic pillars; profitable growth, innovation, operational excellence and people and leadership.
The initiatives to restore profitability in our operations in Europe have shown good results. Cost savings combined with higher production efficiency and an active product portfolio management resulted in significant improvement in operating income. The European market appears to have stabilized and we expect a market growth of 1–2 percent in 2015.
Markets in Latin America and Asia/Pacific were challenging during the year with weak demand and currency headwinds. It is therefore encouraging to see that we managed to defend earnings through price and mix improvement and timely actions to take out costs. The impact of these measures was particularly evident in the latter part of the year.
In North America, our operations were negatively impacted by the major transition required to meet new energy standards affecting refrigeration and freezers. The new cooking plant in Memphis is still being ramped up, which also had an adverse impact on cost efficiency. We expect the transition process for refrigeration and freezers to continue in the first half of 2015. From a demand perspective, the North American market is solid and we expect continued market growth in the range of 3–5 percent in 2015.
Small Appliances continued to launch new products on a global scale. Part of the vacuum cleaners offering was renewed and two high-end ranges within small domestic appliances were introduced. Our Professional Products operations demonstrated a solid, positive trend throughout the year. In early 2015, we announced the acquisition of a professional dishwasher producer in China.
We continue to expand our offering of new, innovative products. In 2014 steams ovens with sous-vide function were introduced in Europe. In Latin America, we renewed our washing machines, refrigerators and cookers offering. In North America, several new products were introduced. When developing new products, our focus is not only on design and features but also on consumers’ requirements in relation to energy and water efficiency. During the year, we took an important step in the area of connected products, joining the AllSeen Alliance as a premier member. Electrolux is investing in this technology, which involves appliances communicating with each other, consumers and other devices.
For most of our business areas, the product mix improved during the year, despite many markets being characterized by low or negative volume growth. With the rolling out of new product launches also in 2015, we believe there is good potential for continued mix improvements.
The manufacturing footprint program launched in 2004 is now in its final stage. The aim of the program is to increase the Group’s competitiveness, among other, through moving production from high-cost regions to low-cost regions. Today, almost 70 percent of our manufacturing takes place in low-cost countries compared with 25 percent ten years ago.
Restructuring measures during the year included a review of our operations in Italy, where we reached an agreement with Italian authorities and union representatives aimed at improving efficiencies. We also initiated consultations with employee representatives regarding production at two plants, one in Sweden and one in Switzerland. A decision was taken to cease production at the plant in Switzerland. In North America, the cooking plant in L’Assomption, Quebec ceased production and manufacturing is now being concentrated to the new, large-scale plant in Memphis, Tennessee. In Asia/Pacific, we are in the process of transferring production from Australia to Thailand. All of these measures will also contribute to securing an efficient production base in the future.
Although there will likely be restructuring programs going forward, we expect these to be much less extensive.
One of the milestones in 2014 was the agreement to acquire GE Appliances. The acquisition is the largest in Electrolux history of almost 100 years. GE Appliances is one of the premium manufacturers of kitchen and laundry products in the US, with annual sales of around USD 5.7 billion. We expect the transaction to close in 2015. Significant cost synergies have been identified, which will be realized within three to four years following the closing of the transaction. The acquisition of GE Appliances will enable Electrolux to grow not only in North America, but will strengthen our presence and capabilities on a global scale.
Electrolux is a global company with sales in more than 150 countries. We are also a large employer and thus have an important role to play with respect to environmental and social responsibilities. Our active work in these fields has been recognized and, among other, Electrolux has been named industry leader in the prestigious Dow Jones Sustainability Index. Achievements in the year include an update of the Electrolux Workplace Code of Conduct. Electrolux is a signatory of UN Global Compact.
2014 was also a good year for our shareholders. Electrolux share price increased by 36 percent and significantly outperformed Nasdaq Stockholm. Over the past ten years, the annual average total return of the Electrolux share has been 17 percent.
The operational and financial improvement would not have been achievable without the strong contribution of our 60,000 employees around the globe. I would like to thank all of them for their efforts during the year and I feel confident that we will be able to continue to excel also in 2015.
The Group is well positioned to continue to grow profitably in 2015, with a focus on further increasing shareholder value. We expect to close the pending acquisition of GE Appliances during the year, which will contribute strongly to the achievement of the Group’s vision of being the best appliance company in the world as measured by our customers, employees and shareholders.
Stockholm, February 2015
Keith McLoughlin
President and Chief Executive Officer