The Global Appliance Company · The Global Appliance Company Annual Report 1998 Electr olux Ann ual...

The Global Appliance Company

Annual Report 1998

Electrolux Annual Report 1998

ENG A_R cover FÖR PDF 99-04-06 12.46 Sidan 2

2

Contents

1 Electrolux today 2 Highlights of the year 4 The world of Electrolux6 Business areas 8 Report by the President and CEO

14 Household Appliances18 Professional Appliances20 Outdoor Products22 Report by the Board of Directors

for 199834 Consolidated income statement35 Consolidated balance sheet36 Parent company income statement37 Parent company balance sheet

38 Cash-flow statements, Group and parent company

39 Notes to the financial statements51 Proposed distribution of earnings52 Auditors’ report53 Statement of added value54 Eleven-year review54 Definitions of financial concepts

and key ratios56 Net sales and average number of

employees, by country

58 Board of Directors60 Group organization62 Electrolux shares65 Human resources66 The Group’s environmental

activities68 Annual General Meeting

Investor Relationsand Financial Information

Åsa Mattsson StenqvistTel. +46 8 738 64 94, Fax +46 8 656 60 90

Financial reports in 1999

Consolidated results February 16Annual report End of MarchForm 20-F AprilQuarterly report, 1st quarter April 27Half-yearly report August 13Quarterly report, 3rd quarter October 29

The above reports are available on request from AB Electrolux, Investor Relations and Financial Information, SE-105 45 Stockholm, Sweden. Tel. +46 8 738 60 03 or 738 61 41.Financial information from Electrolux is also available on the Internet at www.electrolux.com

ENG 02-04 Covers Q3 99-03-31 21.47 Sidan 2

1Electrolux Annual Report 1998

Electrolux today

Electrolux is one of the world’s leading producers of household

appliances for indoor and outdoor use, and of corresponding

products for professional users.These products make daily tasks

easier and more convenient for millions of people throughout the

world. Every year, consumers in more than 100 countries buy

more than 55 million Group products. Electrolux is the European

market leader in white goods, and is the third largest white-goods

company in the US.The Group is the world’s largest producer of

floor-care products, absorption refrigerators for caravans and hotel

rooms, and compressors for refrigerators and freezers. Electrolux

is also the largest or second largest company in the world for

food-service equipment, professional laundry equipment, and

forestry and garden equipment.

Electrolux – The Global Appliance Company

Eng A/R-98 PP 01 Q3 99-03-31 16.11 Sidan 1

The ongoing restructuring program that was

started in June 1997 has proceeded according to

plan. By year-end 1998 the number of Group

employees had been reduced by 9,200, while 18

factories and 30 warehouses had been shut down

or divested.The program will be largely completed during the first half of 1999.


Highlights of the year

Exclusive of items affecting comparability, operating

income improved by 33% to SEK 6,064m,

corresponding to 5.2% of sales, as against 4.0% in

1997.The goal is to achieve an operating margin

of 6.5-7% by the time the restructuring program

has generated full effect.

Streamlining of the Group continued with the divestment of operations in

agricultural implements, items for interior decoration, kitchen and bathroom

cabinets, heavy-duty laundry equipment, professional cleaning equipment and

recycling. An agreement has also been reached for divestment of AB Lux, the

operation within direct sales.The divested units, including Lux, had total annual

sales of approximately SEK 7,400m and about 11,600 employees.

In the course of the year a new joint venture in

refrigerators, washing machines and compressors was

established with Voltas Ltd in India. Electrolux has thus

become the largest manufacturer of refrigerators in the

Indian market.The Group’s annual sales of white goods

in India will be doubled, to approximately SEK 1,500m.

The Board of Directors will propose an increased dividend for 1998 of SEK 3.00

per share at the Annual General Meeting.

Restructuring 1997-98 Target

Employees 9,200 12,000

Plants 18 25

Warehouses 30 50

Margin

7

6

5

4

3

2

1

95 96 97 98

Target 6.5-7%

Operating margin

ENG A/R-98 PP 02-03 Q3 99-03-31 16.18 Sidan 2

Employees by region

EU 48.2%

North America 25.0%

Latin America 7.6%

Africa 0.4%

Asia 9.8%

Oceania 0.5%

Rest of Europe 8.5%

Net sales by region

EU 45.0%

North America 35.1%

Latin America 5.9%

Africa 0.9%

Asia 4.4%

Oceania 0.9%

Rest of Europe 7.8%


Net sales by business area

1998 Share 1997 ShareSEKm % SEKm %

Household Appliances 84,581 72.0 81,419 72.1Professional Appliances 11,574 9.8 11,413 10.1Outdoor Products 19,295 16.4 18,087 16.0Other1) 2,074 1.8 2,081 1.8

Total 117,524 100.0 113,000 100.0

Operating income by business area

1998 Share 1997 ShareExcl. items affecting comparability SEKm % SEKm %

Household Appliances2) 4,065 67.0 2,943 64.7Margin,% 4.8 3.6Professional Appliances 723 11.9 340 7.5Margin,% 6.2 3.0Outdoor Products 1,788 29.5 1,680 36.9Margin,% 9.3 9.3Other3) –76 –1.2 67 1.5Common Group costs4) –436 –7.2 –480 –10.6

Total 6,064 100.0 4,550 100.01) Gotthard Nilsson, etc.2) Including a charge of SEK 175m in 1998 referring to Brazil and Asia.

A corresponding charge of SEK 150m was taken in 1997.3) Includes the operation in Gotthard Nilsson, costs in the financial

operation, etc. In 1997 this item also included a capital gain ofapproximately SEK 50m on the divestment of the operation in goodsprotection.

4) As of the first quarter of 1998 these items are not distributed among thedifferent business areas. The figures for the previous year have beenadjusted accordingly.

Key data1998 excl. 1997 excl.

items itemsaffecting affectingcompa- compa-

1998 rability1) 1997 rability1)

Net sales, SEKm 117,524 117,524 113,000 113,000Operating income, SEKm 7,028 6,064 2,654 4,550Margin,% 6.0 5.2 2.3 4.0Income after financial

items, SEKm 5,850 4,886 1,232 3,128Income before taxes, SEKm 5,926 4,962 1,283 3,179Net income, SEKm 3,975 3,235 352 1,782Net income per share, SEK 10.85 8.85 0.95 4.85Dividend per share, SEK 3.002) 3.002) 2.50 2.50Return on equity,% 19.3 14.8 1.6 7.9Return on net assets,% 16.3 13.7 6.1 10.2Equity/assets ratio,% 35.4 35.8 30.8 33.4Net debt/equity ratio 0.71 0.70 0.94 0.86Capital expenditure, SEKm 3,756 3,756 4,329 4,329Average number of

employees 99,322 99,322 105,950 105,950

1) Items affecting comparability in 1998 include net capital gains totalling SEK 964m, and in 1997 a capital gain of SEK 604m as well as a provisionof SEK 2,500m for the current restructuring program.

2) Proposed by the Board.

Operating income by business area

-10 0 10 20 30 40 50 60

Household Appliances

Outdoor Products

Professional Appliances

Other

Common Group costs

67.0%

29.5%

11.9%

–1.2%

–7.2%

%



Outdoor Products

Other

Net sales by business area

72.0%

16.4%

9.8%

1.8%

0 10 20 30 40 50 60 70%

ENG A/R-98 PP 02-03 Q3 99-03-31 16.18 Sidan 3

4

The world of Electrolux


Business areas’ share of net Group Household Professional Outdoorsales, by region, %1) Appliances Appliances Products

EU 74 14 9Rest of Europe 75 11 14North America 69 3 28Latin America 92 6 2Asia 89 8 2Oceania 69 5 25Africa 81 18 11) Net sales for operations included in “Other” are not given in the table,

and refer primarily to the EU.

Business areas’ share of Group Household Professional Outdooremployees, by region,%1) Appliances Appliances Products

EU 79 14 7Rest of Europe 86 9 5North America 69 5 26Latin America 98 2 0Asia 95 2 3Oceania 83 0 17Africa 92 8 01) Employees in operations included in “Other” are not given in the table,

and refer primarily to the EU.

Key to mapSymbols indicate major companies/units

▲ Production▲ Production/Sales▲ Sales

● Joint venture/Minority interest● Representation office● Holding company

Household Appliances sales by regionProfessional Appliances sales by regionOutdoor Products sales by region

The size of circle indicates a business area’s shareof net Group sales in a region.

North America35.1% of total sales

Latin America5.9% of total sales

Eng A/R-98 PP 04-05 Noshad 1/4/99 2:41 pm Page 4

4 5


Rest of Europe

Net sales SEK 9,231m

Share of Group sales 7.8%

No. of employees 8,401

Latin America




Asia




Oceania



No. of employees 504

EU




North America




Group total



Africa



No. of employees 441

Rest of Europe7.8% of total sales

Africa0.9% of total sales

Asia4.4% of total sales

Oceania0.9% of total sales

EU45.0% of total sales

Eng A/R-98 PP 04-05 Noshad 1/4/99 2:42 pm Page 5

Business areas


Household Appliances This business area comprises mainly white goods, i.e.

refrigerators, freezers, cookers, washing machines and dishwashers. In 1998, white goods accounted

for 76% of sales in Household Appliances, and half of total Group sales. Other product lines include

floor-care products, components, and absorption refrigerators for caravans and hotel rooms.

Professional AppliancesThe main operations comprise food-service equipment for

restaurants and institutions, including food and beverage vending machines, as well as laundry

equipment for such applications as apartment-house laundry rooms and professional laundries.

These operations together accounted for almost 72% of sales.This business area also includes

the product line refrigeration and freezing equipment for food retailers.

Outdoor Products This business area includes garden equipment, chain saws and other

equipment for forestry work. Garden equipment includes lawn mowers and garden tractors, as

well as portable equipment such as lawn trimmers and leaf blowers.

Market positionForestry and garden equipmentWorld’s largest in chain saws, with globalmarket share of about 40%.World’s largest producer of such items as lawnmowers, garden tractors and lawn trimmers.

Market positionFood-service equipmentMarket leader in Europe, world’s second largest producer.Laundry equipmentWorld leader in equipment for apartment-house laundry rooms, launderettes, hotels and institutions.Refrigeration equipmentOne of the largest producers in Europe.

Market positionWhite goodsMarket leader in Europe, third largest producer in the US.Floor-care productsWorld leader, global market share approximately 20%.ComponentsWorld’s largest producer of compressors forrefrigerators, market leader in Europe and the US.Leisure appliancesWorld leader in absorption refrigerators for caravansand hotel rooms.

Major BrandsAEG, Alfatec, Americold, Beam, Corberó,Dometic, Electrolux, Electrolux Compressors,Elektro Helios, Eureka, Faure, Frigidaire, Gibson,Husqvarna, Juno, Kelvinator, Progress, Rex,Tappan,Tornado,Tricity Bendix,VOE,Volta,White-Westinghouse, Zanker, Zanussi,ZEM, Zoppas

Major BrandsDubix, Electrolux, Electrolux Wascator,Electrolux-Washex, Juno, Kelvinator, Nyborg,Therma, Universal Nolin,Wascomat,Washex,Zanussi Professional

Major BrandsFlymo, Husqvarna, Poulan, Rally,WeedEater

Eng A/R-98 PP 06-07 Q3 99-04-07 13.34 Sidan 6


Eng A/R-98 PP 06-07 Q3 99-03-31 16.46 Sidan 7

Report by the President and CEO


Over many years, Electrolux has builtpositions of leadership in the worldmarket for household appliances forindoor and outdoor use, and for corre-sponding products for professionalusers. The Group’s strong expansion hashad an adverse effect on profitability,which has fallen short of stated targets.

We must continue to focus theGroup’s operation and improveefficiency to obtain the full benefitof the competitive advantages thathave been generated.

In order to reduce costs, welaunched a comprehensive restructuringprogram in June 1997. Our goal is tomeet the Group’s targets of an operatingmargin of 6.5-7% and a return on equityof at least 15%, once the full effectsof the program have been obtainedafter 2000.

In addition to the restructuringprogram, we have continued tostreamline operations to our core areas.We are also focusing on improvingefficiency in internal processes as wellas customer service.

The aim is to achieve stability andimproved profitability as quickly aspossible, so that we can then concen-trate on activities that generate growth.We want Electrolux to be an attractivecompany with exciting and innovativeproducts for consumers, a profitablepartner for retailers and suppliers, acompany that is rewarding to work forand creates value for its shareholders.

Higher income and profitabilityin 1998The effects of restructuring togetherwith good demand and higher sales inEurope and North America, our mainmarkets, led to higher income andprofitability in 1998. The trends forprice and mix were negative, but thiswas offset by lower prices for materialsand half-finished goods.

The adverse trends for demand inBrazil and Asia involved considerabledeclines in both sales and income inthese markets. We were forced to makesubstantial adjustments that includedcutting back personnel by more than30% in both Brazil and the ASEANcountries. Operating income in LatinAmerica and Asia decreased by a totalof approximately SEK 500m, inclusiveof costs for personnel cutbacks andcharges for doubtful receivables.

Group sales for comparable unitsand after adjustment for exchange-rateeffects rose by 4% during the year.Exclusive of items affecting comparability,operating income rose by 33% toSEK 6,064m, corresponding to a marginof 5.2% against 4.0% last year. Incomeafter financial items rose by 56% toSEK 4,886m, which corresponds to amargin of 4.2% against 2.8% in 1997.A lower tax burden contributed to anincrease in income per share of 82%,to SEK 8.85. Exclusive of items affectingcomparability, the return on equityrose to 14.8% and the return on netassets to 13.7%.

Cash flow, which has been one ofthe Group’s problem areas, improvedconsiderably even exclusive of theproceeds on divestments. The netdebt/equity ratio, i.e. net borrowingsin relation to equity, improved to0.71, from 0.94 in 1997.

Favorable developments in 1998included above all a good performanceby the white-goods operation in the US,which achieved marked improvementsin income and profitability on the basisof strong growth in sales volume andgreater internal efficiency. Higherincome was also reported by otherhousehold appliances in North America,i.e. floor-care products and leisureappliances. A large share of the increasesin sales and operating income reportedby the Group for 1998 refers to theNorth American operation, whichachieved higher operating margin overallthan did the Group as a whole.

8

Net sales inEurope and North America, SEKm

90,000

75,000

60,000

45,000

30,000

15,000

0

94 95 96 97 98

12-month figuresNet sales

Europe

North America

Net sales and income

Net sales and income, SEKm

120,000

100,000

80,000

60,000

40,000

20,000

0

7,200

6,000

4,800

3,600

2,400

1,200

0

94 95 96 97 98

12-month figuresNet sales Income

Net sales

Operating income, excl. items affecting comparability

Income after financial items, excl. items affecting comparability

Eng A/R-98 PP 08-13 Q3 99-03-31 17.03 Sidan 8

9


Higher sales and income were alsoachieved in Europe for white goods aswell as for other operations, despiteconsiderably lower sales in Russia. Thenegative trend was reversed for ouroperation in Germany, which reported aconsiderable improvement in income.However, trends in the UK remainedweak for both sales and market share,although income improved. But as theeffects of the restructuring programemerge, the trends for both the UK andthe German operation should be morestable and more positive.

Most of the improvement in incomefor 1998 is traceable to HouseholdAppliances. However, ProfessionalAppliances accounted for the largestincrease in percentage terms, and morethan doubled its operating margin to6.2%. Outdoor Products also reportedhigher income and continued highmargin, mainly on the basis of a goodperformance by the operation inprofessional chain saws.

With the exception of Brazil andAsia, the year 1998 was generally in line with our expectations. Plans for

strengthening the Group’s competitive-ness were implemented. Although wehave still not reached our target foroperating margin in 1998, we achievedthe highest margin for the Group since1989. As I mentioned previously, asubstantial improvement was alsoachieved in the return on both equityand net assets.

Restructuring programThe ongoing restructuring program thatwas launched in June 1997 proceededaccording to plan. By year-end 1998we had completed almost 80% of thepersonnel cutbacks and had shut downor decided on shutdowns of about 80%of the plants and warehouses coveredby the program. More than 70% ofthe provision of SEK 2,500m that wasmade during the second quarter of1997 had been utilized. The restructuringprogram will be largely completed bythe end of the first half of 1999.

Major changes in 1998 include theshutdown of a plant for floor-careproducts in the UK and of two units forrefrigerators and freezers, in Finland and

Hungary. Comprehensive rationalizationwas also implemented in the Germanwhite-goods operation, in both theproduction and sales organizations.In Professional Appliances, sevenproduction units were shut down.

One of the product areas wheremajor changes are being made comprisesrefrigerators and freezers, for whichcapacity utilization has been low. Inaddition to the two units that were shutdown in 1998, another large unit in theUK will be closed during the beginningof the second quarter of 1999. Overall,changes in this product area involvetransferring production of about onemillion products, corresponding to 20%of total volume, and reducing thenumber of personnel by 1,700, or 20%.

While production is being consol-idated, we are also reducing the numberof product variants by developing new,common platforms. For example, in therefrigerator and freezer product area thenumber of basic models will be reducedby about 30% as a result of the imple-mentation of the restructuring program.

In addition to shutdowns and trans-fer of production, substantial changesare being made in the functions formarketing, sales and logistics, which willenable improved customer service. Theorder fill rate for white goods inEurope, i.e. our ability to deliver theright goods in the right place at theright time, has increased by more than30% since the restructuring programbegan. Total warehouse area has beenreduced by about 15%. Our goal is a25% reduction in the warehouse areafor white goods in Europe by year-end1999, on the basis of current ITinvestments, more efficient inventorymanagement and more direct deliveries.

Restructuring program at year-end 1998

Personnel cutbacks

Closure of plants

Closure of warehouses

Utilized from provision

0% 100%90%80%70%60%50%40%30%20%10%

9,200 12,000

1999Target

25

50

2,5001,820

930

218

Achieved end of 1998 Decided closures Remains 1999

Eng A/R-98 PP 08-13 Q3 99-03-31 17.03 Sidan 9



We also divested operations in kitchenand bathroom cabinets, professionalcleaning equipment and heavy-dutylaundry equipment. An agreement wasalso reached regarding divestment ofour operation in direct sales. The aboveoperations were either non-strategic ornot large enough to be profitable.

The operations divested during1998 together with Lux had totalannual sales of about SEK 7,400m andabout 11,600 employees. Total netcapital gains of the divestment of majorunits during the year amounted toSEK 964m.

A more cohesive GroupIn addition to our efforts to concentrateoperations to the areas where theGroup has leading positions and acompetitive edge, we are aiming atbetter coordination both within andbetween our core areas in order tobetter utilize the Group’s total size.

Among other things, this involvescombining smaller operational units andcompanies so that they share servicefunctions within a common larger unit.The number of operational units in theGroup was reduced in 1998 by 92, to489. Substantial changes in this regardare being made within white goods inEurope. In order to achieve bettercoordination of this operation andabove all to improve service to largepan-European customers, we havedecided to establish a new company,Electrolux Home Products, which willbe the main company for white goodsin Europe.

Considerable effort has beendevoted in recent years to developingthe Group’s information infrastructureand standardizing IT systems andapplications. In 1998 a new ITorganization was implemented withnew management, which has globalresponsibility for our computer

operations. Investment in IT during theyear amounted to almost SEK 200m.Over the next few years we will makesubstantial investments aimed atsupporting business operations withnew technology in order to reduce costsand improve our customer service.

With regard to the year 2000 issue,more than half of the Group’s systemsfor administration and production arenow Y2K-compliant. The goal is for allsystems to be compliant by mid-1999.The total cost of Y2K-compliancy isestimated at approximately SEK 320m.We do not expect any problems to arisein connection with currently or previouslysold products.

A new organization for the Group’spurchasing operations was establishedduring 1998, also with new management.Electrolux annual purchases of goodsand service amount to approximatelySEK 55 billion, and the Group’s sizemust be utilized as far as possible toachieve quality improvements and costreductions in this area as well.

Purchasing activities should also bebetter integrated in product developmentand production. The new organizationgives us a more systematized decision-making process, with buyers who haveglobal responsibility in different productareas, and a Group purchasing council

10

Improved logistics for more accurate deliveries

90

75

60

45

30

15

0

820

790

760

730

700

670

640

9706 9709 9712 9803 9806 9809 9812

Order fill rate, %

No. Sq m

Inventory days

Sq m% No. of days

• Within white goods in Europe theorder fill rate, i.e. right productto right place at right time, hasimproved more than 30% since start of restructuring program.

• Storage area reduced by about 15%.

• Goal is a 25% reduction in storagearea by year-end 1999.

A 100% order fill rate means that the right products are

delivered in the right quantity on precisely the day specified

by the customer. If one of these criteria is not met,

e.g. 9 of 10 products are delivered, the fill rate is 0%.

• New, business-oriented IT organi-zation with global responsibility.Investment in IT will result in lowercosts and improved customer service.

• Greater coordination of purchasingthrough new organization, includingglobal buyers.

• Number of operational units reducedby 92 in 1998, to 489.

More cohesive GroupImplementing the comprehensivecutbacks and changes comprised by therestructuring program is a very painfulprocess for Electrolux. I am impressedby the way our personnel have performedthis difficult task.

Continued streamliningThe sale of Överums Bruk in agriculturalimplements, the SIA group in items forinterior decoration, and GotthardNilsson in recycling of primarily alu-minium marks the divestment of alloperations outside our three core areas,Household Appliances, ProfessionalAppliances and Outdoor Products.

Eng A/R-98 PP 08-13 Q3 99-03-31 17.03 Sidan 10

• Focus on fewer, stronger andwell-defined brands.

• Consistent positioning in allmarkets where they are used.

• Use the corporate brandElectrolux as an endorsement forall product brands.

11


that includes the heads of all six businesssectors. While the total number ofsuppliers is being reduced, somepurchases are being shifted fromtraditional markets to Eastern Europeand Asia.

New brand policyNumerous acquisitions have givenElectrolux many brands, particularly inHousehold Appliances and ProfessionalAppliances. These brands are of coursesubstantial assets, but they also createcomplexity in operations. In addition,some brands have unclear or evencontradictory positions in the market.

Following comprehensive work onthe brand issue over the past two years,in December 1998 a new brand policywas finalized that involves focusingresources on a smaller number of largeand well-defined brands. These will bepositioned consistently in all marketswhere they are used, although in somecases there will be local adaptations.The brand policy also involves greateremphasis on Group membership, as anendorsement of Electrolux will beincluded in communications for theother brands. Implementation of thenew policy began immediately andwill be completed within the next three years.

Human resource activities In human resource activities, we focusprimarily on creating leadership thatfeatures greater diversity and betterreflects the scope of the Group in termsof geography, customers and personnel.

It is important for the Group to beperceived as an attractive employer byrecent university graduates in order tofacilitate recruitment of younger per-sonnel. We are also implementingmeasures to stimulate greater mobilityfor our managers between countriesand operations. During the year, theproject for an internal labor market wasexpanded, and will be implementedthroughout the Group during 1999.

A number of training courses wereimplemented during the year withinElectrolux University on such subjectsas leadership, project management, andstrategic development. One importantpurpose of this training is to contributeto a common Electrolux culture.

Changes in management and theBoard of DirectorsTwo members of the Group’s executivemanagement retired with pensions in1998, and another will leave early in1999. We will thus have three newmembers in executive management.The Annual General Meeting in Aprilalso approved several changes in theBoard of Directors. Rune Andersson,Chairman of the Boards of TrelleborgAB and Svedala Industri AB, waselected as new chairman, succeedingAnders Scharp. The Board also becamemore international with the election ofNobuyuki Idei, President of SonyCorporation, and Karel Vuursteen,President of Heineken N.V.

Increased focus on shareholder valueThe Annual General Meeting alsoapproved the Board’s proposal for achange in the voting rights of B-shares,from 1/1000 to 1/10. The share ofvoting rights for the 356 millionB-shares thus rose from 3.4% of the

total to 78.1%, while the share ofvoting rights for the 10 million A-sharesdecreased from 96.6% to 21.9%. Thechange was made to promote interest inthe Electrolux B-share and its valuation.

In order to facilitate trading andgreater distribution of shares, the Boardhas decided to list the B-shares in botheuro and Swedish kronor on theStockholm Stock Exchange. Electroluxwill thus be one of the first Swedishcompanies to utilize the possibility of adouble listing.

The trading price of B-shares roseby 39% in 1997 and 27% in 1998. Thiswas higher than the general index forthe Stockholm Stock Exchange, whichrose by 25% and 10% in these twoyears. The volume of B-shares tradedhas risen in both Stockholm andLondon since the beginning of 1997,while the proportion of foreign ownersalso has increased.

The Board has proposed a dividendof SEK 3.00 for 1998, which is in linewith our goal of a dividend that corre-sponds to 30-50% of net income forthe year.

New brand policy

Eng A/R-98 PP 08-13 Q3 99-03-31 17.03 Sidan 11



During the year we continued todevelop our internal system for moni-toring results and profitability in orderto achieve greater focus on value forshareholders. On the basis of a market-defined cost of the capital employed inthe Group, in the light of currentinterest-rate levels and the Group’smarket capitalization, we are expectedto achieve a return of about 17% on netassets in order to create sufficient valuefor shareholders.

The above graph shows the trendfor the return on the Group’s net assetsbetween 1993 and 1998. The horizontalline shows different combinations ofoperating income and net assets inrelation to net sales that provide areturn of 17%. Our goal is to be abovethe line in the upper left-hand corner.

Similarly, goals for the return onnet assets for business sectors as well asfor product lines have been set. Thetargets for returns for the sectors varybetween 14% and 22%, depending onthe geographical spread of assets, as wellas differences in interest rates, tax ratesand risk. Targets for specific productlines are higher in some cases.

Achieving a return of 17% onexisting net assets in 1998 wouldhave required operating income ofSEK 7,500m. We are thus still notcreating value for shareholdersaccording to our model, but the rateof improvement has been good.

During 1999 we will issue optionsto senior management for the first timein accordance with the annual program

that was approved by the Board in1997. The program is tied to an increasein value for shareholders from theprevious year.

Changes in our business environmentMost Electrolux product areas featurecontinued globalization and increasingcompetition. The market in Europe isbecoming more integrated. The singlecurrency will involve greater trans-parency that will affect the pricing ofour products. The European market alsoshows an ongoing consolidation of theretail structure toward larger com-panies that operate in several countries.New sales channels are emerging,electronic shopping most of all.Increased environmental awarenessamong consumers and new environ-mental regulations and legislationrequire more resource-efficientproducts and processes.

However, the changes in thebusiness environment compriseopportunities as well as threats. Thelaunch of the euro means that we haveto concentrate more on strategicmarketing issues. On the whole, theeuro will have a positive effect on ouroperations, through lower transactioncosts and a considerably reducedcurrency exposure. About 40% of theGroup’s sales are in countries that arepresently members of the EMU. As of1999, the euro is already being used asa means of payment for transactionswithin the Group. Over the next fewyears we will gradually convert to the

euro for billing customers and payingsuppliers. With regard to a possibletransition to financial reporting in theeuro, we will wait for a change inSwedish legislation.

The consolidation of the retailsector will favor large companies thatcan offer pan-European service.Electrolux is the largest white-goodsmanufacturer in Europe, with broadgeographical coverage and several of themost valuable brands. An extensiveproduct range and a large number ofbrands enables offering a high degree ofdifferentiation to specific customers.The marketing and logistics functionsare also being changed in order to offerimproved service to both large andsmall retailers, as well as reduced costsfor both parties.

Shopping and demand for customerservice on the Internet will grow at arapid rate over the next few years. Atpresent we are selling a limited range ofspare parts and accessories on a trialbasis on the net. During 1999 thisoffering will be expanded, and newservices in cooperation with retailerswill also be offered.

With regard to demands forproducts and processes with lowerenvironmental impact, Electrolux haslong had the stated strategy of being theleader. The Group has a number ofenvironmentally leading products, and is well-prepared for changes in this area.The products with the best environ-mental features usually show profitabilitythat is above the average for Groupproducts. Within white goods in Europe,these products account for 16% of totalunit sales, but 24% of the gross margin.Reduced consumption of energy andwater means lower operating costs andlower total costs for consumers.

Design will become increasinglyimportant for making products moreattractive and giving consumers greaterfreedom of choice. During the year wearranged an exhibition on the historyof Electrolux design, which attracteda good deal of attention. We alsoreceived an award for a refrigeratordoor-handle that makes life easier forthe disabled.

12

Return on net assets

1993

RNA 17%

1998

19961995 1997

1994

0.36 0.38 0.40 0.42 0.44Net assets/Net sales

Ope

ratin

g m

argi

n %

8

7

6

5

4

3

2

1

0

The graph shows the return on netGroup assets 1993-98.

The green line shows combinations ofoperating margin and net assets inrelation to sales that generate areturn of 17%.The goal is to be abovethe line in the upper left-hand corner.

Eng A/R-98 PP 08-13 Q3 99-03-31 17.03 Sidan 12


Good prospects for ElectroluxElectrolux has a good foundation in theform of leading market positions, largesales volumes, strong brands and a goodproduct range. Internal changes aimedat improving efficiency are creatingmore room for pro-active investmentsin such areas as product developmentand marketing.

I am convinced that Electrolux willhave good prospects for growth in bothtraditional and new markets. Althoughin relative terms shares are high inEurope and North America, there is stillroom for expansion in a number ofcountries and product areas.

About one-third of the worldmarket for white goods is in Asia andLatin America, which today account for10% of total Group sales, and for evenless of white-goods sales. The short-termgoal is to stabilize the existing opera-tions in these markets, particularly inBrazil, China, India and the ASEANcountries. However, the long-term goalis to grow in these markets, in whitegoods as well as in other product areas.

Outlook for 1999We expect relatively unchangeddemand in Europe and the US during1999, but we are prepared to act ifthere is a decline. Plans have been madein anticipation of a further weakeningof the Brazilian market.

We are focusing on completing therestructuring program as well as othercurrent internal changes. In the absenceof renewed turbulence in the financialmarkets and a subsequent large declinein demand in our major markets, weexpect to achieve a continuedimprovement in income in 1999.

M I C H A E L T R E S C H O W

President and CEO

At the start of the year Electroluxshowed a prototype of the

world's first robot vacuum cleanerfor household use.

Michael Treschow nextto Oz, the new Zanussirefrigerator that waslaunched during the year.This model and thecooker shown above werecreated at the Group’sdesign center in Italy.

Product development and design

Improving internal efficiency creates room forinvestments in e.g. product development. Design isalso becoming more important for making productsmore attractive and more user-friendly, and for givingconsumers greater freedom of choice.

“The Lighthouse” is anew design concept fora refrigerator that alsoserves as a table or a

working surface. Itfeatures different

temperature zones, andcan be installed eitherbuilt-in or as a stand-

alone unit.

Electrolux receivedan award in 1998 for

a new refrigeratordoor-handle that

makes it easier fordisabled people to

open the door.

The Teo cooker is partof the same series as

the refrigerator shownbelow.The curved

forms of theseproducts represent anew design language

for white goods.

Eng A/R-98 PP 08-13 Q3 99-04-14 08.20 Sidan 13



Client: ElectroluxDate: 08/03/99

Project: Annual Report 1998 SwedishOrder no:

Project no: P0838Operator: Bp

ID No: G10171Spell Checked:

Page no:Proof Reader:

14

Key data 19981) 19971) 1996 1995 1994

Net sales, SEKm 84,581 81,419 73,539 75,209 66,272

Operating income, SEKm2) 4,065 2,943 2,618 2,844 2,707

Operating margin, %2) 4.8 3.6 3.6 3.8 4.1

Net assets, SEKm 26,953 33,383 28,743 24,484 23,553

Return on net assets, %2) 15.3 9.1 9.2 10.9 10.7

Average number of employees 80,302 86,370 85,576 83,492 77,806

Capital expenditure, SEKm 2,932 3,349 3,633 3,579 2,772

1998 Share 1997 ShareNet sales by product line SEKm % SEKm %

White goods3) 64,605 76.4 60,447 74.3Floor-care products 8,436 10.0 8,936 11.0Components 5,590 6.6 4,761 5.8Leisure appliances 3,913 4.6 3,521 4.3Kitchen and bathroom cabinets 1,221 1.4 2,137 2.6Other 816 1.0 1,617 2.0

Total 84,581 100.0 81,419 100.0

1) Excluding items affecting comparability.2) As of 1998 common Group costs are reported separately and not distributed among

the business areas. The figures for the previous years have been adjusted accordingly.3) Including room air-conditioners.

• Increased demand in Europe andNorth America, sharp decline inLatin America and Asia

• Substantial increase in operatingincome for white goods

• Operating income and profitabilityconsiderably improved for thisbusiness area

• Divestment of kitchen andbathroom cabinets product line

This business area comprises mainlywhite goods, which accounted for 76%of sales in 1998, corresponding to morethan half of total Group sales. The otherproduct areas comprise floor-careproducts, absorption refrigeratorsfor caravans and hotel rooms, and com-ponents, i.e. compressors and motors.

The US operation in kitchen andbathroom cabinets was divested as ofJune 12. The corresponding operationin Europe was divested as of July 1.

Market positionElectrolux is the European marketleader in white goods, and throughFrigidaire Home Products is the thirdlargest producer in the US. The Groupis also the second largest producer ofwhite goods in Brazil.

The Group is also the world leaderin floor-care products, absorption refrig-erators for caravans and hotel rooms, andcompressors for refrigerators and freezers.

The Electrolux range of built-in ovens for theEuropean market now includes a model that canbe used for steam-cooking.

White goodsSales of white goods rose in 1998 by3% in comparison with 1997. About60% of total sales referred to Europe,while North America accounted formore than 30% and Brazil for about 5%.

Despite a substantial decline inBrazil, this product line achieved aconsiderable overall improvement inoperating income and margin.72.0%

Share of total Group sales

Net sales

94 95 96 97 98

Operating income and return on net assets

Operating income, SEKm

Return on net assets, %*Excluding items affecting comparability

%18

15

12

9

3

6

0

94 95 96 97* 98*

90,000

75,000

60,000

45,000

30,000

15,000

0

SEKm

4,200

3,500

2,800

2,100

1,400

700

0

SEKm

ENG A/R-98 PP 14-21 Q3 99-03-31 21.08 Sidan 14

up front in America

In 1996, Electrolux launched the front-loaded Frigidaire Tumble ActionWasher in the US. Sales have grown impressively, a considerableachievement in a market where front-loaded washers are unfamiliar.

Built on a European product platform and adapted to the needs ofthe US consumer, the Frigidaire Tumble Action Washer achievessuperior washing performance. It is environmentally friendly, and cansave customers over $100 a year in water, energy and detergent costs.

No surprise, then, that it has been rated no. 1 by a leading consumermagazine two years in a row, and is designated an ENERGY STAR®

product by the US Department of Energy.

An automatic dispenser fordetergent, bleach and fabricsoftener.

Easy-to-use front-mountedcontrols for simple selectionof washing cycles.

An extra-large high-capacitystainless-steel wash drumreduces the number of loads.

ENG A/R-98 PP 14-21 Q3 99-03-31 17.24 Sidan 15








16

Operations in EuropeThe European market for white goodsincreased in volume by 4.5%. Theupturn referred mainly to the first andsecond quarters. All Western Europeancountries except Austria showedgrowth. In terms of specific productareas, the largest increases werereported for tumble-dryers, ovens, hobs,dishwashers and washing machines.The Western European market in 1998exclusive of microwave ovens is esti-mated at about 48.6 (46.5) millionunits.

Group sales were higher than in1997. Higher sales volumes togetherwith implemented restructuring led to aconsiderable improvement in operatingincome and margin. However, a fire atthe refrigerator plant in Hungary and asharp drop in deliveries to Russia had anadverse effect on both sales and incomeduring the last two quarters of the year.

Operations in the USThe American white-goods marketincreased in volume by almost 9%. Allproduct areas showed good growth.

The market for core appliances inthe US during 1998, i.e. deliveries fromdomestic suppliers plus imports,excluding microwave ovens and roomair-conditioners, amounted to 35.8(32.9) million units.

The Group’s operation in FrigidaireHome Products reported strong growthin volume, which together with higherinternal efficiency led to a markedimprovement in operating income.

Operations in BrazilThe market for white goods in Brazildecreased by about 17%. All productareas showed a decline.

Group sales decreased considerablyin comparison with 1997. Lower salesvolumes, costs referring to personnelcutbacks and charges for doubtfulreceivables led to a substantial dropin operating income.

Structural changesA refrigerator plant in Finland and afreezer plant in Hungary were shutdown during the fourth quarter, withinthe framework of the on-goingrestructuring program. Comprehensiverationalization was also implementedat the plants in Germany. Fourteenwarehouses were also closed.

Substantial changes aimed atincreasing efficiency were implementedin the marketing, sales and logisticsfunctions, which led to improvedcustomer service.

As part of the consolidation ofproduction and development of new-generation products, the number ofproduct variants is being reducedthrough development of new commonplatforms.

In 1999 the Group launches a new absorptionrefrigerator with a handle and wheels that caneasily be detached and replaced. It can be operatedon alternative sources such as 12 or 230 V, or onLP-gas, depending on where it is used.

now is a new range of refrigerators thatenables the consumer to choose variouscombinations of colors and materials fordoors, handles and fittings such as shelvesand drawers.

The above refrigerator has a door with awooden handle. The interior features rattandrawers, wooden shelves, and other fittingsin matching orange.

“Metal” is an interior that includes stainlesssteel shelves and drawers with transparentfittings.

ENG A/R-98 PP 14-21 Q3 99-03-31 17.26 Sidan 16






17

“Oxygen”, the latest vacuum cleaner,features improved 440 W suction powerand a new, more efficient filter. Thecurved tube makes it easier to cleanunder furniture without bending over.


New organization in EuropeThe European white-goods market isgradually becoming internationalized interms of consumer attitudes andpurchasing behavior. At the same time,the retail structure is changing in thedirection of larger and more interna-tional chains, which in turn generatesincreased requirements for customerservice from suppliers.

In order to increase efficiency andbetter coordinate the operation on apan-European basis, a comprehen-sive organizational change will beimplemented within white goods inEurope in 1999-2000. The operationwill be run through the ElectroluxHome Products company, based inBelgium. All pan-European processessuch as product development, mar-keting, brand positioning, productionand logistics as well as service will bemanaged through this company.Electrolux Home Products will beresponsible for administration, invoicingand financing for the entire operation.The company will also be in charge ofservice to large international customers.

New joint venture in IndiaAt the start of October an agreementwas reached on a joint venture withVoltas Ltd in India. In two phases,Voltas will transfer its operations inrefrigerators, washing machines andcompressors to a new company inwhich Electrolux owns 74% of thecapital and Voltas 26%. The first phasewas completed in October 1998, andthe remainder will be transferred inApril 1999. The new company will begradually coordinated with the Group’sother white-goods operation in India.

The establishment of the newcompany is expected to give Electroluxannual sales of white goods in India ofapproximately INR 7,900 million(approximately SEK 1,500m). TheGroup will thus become one of thethree largest producers of white goodsin the Indian market, and the largest inthe refrigerator product area.

Other Household AppliancesDemand for floor-care products rose inboth Europe and North America,although primarily at the low end of themarket. Total sales for this product linedeclined from 1997 as a result of lowervolumes in Asia and Latin America,particularly within direct sales. Operatingincome and margin improved, mainlyon the basis of good income growth forthe US operation.

The market for absorptionrefrigerators for caravans and hotelrooms showed good demand. TheGroup achieved higher sales primarilyon the basis of a good performance inNorth America. Operating income forthe leisure appliances product lineimproved over 1997.

Total demand for compressors waslower than in the previous year as aresult of the decline in Asia and LatinAmerica. The European and NorthAmerican markets showed growth,however. The components product linereported higher sales and improvedoperating income.

ENG A/R-98 PP 14-21 Q3 99-03-31 17.26 Sidan 17



• Largely unchanged demand inmost product areas

• Marked improvement in operatingincome for food-serviceequipment

• Strong increase in operatingincome and profitability for thisbusiness area

• Divestment of operations incleaning equipment and heavy-duty laundry equipment

The product lines in this business areainclude food-service equipment, laundryequipment and refrigeration equipment.Food-service equipment is the largest singleproduct line, accounting for more than halfof sales. It includes kitchen equipment forhotels, restaurants and institutions, as wellas food and beverage vending machinesand equipment for bakeries.

Laundry equipment comprises washingmachines, tumble-dryers and mangles forapartment-house laundry rooms, laun-derettes, hotels and institutions. Refrig-eration equipment comprises cabinets forfood retailers as well as visicoolers for thesoft-drink sector.

As of January 1, 1998 the Groupdivested Senkingwerk, which producesheavy-duty laundry equipment. As ofOctober 1, the operation in cleaningequipment was also divested.

Market positionElectrolux is the world leader in laundryequipment. The Group is the world’ssecond largest producer of food-serviceequipment, and is the European marketleader. Electrolux is also one of theworld’s largest producers of refrigerationequipment for the global market.

Operations in 1998Demand for food-service equipment inEurope was largely unchanged. Groupsales increased, mainly in EasternEurope, France and Finland. There was amarked improvement in operating






18

Key data 19981) 19971) 1996 1995 1994

Net sales, SEKm 11,574 11,413 10,869 11,081 10,467

Operating income, SEKm2) 723 340 213 432 427


Net assets, SEKm 3,191 3,526 3,901 3,450 3,476



Capital expenditure, SEKm 215 274 300 364 237


Food-service equipment 5,891 50.9 5,407 47.4Laundry equipment3) 2,380 20.6 2,610 22.9Refrigeration equipment 2,564 22.1 2,316 20.3Cleaning equipment4) 739 6.4 1,080 9.4

Total 11,574 100.0 11,413 100.01) Excluding items affecting comparability.2) As of 1998 common Group costs are reported separately and not distributed among

the business areas. The figures for the previous years have been adjusted accordingly.3) Senkingwerk had annual sales of approximately SEK 200m and about 170 employees.4) Cleaning equipment had annual sales of approximately SEK 850m and about 850 employees.

9.8%


94 95 96 97 98



94 95 96 97* 98*

Net sales

12,000

10,000

8,000

6,000

4,000

2,000

0

SEKm


750

625

500

375

250

125

0

SEKm %24

20

16

12

4

8

0

income and margin as a result ofrestructuring, although from a low levelin 1997. Sales and income for food andbeverage vending machines continued toshow strong growth.

Demand for laundry equipment rosesomewhat in Europe, but declined in theUS and the ASEAN countries. Thisproduct line achieved higher salesvolume in several European countries.Overall sales were lower than in 1997,however, mainly as a result of thedivestment of the operation in heavy-duty laundry equipment. Operatingincome was lower, while marginremained good.

Market conditions in Europe alsoimproved for refrigeration equipment. Inthe US, demand was on a level with1997 in the segments where the Groupoperates. The ASEAN countries showeda considerable decline, however. Sales forthis product line increased, mainly inEastern Europe, China and the US.Higher sales volumes and implementedinternal changes led to an improvementin operating income from the previousyear’s low level.

Structural changesSeven plants were closed within theframework of the restructuring program,in Sweden, Germany, Austria, the USand Canada. Since the start of the re-structuring program eleven plants with a total of about 650 employees andseven warehouses have been closed.

ENG A/R-98 PP 14-21 Q3 99-03-31 17.26 Sidan 18






19

19Electrolux Årsredovisning 1998

customer driven

When Statoil developed “Mango”, an exciting new retail concept,they turned to Electrolux to help them make their vision a reality.

Mango is an advanced convenience store that offers much morethan a traditional service station – a grocery store and on-sitebakery, take-away meals, a shirt laundry, video rentals and a widerange of personal care products.

Electrolux delivers the refrigeration systems, laundry appliancesand food-service equipment that keep Mango on the road.Another example of how Electrolux helps professional customersto develop their businesses.

Electrolux ovens provide fresh bread all day.

Shirts are washed overnight with Electrolux Wascator laundry equipment.

Electrolux refrigeration equipment keeps produce fresh around-the-clock.

ENG A/R-98 PP 14-21 Q3 99-03-31 17.28 Sidan 19

Outdoor Products


• Weaker market for chain saws,higher demand for gardenequipment

• Unchanged operating income forHusqvarna, margin remains high

• Considerable improvement inincome for Flymo

• Sales and operating income higherfor this business area, marginunchanged

• Acquisition of McCulloch’soperation in Europe, divestment of operation in agriculturalimplements

Outdoor Products comprises chain sawsfor both professional users and theconsumer market, as well as electric-and gasoline-driven garden equipmentsuch as garden tractors, lawn mowers,lawn trimmers and leaf blowers.

Operations are run throughHusqvarna and Flymo, with productionunits in Europe, and Frigidaire HomeProducts in the US. The US operationaccounted for almost 60% of sales inthis business area during 1998.

Husqvarna sells a complete range ofoutdoor products focused on the highend of the world market, such as chainsaws for professional users. Flymoconcentrates on electric-driven gardenproducts for the European market,and the operation in Frigidaire HomeProducts includes mainly garden tractors,lawn mowers, lawn trimmers and leafblowers, as well as light-duty chain saws.

In February 1999 an agreement wasreached for acquisition of the Europeanoperation of McCulloch, an Americancompany that produces light-duty chainsaws, lawn trimmers, hedge trimmersand leaf blowers. In 1998 this operationreported sales of USD 81 million(approximately SEK 650m) and had250 employees. The agreement givesElectrolux the right to the McCullochbrand outside North America. McCulloch’sconsumer products are complementaryto the Group’s Husqvarna products.Substantial synergies can be achieved inboth sales and production.

Market positionElectrolux is the world leader in chainsaws, with a global market share of over 40%. The Group is the world’slargest producer of lawn mowers,garden tractors, lawn trimmers andother portable garden equipment.

Operations in 1998Demand for professional chain saws in1998 was somewhat lower than in 1997.The decline is traceable mainly to Asiaand Oceania, but the market in WesternEurope also declined considerablyduring the second half of the year.Demand in the US remained good.Husqvarna’s sales were on a level with1997. Operating income was unchanged,and margin remained high.

The US market declined in volumefor light-duty chain saws. However,demand in America increased for suchproducts as garden tractors, lawnmowers and trimmers. Total sales ofoutdoor products for Frigidaire HomeProducts were higher than in 1997.Operating income was largely un-changed and margin declined.

Good market growth was alsoreported for garden equipment inEurope. Flymo achieved considerablyhigher sales of lawn mowers, and amarked improvement in operatingincome from the previous year’slow level.






20

Key data 19981) 19971) 1996 1995 1994

Net sales, SEKm 19,295 18,087 15,061 15,902 15,237

Operating income, SEKm2) 1,788 1,680 1,331 1,500 1,588


Net assets, SEKm 8,703 7,034 7,367 7,474 7,460



Capital expenditure, SEKm 550 637 405 504 467


Forestry and garden equipment 19,295 100.0 17,820 98.5Agricultural implements – – 267 1.5

Total 19,295 100.0 18,087 100.0

1) Excluding items affecting comparability.2) As of 1998 common Group costs are reported separately and not distributed among

the business areas. The figures for the previous years have been adjusted accordingly.

16.4%



94 95 96 97* 98*


%24

20

16

12

4

8

0

1,800

1,500

1,200

900

600

300

0

SEKm

94 95 96 97 98

Net sales

24,000

20,000

16,000

12,000

8,000

4,000

0

SEKm


ENG A/R-98 PP 14-21 Q3 99-03-31 17.28 Sidan 20







21

covering new ground

The new rear bagger tractor with TrioClip capability is beinglaunched in 1999 to meet growing demand in Europe.

The new tractor offers 3-in-1 capability for mulching, rearbagging and rear discharge along with superior cutting ability.It is the result of a successful collaboration between Husqvarna in Europe and Frigidaire Home Products in the US.

The TrioClip tractor is a good example of how Electroluxapplies its experience and knowledge of different markets to build superior products.

The unique TrioClip featuresets the tractor in mulchingmode to recycle cuttings backto the lawn.

Ergonomically designed gear-shift means simpler,smoother drive.

A novel easy-releasemechanism makes unloadingmore convenient.

ENG A/R-98 PP 14-21 Q3 99-03-31 17.30 Sidan 21

Report by the Board of Directors for 1998


Net salesNet sales for the Electrolux Group in1998 rose to SEK 117,524m, as againstSEK 113,000m in the previous year, ofwhich 95% (95) or SEK 111,873m(107,115) was outside Sweden. Of the4% increase in sales, changes in theGroup’s structure accounted for –2%,changes in exchange rates for +2%, andvolume and price/mix for +4%. Forchanges in Group structure, see page 27.

Exports from Sweden in 1998amounted to SEK 8,963m (9,399), ofwhich SEK 6,513m (6,708) was toGroup subsidiaries. The Swedish plantsaccounted for 8.3% (8.5) of the totalvalue of Group production.

Income and profitabilityGroup operating income amounted toSEK 7,028m (2,654), which correspondsto 6.0% (2.3) of net sales, and incomeafter financial items amounted to SEK5,850m (1,232), which corresponds to5.0% (1.1) of net sales. Income beforetaxes improved to SEK 5,926m (1,283),corresponding to 5.0% (1.1) of net sales. Net income after minority interestsand taxes amounted to SEK 3,975m(352), corresponding to SEK 10.85(0.95) per share.

Items affecting comparabilityThe above figures include SEK 964mreferring to items that affect

comparability, comprising the net ofcapital gains and costs arising fromdivestments of major operations, seepage 27. Income for 1997 included acapital gain of SEK 604m and aprovision of SEK 2,500m for theongoing restructuring program.

Exclusive of items affectingcomparability, operating incomeimproved by 33% to SEK 6,064m(4,550), corresponding to 5.2% (4.0)of net sales, and income after financialitems improved by 56% to SEK 4,886m(3,128), corresponding to 4.2% (2.8) ofnet sales. Income before taxes improvedby 56% to SEK 4,962m (3,179),corresponding to 4.2% (2.8) of netsales. Net income increased by 82%to SEK 3,235m (1,782).

Operating income was chargedduring the second quarter with coststotalling SEK 175m referring todoubtful accounts receivable andadjustments in response to the declinein market conditions in Brazil and theASEAN countries. A correspondingcharge of approximately SEK 150m wastaken during the fourth quarter of 1997.

Effects of changes in exchange ratesThe Swedish krona was highly volatileduring the year and depreciated againstmost other currencies, particularlyduring the second half of the year.The greatest decline was against the

22

1) The Total Competitiveness Weighted Indexshows the value of the krona in relation tocurrencies in the countries that are Sweden’smajor competitors.

currencies that are presently linked tothe euro. Expressed as a change in the TCW Index1), the krona was strongestin May and weakest in December.The value of the krona fell by a totalof more than 7% during the year. Atyear-end 1998 the rate against the DEMwas about 9% lower than at the start ofthe year.

Exchange rates in both the westernand Asian currencies generally showedrelatively large movements during theyear. The currencies now in the EMUwere stable against each other, however.

Operating income for 1998 wasfavorably effected in the amount ofapproximately SEK 200m by translationof income statements in foreign subsidi-aries. Overall, changes in exchange ratesin terms of both translation and trans-actions had a net positive effect ofapproximately SEK 50m on theGroup’s operating income. This effect isprimarily due to the weakening of theSwedish krona. The strengthening of theGBP had a favorable effect on income,but this was counteracted by theadverse effects on income of higher

Net sales rose by 4% in 1998 for comparableunits, after adjustment for exchange-rate effects.

Operating margin in 1998 improved to 6.0%, or5.2% excluding items affecting comparability.

Return on equity in 1998 increased to 19.3%, or14.8% excluding items affecting comparability.

Net sales

93 94 95 96 97 9889 90 91 92

120,000

80,000

60,000

40,000

20,000

0

100,000

SEKm

Sweden

Outside Sweden


93 941)

95 96 972)

982)

89 90 91 92


Return on net assets, %

7,500

5,000

3,750

2,500

1,250

%18

15

9

6

3

00

6,250

SEKm

12

1)1994 Excluding capital gain of SEK 2,776m2)1997-98 Including items affecting comparability

93 95 9689 90 91 92

Income after financial items, SEKm

Return on equity, %

6,000

4,000

3,000

2,000

1,000

%24

20

12

8

4

00

Income and return on equity

5,000

SEKm

16

941)

972)

982)

1)1994 Excluding capital gain of SEK 2,776m2)1997-98 Including items affecting comparability

Eng A/R-98 PP 22-33 Q3 99-03-31 18.01 Sidan 22

23


rates for the DEM and the ITL. The neteffect on income after financial itemswas not significant.

In key ratios in which liquidity,net assets, inventories and accountsreceivable are given in relation to netsales, the exchange-rate effect has beeneliminated by translating net sales atyear-end rates.

For further information on theeffects of changes in exchange rates,see Currency risk on page 32.

ProfitabilityThe return on equity after taxes was19.3% (1.6), and the return on netassets was 16.3% (6.1).

Excluding items affecting compara-bility, the return on equity was 14.8%(7.9), and the return on net assets was13.7% (10.2). For definitions of keyratios, see page 54.

Net financial itemsThe financial crises in Asia, Russia andLatin America involved a lower growthrate for the world economy, withdeflationary trends in several importantcountries. This has resulted in acontinued decline in interest rates, aswell as very low levels for both short-and long-term rates, particularly inWestern Europe, but in the US as well.

The net of Group financial incomeand expense amounted to SEK –1,178m(–1,422), which corresponds to –1.0%(–1.3) of net sales. The improvement innet financial items is traceable toimproved cash flow and to generallylower interest rates.

1998 excl. 1997 excl.items affecting items affecting

Net sales and income 1998 comparability1) 1997 comparability1)

Net sales, SEKm 117,524 117,524 113,000 113,000Operating income, SEKm 7,028 6,064 2,654 4,550Margin,% 6.0 5.2 2.3 4.0Income after financial items, SEKm 5,850 4,886 1,232 3,128Income before taxes, SEKm 5,926 4,962 1,283 3,179Net income, SEKm 3,975 3,235 352 1,782Net income per share, SEK 10.85 8.85 0.95 4.85Return on equity,% 19.3 14.8 1.6 7.9Return on net assets,% 16.3 13.7 6.1 10.2Net debt/equity ratio 0.71 0.70 0.94 0.86Capital expenditure, SEKm 3,756 3,756 4,329 4,329

Net sales and income per quarter1st qtr 2nd qtr 3rd qtr 4th qtr Full year

Net sales, SEKm1998 28,567 32,308 28,516 28,133 117,5241997 26,345 30,928 27,906 27,821 113,000

Operating income, SEKm1998 1,376 2,224 1,675 1,753 7,028Margin,% 4.8 6.9 5.9 6.2 6.019981) 1,376 1,669 1,425 1,594 6,064Margin,% 4.8 5.2 5.0 5.7 5.21997 1,004 –572 1,102 1,120 2,654Margin,% 3.8 –1.8 3.9 4.0 2.319971) 1,004 1,324 1,102 1,120 4,550Margin,% 3.8 4.3 3.9 4.0 4.0

Income after financial items, SEKm1998 1,060 1,863 1,381 1,546 5,850Margin,% 3.7 5.8 4.8 5.5 5.019981) 1,060 1,308 1,131 1,387 4,886Margin,% 3.7 4.0 4.0 4.9 4.21997 683 –947 750 746 1,232Margin,% 2.6 –3.1 2.7 2.7 1.119971) 683 949 750 746 3,128Margin,% 2.6 3.1 2.7 2.7 2.8

Income before taxes, SEKm1998 1,075 1,868 1,399 1,584 5,92619981) 1,075 1,313 1,149 1,425 4,9621997 600 –911 764 830 1,28319971) 600 985 764 830 3,179

Net income, SEKm1998 667 1,230 985 1,093 3,97519981) 667 862 766 940 3,2351997 355 –753 462 288 35219971) 355 562 462 403 1,782

Net income per share, SEK1998 1.85 3.35 2.70 2.95 10.8519981) 1.85 2.35 2.10 2.55 8.851997 0.95 –2.05 1.25 0.80 0.9519971) 0.95 1.55 1.25 1.10 4.85

1) Excluding items affecting comparability. In 1998, these include net capital gains totalling SEK 964m and in 1997 a capital gain of SEK 604m as well as a provision of SEK 2,500m for the current restructuring program.

The Group’s long-term financial goals

Operating income as %of net sales 6.5–7%

Return on equity >15%

Inventories plus accounts receivable as % of net sales 30%

Net debt/equity ratio <1.0

Dividend as % net income 30–50%

Eng A/R-98 PP 22-33 Q3 99-03-31 18.01 Sidan 23



TaxesTaxes reported by the Group consist ofincome taxes, including deferred taxes.Real-estate taxes and similar chargeshave been included in operating incomesince 1994.

Total taxes for 1998 amountedto SEK 1,951m (931), correspondingto 32.9% (72.5) of income beforetaxes. Exclusive of items affectingcomparability, the actual tax rate was34.8% (43.9). The high tax rate in 1997was due among other things to the factthat losses in some countries referringmainly to the costs of the ongoingrestructuring program could not befiscally utilized during the year.

Cash flowThe cash flow generated by businessoperations and from investments roseconsiderably to SEK 3,922m (958),after adjustment for exchange-rateeffects. The improvement is traceablemainly to higher income, lower capitalexpenditure and higher proceeds ondivestment of operations.

Operations by business areaDemand increased during the yearfor both Household Appliances andOutdoor Products in Europe as wellas the US. Market conditions forProfessional Appliances were relativelyunchanged, however. A continued sharpdecline in demand occurred in Braziland Southeast Asia, which had anadverse effect particularly onHousehold Appliances.

The increase in operating incomeduring the year is traceable largely tothe Household Appliances businessarea, but Professional Appliances alsoreported a substantial improvement.Both business areas achieved consider-ably better operating margins. OutdoorProducts also reported higher incomethan in 1997, and unchanged margin.

Household AppliancesThe market for white goods in WesternEurope showed growth in volume of4.5% for the year as a whole. Theincrease refers primarily to the firstand second quarters.

24

Net sales by business area, per quarter, SEKm1st qtr 2nd qtr 3rd qtr 4th qtr Full year

Household Appliances1998 20,140 21,512 21,345 21,584 84,5811997 18,886 20,873 20,809 20,851 81,419

Professional Appliances1998 2,722 2,999 2,760 3,093 11,5741997 2,406 3,159 2,814 3,034 11,413

Outdoor Products1998 5,157 7,246 3,790 3,102 19,2951997 4,617 6,265 3,819 3,386 18,087

Other1)

1998 548 551 621 354 2,0741997 436 631 464 550 2,081

1) Gotthard Nilsson, etc.

Operating income by business area, per quarter, SEKmExcluding items affecting comparability

1st qtr 2nd qtr 3rd qtr 4th qtr Full year

Household Appliances1998 879 8131) 1,057 1,316 4,065Margin,% 4.4 3.8 5.0 6.1 4.81997 783 575 728 8571) 2,943Margin,% 4.1 2.8 3.5 4.1 3.6

Professional Appliances1998 103 223 177 220 723Margin,% 3.8 7.4 6.4 7.1 6.21997 –52 146 116 130 340Margin,% –2.2 4.6 4.1 4.3 3.0

Outdoor Products1998 488 751 348 201 1,788Margin,% 9.5 10.4 9.2 6.5 9.31997 441 664 343 232 1,680Margin,% 9.6 10.6 9.0 6.9 9.3

Other2)

1998 1 –25 – 35 –17 –761997 – 48 59 35 21 67

Common Group costs3)

1998 –95 –93 – 122 –126 –4361997 –120 –120 –120 –120 –480

1) Including a charge of SEK 175m in 1998 referring to Brazil and Asia.A corresponding charge of SEK 150m was taken in 1997.

2) Includes the operation in Gotthard Nilsson, costs in the financial operation, etc.In 1997 this item also included a capital gain of approximately SEK 50m on the divestment of the operation in goods protection.

3) As of the first quarter of 1998 these items are not distributed among the different business areas.The figures for the previous year have been adjusted accordingly.

Summary of cash flow, SEKm 1998 1997

Income after financial items 5,850 1,232Depreciation according to plan 4,125 4,255Capital gain/loss included in operating income –964 –658Provision for restructuring, not affecting liquidity in 1997 –1,122 1,809Taxes paid –2,135 –1,920Change in operating assets and liabilities –1,056 584Investments in operations –237 –968Divestment of operations 2,342 1,061Capital expenditure –3,756 –4,329Other 875 – 108

Total cash flow from operations and investments 3,922 958

Eng A/R-98 PP 22-33 Q3 99-03-31 18.01 Sidan 24

25


Group sales for this product areaincreased over the previous year. Highersales volumes and implementedrestructuring led to a considerableimprovement in operating income andmargin for the European white-goodsoperation. A fire at the refrigeratorplant in Hungary and a sharp declinein deliveries to Russia had an adverseeffect on both sales and income for thelast two quarters of 1998.

The white-goods market in the USincreased by almost 9% in volume.Frigidaire Home Products achievedstrong growth in volume, whichtogether with greater internal efficiencyled to a marked improvement inoperating income.

The market for white goods inBrazil declined in volume by about17%. Group sales in the Brazilianmarket were lower than in 1997, whichtogether with the costs of personnelcutbacks and charges for doubtfulaccounts receivable led to a substantialdecline in income.

Overall, the Group’s operation inwhite goods showed a considerableimprovement in operating income incomparison with the previous year.

Other household appliances alsoachieved higher operating income,mainly on the basis of greater salesvolumes and improved income for theoperations in room air-conditioners,leisure appliances and components.Floor-care products in the US alsoreported a substantial rise in operatingincome as a result of higher internalefficiency.

Total sales for the HouseholdAppliances business area increased incomparison with 1997. Operatingincome and margin improvedconsiderably.

Professional AppliancesDemand for food-service equipment inEurope was largely unchanged from1997. Group sales in this product areawere somewhat higher. There was amarked improvement in operatingincome as a result of implementedrestructuring, although from a very lowlevel in the previous year. The operationin food and beverage vending machines

continued to show strong growth insales and income.

Demand for professional laundryequipment increased in severalEuropean countries, but weakened inthe US and the ASEAN countries. Totalsales for this product line were lowerthan in 1997, mainly due to thedivestment of the operation in heavy-duty laundry equipment. Operatingincome declined somewhat, althoughmargin remained unchanged.

Sales of refrigeration equipmentrose in both Europe and new markets in Latin America and Asia. Higher volumes together with implementedrestructuring led to an improvement inoperating income for this product linefrom the low level of the previous year.

Overall, sales for ProfessionalAppliances were largely unchangedfrom the previous year. There was amarked increase in operating income,and margin more than doubled.

Outdoor ProductsDemand for chain saws for professionalusers was somewhat lower for the fullyear than in 1997. The decline istraceable mainly to Asia and Oceania,

but the market in Western Europe alsoweakened considerably during thesecond half. Demand in the USremained good. Sales for Husqvarnawere largely on a level with 1997.Operating income was unchanged and margin remained high.

The US market for hobby chainsaws showed some decline. However,demand for garden equipment in theAmerican market increased withinseveral areas. Total sales for the Group’sUS operation in outdoor products werehigher than in 1997. Operating incomewas largely unchanged, however, andoperating margin was lower.

Increased demand for gardenequipment in Europe together withlaunches of new products generatedgood growth in sales for Flymo.Operating income improved consider-ably from a low level.

Total sales and operating incomeimproved for the Outdoor Productsbusiness area compared to 1997, andmargin was unchanged.

1998 Share 1997 ShareNet sales by business area SEKm % SEKm %

Household Appliances 84,581 72.0 81,419 72.1Professional Appliances 11,574 9.8 11,413 10.1Outdoor Products 19,295 16.4 18,087 16.0Other1) 2,074 1.8 2,081 1.8

Total 117,524 100.0 113,000 100.01) Gotthard Nilsson, etc.

Operating income by business area 1998 Share 1997 ShareExcluding items affecting comparability SEKm % SEKm %

Household Appliances1) 4,065 67.0 2,943 64.7Margin, % 4.8 3.6Professional Appliances 723 11.9 340 7.5Margin, % 6.2 3.0Outdoor Products 1,788 29.5 1,680 36.9Margin, % 9.3 9.3Other2) –76 –1.2 67 1.5Common Group costs3) –436 –7.2 –480 –10.6

Total 6,064 100.0 4,550 100.0

1) Including a charge of SEK 175m in 1998 referring to Brazil and Asia.A corresponding charge of SEK 150m was taken in 1997.

2) Includes the operation in Gotthard Nilsson, costs in the financial operation, etc.In 1997 this item also included a capital gain of approximately SEK 50m on the divestment of the operation in goods protection.

3) As of the first quarter of 1998 these items are not distributed among the different business areas.The figures for the previous year have been adjusted accordingly.

Eng A/R-98 PP 22-33 Q3 99-03-31 18.01 Sidan 25



EquityGroup equity as of December 31, 1998amounted to SEK 24,480m (20,565),which corresponds to SEK 67 (56) pershare.

Equity/assets and net debt/equity ratiosThe equity/assets ratio increased to35.4%, as against 30.8% in 1997.Computation of this ratio involvesdeducting liquid funds from short-term borrowings.

The net debt/equity ratio, i.e. netborrowings in relation to adjustedequity, improved to 0.71 (0.94). TheGroup’s goal is that the net debt/equityratio should not exceed 1.0.

Liquid funds at year-end amountedto SEK 11,387m (9,834), correspondingto 9.5% (8.6) of net Group sales. TheGroup continued to amortize long-termloans during the year.

All of the above figures have beencalculated inclusive of items affectingcomparability. For definitions of theabove ratios, see page 54.

Net assetsNet assets, i.e. total assets less liquidfunds and all non-interest-bearingliabilities and provisions, increased to

SEK 43,399m (41,637). Net assetsamounted to 36.2% (36.5) of sales, afteradjustment for exchange-rate effects.

Net assets include assets referringto the operations for customer andsupplier financing in the amount ofSEK 3,415m (2,894).

As of 1999, the definition of netassets will be changed to comprisesolely the assets that generate operatingincome, and will thus be exclusive offinancial receivables. Applied for 1998,this would involve a decrease of SEK 3,068m in net assets and a returnon net assets of 17.6%.

Inventories and accounts receivableInventories in 1998 amounted toSEK 17,325m (16,454) and accountsreceivable to SEK 21,859m (21,184),which after adjustment for exchange-rate effects corresponds to 14.4%(14.4) and 18.2% (18.6) of netsales, respectively.

The Group’s goal is that inventoriesplus accounts receivable should notexceed 30% of sales.

Capital expenditure and R&D costsCapital expenditure in 1998 amountedto SEK 3,756m (4,329), of which SEK 477m (591) referred to Sweden.Capital expenditure thus correspondedto 3.2% (3.8) of net sales.

More than 50% of total capitalexpenditure during the year referred tomanufacturing processes in existingplants, and about 30% referred to newproducts. Investments in IT, which haveincreased steadily in recent years,accounted for about 5%.

Replacement of existing equipment,rationalization, and expansion ofcapacity each accounted for about one-third of capital expenditure in plants.

Major current projects includedevelopment of a new range of energy-efficient refrigerators within Frigidairein the US, and a common platform for anew series of washing machines in theEuropean white-goods operation.

Costs for research and developmentin 1998 amounted to SEK 1,535m(1,585), corresponding to 1.3% (1.4) ofnet sales.

26

Capital expenditure in 1998 amounted toSEK 3,756m, corresponding to 3.2% of net sales.

Capital expenditure

6,000

4,000

3,000

2,000

1,000

0

5,000

SEKm

93 94 95 96 97 9889 90 91 92

Sweden

Outside Sweden

Accounts receivable corresponded to 18.2% of netsales in 1998, as against 18.6% in 1997.

Inventories in relation to net sales in 1998remained unchanged at 14.4%.

93 94 95 96 97 9889 90 91 92

Inventories, SEKm

As % of sales, adjusted for exchange-rate effectsas of 1992

Inventories

20,000

16

24,000

16,000

12,000

8,000

4,000

%24

20

12

8

4

00

SEKm

93 94 95 96 97 9889 90 91 92

Accounts receivable, SEKm

As % of sales, adjusted for exchange-rate effects as of 1992

Accounts receivable

24,000

16,000

12,000

8,000

4,000

%24

20

12

8

4

00

16

20,000

SEKm

Capital expenditure 1998 Share 1997 Shareby business area SEKm % SEKm %

Household Appliances 2,932 78.1 3,349 77.4Professional Appliances 215 5.7 274 6.3Outdoor Products 550 14.6 637 14.7Other 59 1.6 69 1.6

Total 3,756 100.0 4,329 100.0

Change in equity, SEKm

Opening equity 20,565Dividend – 915Translation differences, etc. 855Net income for the year 3,975

Equity at year-end 24,480

Eng A/R-98 PP 22-33 Q3 99-03-31 18.01 Sidan 26

27


Ongoing restructuring programThe two-year restructuring programauthorized by the Board in June 1997has proceeded according to plan. Theprogram involves personnel cutbacksof about 12,000 on the basis of theshutdown of about 25 plants and 50warehouses, as well as comprehensivechanges in the Group’s marketing andsales organizations. The changes referprimarily to the Household Appliancesand Professional Appliances businessareas in Europe.

The aim of the program is to enablethe Group to achieve its long-termgoals of an operating margin of 6.5-7%and a return on equity of at least 15%.

Between the start of the program inJune 1997 and year-end 1998, a total of9,200 employees had left the Group, ofwhom 5,400 during 1998.

Eighteen plants have been shutdown or divested in the UK, Hungary,Sweden, Finland, the Czech Republic,Austria, France, Germany and NorthAmerica, eleven of them in 1998. Mostof these plants were in the ProfessionalAppliances business area. Negotiationsregarding shutdowns have been startedor completed for another two units.Thirty warehouses have also been shutdown or divested, 13 of them in 1998.Decisions have been made regarding theshutdown of another 9.

A total of approximately SEK 1,820mhas been utilized of the provision ofSEK 2,500m that was allocated for theprogram during the second quarter of1997. Approximately SEK 1,120m ofthe provision was utilized in 1998.About 80% of the total provision refersto the costs of personnel cutbacks. Theremainder refers to removal costs andwrite-downs on inventories and otherassets.

For additional information on therestructuring program, see the Reportby the President and CEO on page 9.

Acquisitions and divestmentsAs of January 1, 1998 the Groupdivested the operation in agriculturalimplements, which in 1997 had sales ofSEK 257m and about 250 employees, aswell as the SIA group, which marketsitems for interior decoration and in1997 had sales of approximatelySEK 535m and about 270 employees.As of January 1, 1998 the Group alsodivested Senkingwerk GmbH, whichproduces heavy-duty equipment forindustrial laundries and in 1997 hadsales of over SEK 200m and about170 employees.

The operation in kitchen andbathroom cabinets in the US, runthrough the Schrock Cabinet Company,was divested as of June 12. The corre-

sponding operation in Europe wasdivested as of July 1, comprisingBallingslöv AB in Sweden, DanskFormpladeindustri A/S in Denmark,and the Paula Rosa division in the UK.All operations in the kitchen andbathroom cabinets product line, whichin 1997 had total sales of SEK 2,137mand about 2,200 employees, have thusbeen divested.

As of October 1, the Groupdivested the operation in professionalcleaning equipment, including vacuumcleaners, wet/dry cleaners and scrub-bers, which had annual sales of SEK 850m and about 850 employees.

The Gotthard Nilsson group,engaged in recycling and production ofsecondary aluminium, was divested asof December 31, 1998. In 1997 thecompany had sales of about SEK1,900m and about 500 employees.

In December the Group alsodivested its 50% stake in the Frenchcompany CEFEMO, which producesmicrowave ovens. This operation wasrun as a joint venture with the Italiancompany ELFI and became part of theGroup in connection with the acqui-sition of AEG Hausgeräte.

In December an agreement wasreached for the divestment of AB Lux,the Group’s company for direct sales ofhousehold appliances. Lux reportedsales of SEK 1,500m in 1997, withoperations in 35 countries and about7,400 employees. The divestment hasnot yet been finalized.

The divested operations togetherwith Lux had total annual sales ofapproximately SEK 7,400m and about11,600 employees.

Divestments of major operations in1998 generated a total capital gain ofSEK 1,153m. In addition a cost ofSEK 89m was charged for the divest-ment of the holding in CEFEMO.A provision of SEK 100m was alsomade for costs related to the divestmentof the Lux operation. The net total ofitems affecting comparability in 1998amounted to SEK 964m.

1997 1998 1997-98 % ofOngoing restructuring program Full year Full year Total target Target

Personnel cutbacks 3,800 5,400 9,200 77 12,000No. of plants closed 7 11 18 72 25

Negotiations for closure 9 2 2 8No. of warehouses closed 17 13 30 60 50

Negotiations for closure 16 9 9 18Utilized from

provision, SEKm 700 1,120 1,820 73 2,500

Decided closures – major plantsProduct line Plant No. of employees Completion date

Food-service equipment Alingsås, Sweden 180 June, 1998Floor-care products Luton, UK 600 Sept., 1998Refrigerators Pori, Finland 200 Nov., 1998

Spennymoor, UK 600 April, 1999Freezers Jászárokszállás, Hungary 220 Nov., 1998Tumble-dryers,rationalization Nuremberg, Germany 250 4th qtr., 1999

Eng A/R-98 PP 22-33 Q3 99-03-31 18.01 Sidan 27



New joint venture in IndiaAt the start of October an agreementwas reached on a joint venture withVoltas Ltd in India. Voltas will transferits operation in refrigerators, washingmachines and compressors in two stagesto a new company in which Electroluxowns 74% of the capital and Voltas26%. The first stage was completed asof October 1, 1998.

The new company is beingintegrated with the Group’s existingwhite-goods operation in India.Following the final transfer of Voltas’operation in April 1999, annual Groupsales of white goods in India willamount to approximately INR 7,900million (approximately SEK 1,500m).Electrolux will thus become one of thethree largest producers of white goodsin the Indian market, and the largest inthe refrigerator product area.

EmployeesThe average number of employees in1998 was 99,322 (105,950), of whom9,749 (10,029) were in Sweden. Atyear-end the total number of employeeswas 93,864 (103,000).

The decrease from the previousyear is largely a result of the ongoingrestructuring program, as well as thedivestments of operations. Cutbacks inaccordance with the restructuringprogram, which in 1998 involvedcutbacks affecting a total of about 5,400persons referred mainly to the operationin Europe. Substantial adjustments in

28

150,000

100,000

75,000

50,000

25,000

0

125,000

93 94 95 96 97 9889 90 91 92

Average number of employees

Sweden

Outside Sweden

The average number of Group employees declinedto 99,322 in 1998, mainly as a result of theongoing restructuring program and divestments.

Average number of employees 1998 1997

Average number of employeesSweden 9,749 10,029Outside Sweden 89,573 95,921

Total 99,322 105,950

By geographical area:EU 47,928 51,934Rest of Europe 8,401 7,244North America 24,786 23,912Latin America 7,517 9,727Asia 9,745 12,114Oceania 504 585Africa 441 434

Total 99,322 105,950

By business area:Household Appliances 80,302 86,370Professional Appliances 8,732 9,125Outdoor Products 9,982 9,839Other 306 616

Total 99,322 105,950

Approximate values according to US GAAP 1998 1997

Net income, SEKm 3,748 877Net income per share, SEK1) 10.25 2.40Equity, SEKm 24,018 20,332Total assets, SEKm 85,700 82,574

1) No. of shares in 1998 after a 5:1 stock split: 366,169,580.

the number of employees were alsoimplemented in the ASEAN countriesand Brazil as a result of the deterio-ration of market conditions. The totalnumber of employees in North Americaincreased, however, as a result of con-siderably higher sales volumes.

The operation in direct sales isincluded in the total average number of employees during the year in theamount of about 7,400 (7,800). Most of them are in Asia.

Salaries and remuneration in 1998amounted to SEK 18,506m (19,883), ofwhich SEK 2,191m (2,333) in Sweden.See also Note 23 on page 46.

Earnings and financial positionaccording to US accounting principles(US GAAP)The table above summarizes theGroup’s net income and financialposition according to US GAAP. Foradditional information and a descriptionof the significant differences betweenUS and Swedish accounting principles,see Note 25 on page 49.

Electrolux also submits an annual Form20-F report to the SEC (US Securitiesand Exchange Commission).

Parent companyThe parent company comprises thefunctions of the Group’s head office aswell as thirteen companies that operateon commission from AB Electrolux.

Net sales for the parent companyin 1998 amounted to SEK 5,918m(5,791), of which SEK 3,060m (2,930)referred to sales to Group companiesand SEK 2,858m (2,861) to sales toexternal customers. After allocationsof SEK 26m (102) and taxes ofSEK –57m (–70), the parent companyreported net income of SEK 1,989m(1,652).

Net financial exchange-ratedifferences during the year amounted toSEK –10m (–642), of which SEK –62m(–455) comprised exchange losses onloans intended as hedges for equity insubsidiaries, while realized exchangegains on forward contracts for the samepurpose totalled SEK 2m (–244).

Eng A/R-98 PP 22-33 Q3 99-03-31 18.01 Sidan 28

29


No effect on Group income is gener-ated by the above, since exchangedifferences are offset against thetranslation difference, i.e. the change inequity that arises when net assets inforeign subsidiaries are translated atyear-end rates.

Information on the number ofGroup employees, salaries and remu-neration is given in Note 23 on page 46.Information on the Group’s holdings inshares and participations is given inNote 24 on page 47.

New pension fundsIn 1997 the Board of Electroluxdecided that as of 1998, PRI pensionsin the parent company and Swedishsubsidiaries would be secured byallocations to own pension funds. In1998 two Group pension funds wereestablished, i.e. the Electrolux Group’s1997 fund, for pensions accumulatedthrough 1997, and the ElectroluxGroup’s 1998 fund, for pensionsaccumulated from 1998 onward.

During 1998 a net of SEK 1,083mwas allocated to the 1997 fund. Thepension accumulated in 1998 amountedto SEK 57m and will be allocated to the1998 fund in the spring of 1999. Themarket value of assets in the 1997 fundamounted to SEK 1,179m at year-end,which exceeded the pension obligationsby SEK 39m.

The funds are being managed byexternal investment companies. Theportfolio was developed during thelatter part of 1998 and comprises bothshares and interest-bearing securities.The major part of cash assets in the1997 fund had been invested by year-end 1998.

Proposed dividendThe Board of Directors proposes anincrease of the dividend for 1998 toSEK 3.00 per share, for a total dividendpayment of SEK 1,099m.

Listing in Swedish kronor and euroIn order to facilitate trading and agreater distribution of shares, the Boardhas decided to list the B-shares in botheuro and Swedish kronor on theStockholm Stock Exchange.

Stock split and increased voting rightsfor B-shares In April 1998 the Annual GeneralMeeting authorized a stock split of 5:1and a change in the Company’s Articlesof Association that enabled increasingthe voting rights of B-shares from1/1000 to 1/10. The share of thetotal voting rights in the Companyrepresented by B-shares thus increasedfrom 3.4% to 78.1%, and the share ofA-shares decreased from 96.6% to 21.9%.The stock split involved changing thepar value of all shares in Electroluxfrom SEK 25.00 to SEK 5.00.

The shares were listed at the newpar value and with increased voting rightsfor B-shares as of June 2, 1998 on allEuropean stock exchanges where theGroup is registered, and in the US as ofJune 11, 1998. Electrolux B-shares arelisted in the US within NASDAQ in theform of depositary receipts (ADRs). Therelation between ADRs and B-shares wasadjusted, so that one ADR now corre-sponds to two B-shares, instead of one.

Options programIn January 1998 the Board decided tointroduce an annual options programfor about 100 senior managers. Theoptions are allotted on the basis of thevalue created after charging the Group’soperating income with a marketdetermined cost of capital on theGroup’s net assets. If no value has beencreated, no options are issued.

The first options will be issuedduring the first half of 1999 on thebasis of the increase in value from 1997to 1998. The provision for the 1998options program amounted to SEK 38mplus employer contributions.

The options cannot be used topurchase Electrolux shares, but will beredeemed for cash by the Company.The value of the options is linked tothe trading price of the Electrolux B-shares. The strike price is 115% of thetrading price on the date the options areissued. The maturity period is 5 years.

The Board has also authorized theoptions program for 1999, under whichoptions will be issued in 2000, oncondition that value is created incomparison with 1998.

Options program 1993Within the program for syntheticoptions in 1993, there remain 22 (24)persons with a total holding of 534,020(552,260) options. The number ofoptions has been adjusted as a result ofthe stock split. The options mature onJanuary 10, 2002 and the strike price isSEK 81. See also Note 23 on page 47.

Litigation on pension commitmentsin the USA verdict has not yet been announced inlitigation regarding pension liabilities inElectrolux US subsidiary White Consoli-dated Industries, Inc. The litigation hasbeen in progress in a Federal court inPittsburgh, Pennsylvania since 1991 andwas completed in April 1997.

The plaintiff is a governmentagency, the Pension Benefit GuarantyCorporation (PBGC), responsible forthe payment of defaulting pension obli-gations. The PBGC alleges a principalpurpose to evade pension liabilities in adivestment by White Consolidated in1985, the year before White Consoli-dated was acquired by Electrolux. PBGCis seeking to hold White Consolidatedliable for the underfunding in certainpension plans which the PBGCestimated in March, 1997 to beapproximately USD 177 million,including interest. Electrolux believesthat the PBGC action is devoid of merit,and has therefore made no provision.

The EMU and the euroThe introduction of the euro has aconsiderable effect on Electrolux, asabout 40% of Group sales are in the11 countries which are members of theEMU. The significance for the Group’sassets is even greater, which means thatthe euro is the most important currencyfor the Group.

The euro is being used as a meansof payment within the Group as ofthe start of 1999. It will be graduallyintroduced during the next few yearsfor transactions with customers andsuppliers. The Group will decidewhether to introduce corporatereporting in the euro after changes havebeen made in Swedish legislation.

Eng A/R-98 PP 22-33 Q3 99-03-31 18.01 Sidan 29



The euro enables transparency inpricing in different markets, whichmeans that greater consideration mustbe given to strategic market issues.No fiscal or contractual problemshave arisen as a result of the launch ofthe euro, neither commercially norfinancially. The Group believes that thelaunch of the euro will have a positiveeffect and will provide greater stability,primarily through a considerablereduction of transactional exposure.

The Board of Directors’ activities in 1998 In addition to the statutory meeting, theBoard met seven times during the year,twice in connection with visits tosubsidiaries in Sweden and Brazil.

During the year the Board adopteda set of working procedures, as follows:

● 4-6 meetings per year shallnormally be held, of which atleast one in connection with a visitto a subsidiary.

● The Company’s auditor shallsubmit a report to the Board atleast once a year.

● Remuneration to senior manage-ment shall be proposed by acommittee of Board members.

These procedures also involve detailedinstructions for the President as towhich issues require the Board’sapproval, and the type of financial andother reports that shall be submitted tothe Board. The instructions specify themaximum amounts which variousdecision-making functions within theGroup have the right to approve forcapital expenditure. They also coverthe financial policy to be applied bythe Group.

The environmentElectrolux operates 135 manufacturingfacilities in 26 countries. The manu-facturing operations consist mainly ofassembling components made bysuppliers. Other processes include metal

plateworking, molding of plastics,painting and enameling, and casting ofparts to a limited extent.

Chemicals are used in the form ofprocess aids such as lubricants andcleaning fluids, and as part of theproducts, e.g. in the form of insulationmaterial, paint and enamel. Theproduction processes generate impacton the environment in the form ofwater and air-borne emissions, solidwaste, and noise.

Studies of the total environmentalimpact of the Group’s productsduring their entire lifetimes, i.e. fromproduction to final disposal, show thatthe greatest environmental impact isgenerated indirectly, when the productsare used. The stated Electrolux strategyis to develop and actively promoteincreased sales of products with lowerenvironmental impact.

ISO certificationEnvironmental management systemscertified to ISO 14001 shall be in placeby 2000 at all manufacturing facilities.In 1998, 16 plants were certified, and7 certified plants were divested. At year-end 1998, a total of 35 plants had beencertified.

Mandatory permits and notification in SwedenThe Group operates 19 plants inSweden, which account for about 8% ofthe total value of production. Permitsare required by the Swedish authoritiesfor 12 of these plants, while 7 arerequired to submit notification. Thepermits refer to e.g. maximum per-missible air- and waterborne emissionsand noise levels. No significant non-compliance with Swedish environ-mental legislation was reported duringthe year.

For additional information aboutthe Group’s environmental activities,see the separate Environmental Reportfor 1998.

Electrolux millennium program

Since the beginning of 1996, Electroluxhas been developing solutions forproblems that may arise in connectionwith the millennium shift.

The millennium issue is seen asoperational, and is not limited to IT-applications. It covers informationsystems as well as date functionsembedded in other electromechanicalsystems. Applications are evaluated inconnection with:

● Products

● Manufacturing processes

● Office and building systems

● Third parties

Program structureThe Electrolux millennium programcomprises:

● Identification of Year-2000 (Y2K)problems within Electrolux

● Assessment and quantification ofrisks

● Proposals and cost estimates forreplacing and/or modifying existingsystems

● Implementation of the necessaryreplacements and modifications.

The program is being implemented bythe business sectors with support fromGroup staff functions. An appointedY2K project manager coordinates thework on compliance.

Year-2000 audits are beingperformed to ensure that businesssectors have identified and are workingon corrective action plans. Activity isbeing tracked by internal audit staffs aswell as external auditors.

CostsThe cost of the changes implementedto date amounts to approximatelySEK 140m. The total cost of Y2Kcompliance for Electrolux is estimatedat approximately SEK 320m, of whichapproximately SEK 250m refers tochanges in IT-applications.

30

Eng A/R-98 PP 22-33 Q3 99-03-31 18.01 Sidan 30

31


Status at year-endProductsThe designs of virtually all past andpresent Electrolux products contain noapplications that could harbor Y2K issues.For the very few designs that do containsuch applications, primarily networkedproducts, appropriate corrective measureshave been identified. Electrolux has notprovided Y2K compliance guarantees forproducts and systems related to productlines that have been divested.

Manufacturing processes, office andbuilding systemsAll manufacturing processes as well asoffice and building systems in whichY2K problems may arise are beingidentified and the required correctionsare being implemented. The individualbusiness sectors have established plansand timetables for modifying or re-placing IT-applications in factories andoffices.

Suppliers of machinery and systemshave been asked to ensure timely Y2Kcompliance for production and buildingsystems. More than 50% of the cur-rently identified factory and officeapplications are now compliant. Theremaining applications are being modi-fied and the target is 100% complianceby mid-1999.

Third partiesThe most probable millennium problemsthat Electrolux could encounter would be:

● Delays in deliveries of materials andcomponents from critical suppliers

The business sectors have identifiedcritical suppliers and requestedconfirmation of their Y2K readiness.The sectors are preparing contingencyplans, e.g. for stockpiling and alternativesourcing, if this is warranted by thefinal evaluation of the readiness ofcritical suppliers.

● Interruptions in routine transactionswith critical customers

The business sectors have identified theircritical customers, and are reviewingtransaction and delivery channels forY2K compliance. The sectors arepreparing contingency plans if there isany doubt about the reliability of thesechannels.

● Infrastructure disruptions

Infrastructure disruptions could involvetemporary breakdowns of utilities thatsupply e.g. electricity or water, commu-nications, e.g. telephone or Internetconnections, transportation, e.g. airtraffic control or railroads, financialsystems, e.g. EFT or banking transactions,and public-sector systems such ascustoms or tax payments/refunds.Available information indicates thatinfrastructure disruptions are mostprobable in developing countries. Thepossible problems vary in terms of thelevel of a country’s development, andfor Electrolux it is probable that mil-lennium planning in countries wherethe Group has manufacturing facilitieswill be more complex than in thosewith sales organizations only. Thebusiness sectors have been instructed toprepare contingency plans based ontheir evaluations of local conditions.

The third-party problems describedabove are unlikely to arise in Europeand North America, but are moreprobable in developing countries.However, information generated by theongoing evaluation of the situationregarding third parties could lead to adifferent conclusion.

On the basis of available infor-mation, none of these problems is likelyto have a material effect on the Group’sincome and financial position, or on theGroup’s ability to provide correctinformation to the capital market.

Financial risk management

The Group’s operations involveexposure to various financial risks,including those related to financing,interest rates, exchange rates and credit.A financial policy has been authorizedby the Board for managing these risks.Implementation of the policy is contin-uously monitored and controlledthrough the Group’s central functions,and is reported to the Board.

Various types of financial instru-ments are used to limit financial risks,including forward contracts and options.The established policy framework alsoallows trading in currency and interestarbitrage operations to some degree.

Financing riskFinancing risk refers to the risk thatfinancing of the Group’s capitalrequirement and refinancing of existingcredits will become more difficult ormore costly.

LiquidityGroup liquid funds as of December 31,1998 amounted to SEK 11,387m(9,834), which corresponds to 9.5%(8.6) of sales and 101% (100) of short-term borrowings. In addition, theGroup had unutilized credit facilitiesamounting to SEK 22,031m (19,244) atyear-end, corresponding to 18.4% (16.9)of net sales.

The Group’s goal is that liquidfunds should correspond to at least2.5% of sales. The Group shall also haveaccess to unutilized credit facilitiescorresponding to at least 10% of sales.In addition, the Group aims at main-taining net liquidity at about zero,although this is subject to change inconnection with large individualtransactions and seasonal variations.Net liquidity is defined as liquid fundsless short-term borrowings.

Loans raised during the yearBorrowings in 1998 were used forredemption of long-term loans thatmatured during the year. Borrowingswere channeled mainly through theparent company’s Medium Term

Eng A/R-98 PP 22-33 Q3 99-03-31 18.01 Sidan 31



Note program in London andStockholm, but also comprised bankloans as well as loans from the NordicInvestment Bank and the EuropeanInvestment Bank.

The increased interest margins thatresulted from the financial crisis inRussia have not affected the Group’sfinancial costs.

In accordance with a decision bythe Board, two pension funds wereestablished in 1998 to secure pensionsin the parent company as well as PRIpensions in the Swedish subsidiaries.Establishment of the funds reduced theGroup’s PRI pension liability by acorresponding amount, approximatelySEK 1,100m.

The Group’s total interest-bearingborrowings at year-end 1998 amountedto SEK 29,353m (29,993), of whichSEK 17,795m (18,691) comprised long-term loans with an average lifetimeof 3.3 years (3.3). Net borrowings,i.e. total interest-bearing liabilities less liquid funds, declined to SEK 17,966m (20,159).

The following tables show long-term borrowings inclusive of the swaps

and options that are used to achieve abalance between different currencies.

The average interest cost on theGroup’s interest-bearing borrowings was7.4% (8.0). The decline in interest ratesfrom 1997 is traceable to generallylower rates and an increased portion offinancing at floating interest rates.

The Group’s financing policy wasadjusted during the year to enable agreater degree of financing at floatinginterest rates. This policy stipulates thatthe maturity profile for net borrowingsshall be more than two years.

RatingsElectrolux has an Investment Graderating from Moody’s, with a Baa2 longrating, and a BBB+ rating from Standard& Poor. The corresponding short ratingsare P-2 and A-2/K1, respectively.

Interest-rate riskThis risk refers to the adverse effects ofchanges in market interest rates onGroup income.

As of December 31, 1998, theGroup’s total short and long-terminterest-bearing liabilities amounted toSEK 29,353m (29,993), of which theSwedish pension liability in the PensionRegistration Institute (PRI) accountedfor SEK 283m (1,514) for the parentcompany and other Swedish subsidiaries.The decrease in the PRI liability hasreduced the portion of Group borrow-ings at fixed interest rates.

The fixed-interest term for long-termborrowings was 1.1 years (1.7) as ofDecember 31, 1998. The fixed-interestterm for liquid funds is 147 days (126).

Derivatives are actively employedto adjust interest-rate exposure, e.g. byextending or abridging the term forfixed rates without adjusting theunderlying loans or placements. Allfigures given above include the effectsof derivatives.

Currency riskThis risk refers to the adverse effectsof changes in currency rates on theGroup’s income and equity. In order toavoid such effects, the Group coversthese risks with due consideration forthe effect of the coverage on costs,liquidity and taxes.

Exposure arising from commercial flowTransactions between Group companies,suppliers and customers generate a flowexposure. About 75% of the currencyflow is between Group companies. Theeffect of changes in exchange rates isreduced by the Group’s geographicallywidespread production and the two-way currency flows that it involves.Internal exposure is also reduced by theGroup’s netting system. In addition, thissystem enables the remaining currencyflow to be continuously monitored, sothat action can be taken to compensatefor changes in positions.

The table below shows the propor-tions of Group external sales and

32

Maturity dates for long-term borrowingsYear Amount, SEKm

1999 3,6992000 3,0052001 3,0062002 1,8662003 6032004 2,903Thereafter, until 2037 2,713

Total 17,795

Net borrowings declined to SEK 17,966m in 1998.

93 94 95 96 97 9889 90 91 92

Interest-bearing liabilities less liquid funds, SEKm

Interest coverage rate

30,000

20,000

15,000

10,000

5,000

Rate6

5

3

2

1

00

Net borrowings

25,000

SEKm

4

Long-term borrowings, by currencyCurrency Amount, SEKm

USD 9,200ITL 1,893FRF 1,576SEK 272ESP 1,000DEM 824Other 3,030

Total 17,795

Net sales and expense, by currency

Share of Share ofCurrency net sales expense

SEK 5% 9%USD block1) 44% 45%DEM block2) 29% 21%GBP 6% 4%ITL 6% 17%Other 10% 4%

Total 100% 100%

1) Includes currencies in Canada, Hong Kong,Taiwan, Singapore, Oceania and the LatinAmerican countries where the Group operates.

2) Includes currencies in Benelux as well asDenmark, Finland, France, Spain and Austria.

Eng A/R-98 PP 22-33 Q3 99-03-31 18.01 Sidan 32


operating expense in 1998 in the mostimportant currencies.

The table shows that there was agood currency balance during the yearin the USD block, which accounted forabout the same shares of sales revenuesand costs. In contrast, there was animbalance in other currencies, i.e.greater revenues than costs, particularlyin currencies within the DEM block,and greater costs than revenues pri-marily in ITL and SEK.

Group subsidiaries cover their risksin commercial currency flows throughthe Group’s financial units. Thefinancial operation thus assumes thecurrency risks and can cover themexternally through forward contracts,borrowings or deposits. Options andother derivative instruments are alsoused. Exchange differences arising fromshort-term commercial receivables andliabilities in foreign currencies areincluded in operating income.

The Group’s currency policyinvolves a relatively short period forhedging, normally 1–6 months for thegreater part of the flow exposure, whichcorresponds to the anticipated time foradjustment of prices. For certain flows,particularly for professional products,hedging is arranged for longer periodsfor specific projects.

Exposure arising from translation ofincome statementsChanges in exchange rates also affectGroup income in connection withtranslation of income statements inforeign subsidiaries into Swedish kronor.

In connection with the translationof income statements in foreignsubsidiaries, changes in exchange rateshad a positive effect of approximatelySEK +200m on operating income forthe year relative to 1997.

Exposure arising from translation ofbalance sheetsThe net of assets and liabilities inforeign subsidiaries comprises a netinvestment in foreign currency, whichgenerates a translation difference inconnection with consolidation. In orderto limit degradation of Group equity,borrowings and forward contracts are

based on the estimated risk with dueconsideration for the fiscal effects. Thismeans that the decline in value of a netinvestment arising from a fall in theexchange rate for a specific currencyagainst the krona is offset by theexchange gains on the parent company’sborrowings and forward contracts in thesame currency, and vice versa.

During 1998 the total averagecoverage was 56% (79) before taxes,and was 61% (62) at year-end. TheGroup’s policy is to maintain coveragewithin the framework of the parentcompany’s existing net borrowings,which in terms of currency aredistributed in relation to foreign netassets. The policy stipulates that thedegree of coverage shall be 50%.Deviations from the policy can occur incompliance with a risk mandate thatamounts to SEK 300m. At year-end,forward contracts as hedges for netforeign investment amounted to SEK6,196m (4,739). SEK 285m (214) ofthe risk mandate was utilized.

Net translation differencesarising from consolidation of foreignsubsidiaries in 1998 amounted toSEK +912m (+494). In computingthese differences, due consideration isgiven to exchange differences in theparent company referring to borrowingsand forward contracts intended ashedges for equity in subsidiaries, lessestimated taxes. The above amount hasbeen taken directly to equity in theconsolidated balance sheet. However,translation losses referring to countrieswith highly inflationary economies havebeen charged against operating income.See “Accounting principles” on page 39.

Credit riskCredit risks within the financialoperation arise from financing of salesas well in the form of financial creditrisks in connection with placement ofliquid funds and as counterpart risksrelated to derivatives. In order to limitfinancial credit risks, a counterpartguideline has been established thatdefines the maximum permissibleexposure in relation to permissiblecounterparts.

The Group’s financial operation

Electrolux maintains two financialoperations, i.e. Electrolux Treasuryand Electrolux Financial Services.Geographically, the operation isconcentrated to Western Europe andNorth America. The financial operationemploys about 225 people, of whomabout 50 in Stockholm.

Electrolux TreasuryElectrolux Treasury comprises eighteeninternal banks that are responsible forthe Group’s liquidity, borrowings, debtmanagement, and payment system.

The short-term operations ofthese internal banks are managed fromStockholm, as are long-term financingand the Group’s overall currency andinterest-rate risk exposure. Financialoperations include active cashmanagement and comprehensivecurrency trading, primarily in Sweden,Italy and Singapore. A new internalbank was established in Brazil duringthe year, with responsibility for liquidityand financing.

Electrolux Financial ServicesElectrolux Financial Services supportsthe Group’s operations with financialsolutions for customers and suppliers,and comprises about fifteen units.

This operation covers leasing,financing of projects, particularly forProfessional Appliances, and financingof dealers in Household Appliances andOutdoor Products. Consumer financingis run mainly in cooperation withfinancial institutions.

Factoring for suppliers is acomprehensive activity mainly insouthern Europe. Factoring operationswere started during the year inGermany and Hungary. Demandfor financial solutions is growing,particularly within ProfessionalAppliances in Central and EasternEurope.

33

Eng A/R-98 PP 22-33 Q3 99-04-06 12.58 Sidan 33

Consolidated income statement


(SEKm) 1998 1997

Net sales (Note 2) 117,524 113,000Cost of goods sold –86,899 –83,144

Gross operating income 30,625 29,856Selling expense –18,058 –18,850Administrative expense –6,336 –6,201Other operating income (Note 3) 141 149Other operating expense (Note 4) –308 –404Items affecting comparability (Note 5) 964 –1,896

Operating income (Notes 2, 6, 23) 7,028 2,654Interest income (Note 7) 1,349 1,285Interest expense (Note 7) –2,527 –2,707

Income after financial items 5,850 1,232Minority interests in income before taxes 76 51

Income before taxes 5,926 1,283Taxes (Note 8) –1,951 –931

Net income 3,975 352

Net income per share, SEK (Note 9) 10.85 0.95

34

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A S S E T S (SEKm) Dec. 31, 1998 Dec. 31, 1997

Fixed assetsIntangible assets (Note 10) 3,327 3,517Tangible assets (Note 11) 21,959 22,519Financial assets (Note 12) 2,599 1,744

Total fixed assets 27,885 27,780

Current assetsInventories, etc. (Note 13) 16,957 16,110

Current receivablesAccounts receivable 21,859 21,184Other receivables 3,123 2,014Prepaid expense and accrued income 2,078 27,060 2,718 25,916

Short-term placements 6,302 6,063Cash and bank balances 5,085 11,387 3,771 9,834

Total current assets 55,404 51,860

T O TA L A S S E T S 83,289 79,640

Assets pledged (Note 14) 2,635 2,973

E Q U I T Y A N D L I A B I L I T I E S (SEKm) Dec. 31, 1998 Dec. 31, 1997

Equity (Note 15)Share capital (Note 16) 1,831 1,831Restricted reserves 11,427 9,716Retained earnings 7,247 8,666Net income 3,975 24,480 352 20,565

Minority interests 953 913

ProvisionsProvisions for pensions

and similar commitments (Note 18) 4,298 6,247Other provisions (Note 19) 4,026 8,324 4,656 10,903

Financial liabilitiesLong-term bond loans (Note 20) 6,777 7,827Mortgages, promissory notes, etc. (Note 20) 11,018 10,864Short-term loans 11,275 29,070 9,788 28,479

Operating liabilitiesAccounts payable 10,476 9,879Tax liability 180 26Other liabilities 2,642 2,309Accrued expense and prepaid income (Note 21) 7,164 20,462 6,566 18,780

T O TA L E Q U I T Y A N D L I A B I L I T I E S 83,289 79,640

Contingent liabilities (Note 22) 1,658 2,083

Consolidated balance sheet

35

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 35

Parent company income statement


(SEKm) 1998 1997

Net sales 5,918 5,791Cost of goods sold –4,726 –4,559

Gross operating income 1,192 1,232Selling expense –727 –746Administrative expense –699 –736Other operating income (Note 3) 126 45Other operating expense (Note 4) –43 –19

Operating income (Note 23) –151 –224Group contributions 1,049 1,713Interest income (Note 7) 2,683 2,388Interest expense (Note 7) –1,561 –2,257

Income after financial items 2,020 1,620Allocations (Note 17) 26 102

Income before taxes 2,046 1,722Taxes (Note 8) –57 –70

Net income 1,989 1,652

36

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 36


A S S E T S (SEKm) Dec. 31, 1998 Dec. 31, 1997

Fixed assetsIntangible assets (Note 10) 11 73Tangible assets (Note 11) 775 784Financial assets (Note 12) 30,739 28,595

Total fixed assets 31,525 29,452

Current assetsInventories, etc. (Note 13) 593 482

Current receivablesReceivable from subsidiaries 1,924 406Accounts receivable 431 458Tax refund claim 33 42Other receivables 40 36Prepaid expense and accrued income 162 2,590 119 1,061

Short-term placements 1,403 2,525Cash and bank balances 633 2,036 634 3,159

Total current assets 5,219 4,702

T O TA L A S S E T S 36,744 34,154

Assets pledged (Note 14) 30 10

E Q U I T Y A N D L I A B I L I T I E S (SEKm) Dec. 31, 1998 Dec. 31, 1997

Equity (Note 15)Share capital (Note 16) 1,831 1,831Statutory reserve 2,731 2,731Retained earnings 4,843 4,106Net income 1,989 11,394 1,652 10,320

Untaxed reserves (Note 17) 548 574

ProvisionsProvisions for pensions

and similar commitments (Note 18) 192 848Other provisions (Note 19) 149 341 156 1,004

Financial liabilitiesPayable to subsidiaries 5,395 4,404Bond loans 8,741 10,034Mortgages, promissory notes, etc. 5,538 4,189Short-term loans 3,060 22,734 2,103 20,730

Operating liabilitiesPayable to subsidiaries 345 292Accounts payable 516 460Other liabilities 55 43Accrued expense and prepaid income (Note 21) 811 1,727 731 1,526

T O TA L E Q U I T Y A N D L I A B I L I T I E S 36,744 34,154

Contingent liabilities (Note 22) 3,867 6,042

Parent company balance sheet

37

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 37

Cash-flow statements


Group Parent company

(SEKm) 1998 1997 1998 1997

OperationsIncome after financial items 5,850 1,232 2,020 1,620Depreciation according to plan charged against above income 4,125 4,255 289 280Capital gain/loss included in operating income –964 –658 –77 –12Provision for restructuring, not affecting liquidity in 1997 –1,122 1,809 – –

7,889 6,638 2,232 1,888Taxes paid –2,135 –1,920 –48 –215

Cash flow from operations excl. change in operatingassets and liabilities 5,754 4,718 2,184 1,673

Change in operating assets and liabilitiesChange in accounts receivable –336 –682 27 –7Change in current intra-Group balances – – –1,004 360Change in inventories –715 494 –111 –15Change in other current assets –134 162 –47 104

Change in current liabilities and provisions 129 610 –515 211

Cash flow from operations 4,698 5,302 534 2,326

InvestmentsOperations –237 –968 – –Divestment of operations 2,342 1,061 – –Machinery, buildings, land, construction in progress, etc. –3,756 –4,329 –250 –175Other 875 –108 –1,504 –1,583

Cash flow from investments –776 –4,344 –1,754 –1,758

Total cash flow from operations and investments 3,922 958 –1,220 568

FinancingChange in short-term loans 954 334 –1,147 123Change in long-term loans –2,988 –4,155 2,159 –3,191Dividend payment –915 –915 –915 –915Change in minority interests 6 –58 – –

Cash flow from financing –2,943 –4,794 97 –3,983Total cash flow 979 –3,836 –1,123 –3,415Liquid funds at beginning of year 9,834 13,510 3,159 6,574Exchange-rate differences referring to liquid funds 574 160 – –Liquid funds at year-end 11,387 9,834 2,036 3,159

Total cash flow excl. change in short-term loans 25 –4,170 24 –3,538Net liquid funds at beginning of year 46 4,600 –1,048 2,490Exchange-rate differences referring to net liquidity 41 –384 – –Net liquid funds at year-end 112 46 –1,024 –1,048

38

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39


Notes to the financial statements

Note 1. AC C O U N T I N G A N DVA L UAT I O N P R I N C I P L E S

General accounting principlesIn the interest of achieving comparablefinancial information within the Group,Electrolux companies apply uniformmethods for reporting obsolescence oninventories, provisions for doubtfulreceivables, provisions for guaranteecommitments, depreciation on fixedassets, etc., irrespective of national fiscallegislation. In some countries it ispermissible to make additional allo-cations, which are reported under“Restricted equity” after deduction ofdeferred taxes.

The following should be noted:● In the consolidated income

statement, Group interests inassociated companies are dividedinto a share of income before taxesand a share of taxes.

● Group contributions are reportedin the parent company under netfinancial items, in accordance withthe recommendations of theSwedish Financial AccountingStandards Council. The figuresfor 1997 have been adjustedaccordingly.

● The cash-flow statement has beenprepared according to the indirectmethod. In order to eliminate theeffects of changes in exchange ratesfrom year to year, both the openingand closing balances have beentranslated at average exchange ratesfor the year. The format of thestatement has been adjusted inaccordance with the recommen-dation RR7 of the SwedishFinancial Accounting StandardsCouncil.

● Computation of net debt/equity,equity/assets and net assets includesminority interests in adjustedshareholders’ equity. Definitions ofthese ratios are given on page 54.

● The principles for distributing costsbetween cost of goods sold, sellingexpenses and administrativeexpenses have been revised. The1997 figures have been adjustedaccordingly, which has lowered the gross income for 1997 by SEK 1,228m.

Principles applied for consolidationThe consolidated financial statementshave been prepared in accordance withRecommendation RR1:96 of theSwedish Financial AccountingStandards Council and involve

Acquisitions are an importantcomponent of the Group’s expansion,and are often made in competition withother companies whose accountingpractices differ from the Swedish, e.g.with respect to goodwill. Electroluxapplies a depreciation period of 40 years for the goodwill that arosefrom the strategically importantacquisitions of Zanussi, White andAmerican Yard Products. In accordancewith the transitional rules in therecommendation of the SwedishFinancial Accounting Standards Councilregarding corporate reporting, Note 10reports the effects that would arise ifthe depreciation period for these threeacquisitions were limited to 20 years.

Estimated useful life is reviewedannually to determine whether thecurrent depreciation schedule shouldbe revised.

Translations of financial statements inforeign subsidiariesThe balance sheets of foreign sub-sidiaries have been translated intoSwedish kronor at year-end rates.Income statements have been translatedat the average rates for the year.Translation differences thus arising havebeen taken directly to equity.

The above principles have not beenapplied for subsidiaries in countries withhighly inflationary economies. Trans-lation differences referring to thesecompanies have been charged againstoperating income, as have differencesarising from translation of net income at average and year-end rates. Corre-spondingly, adjustment of the value offixed assets in these companies forinflation has been included in operatingincome. This method enables increasesand/or decreases in equity in countrieswith highly inflationary economies to bereported in their entirety in the consol-idated income statement.

Hedging of net investmentThe parent company uses forwardcontracts and loans in foreign currenciesas hedges for the net foreign invest-ment. Exchange-rate differences relatedto these contracts and loans have beentaken directly to the Group’s equityafter deduction of deferred taxes, to theextent there are corresponding trans-lation differences.

Other accounting and valuationprinciplesRevenue recognitionSales of products and services are recor-ded as of the date of shipment, when thesale is invoiced. Sales include the salevalue less VAT (Value-Added Tax),

application of the purchase method,whereby the assets and liabilities in asubsidiary on the date of acquisition areevaluated to determine the acquisitionvalue to the Group. Any differencesbetween the acquisition price and theacquisition value are reported asgoodwill or negative goodwill.

Definition of Group companiesThe consolidated financial statementsinclude AB Electrolux and all com-panies in which the parent company atyear-end directly or indirectly ownedmore than 50% of the voting rightsreferring to all shares and participations,or in which the company exercisesdecisive control in other ways.

The following applies to acquisitionsand divestments during the year:

– Companies acquired during the year have been included in theconsolidated income statement as ofthe date of acquisition.

– Companies divested during the year have been included in theconsolidated income statement up toand including the date of divestment.

At year-end 1998 the Group comprised489 (581) operating units, and 386(448) companies.

Associated companiesMajor investments in associated com-panies, i.e. those in which the parentcompany directly or indirectly owned20–50% of the voting rights at year-end,have been reported according to theequity method. This means that theGroup’s share of income before taxes inan associated company is reported aspart of the Group’s operating income.Investments in such a company arereported at a value which corresponds tothe Group’s share of the company’sequity, adjusted for possible over- andunder-value. Computation of equity inan associated company involves returninguntaxed reserves to equity after deduc-tions for deferred taxes.

Minor investments in associatedcompanies are reported as shares andparticipations at acquisition cost. Duringa transitional period, investments innew major associated companies canalso be reported under shares andparticipations if it is particularlydifficult to access information.

GoodwillGoodwill is reported as an intangibleasset and is depreciated over theestimated useful life, which is normally 10-20 years. Goodwill arising fromstrategic acquisitions is depreciated over 20-40 years.

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 39

40



specific sales taxes, returns and tradediscounts. In most cases, sales of projectsare not reported as operating income untilthe project has been fully invoiced. Incertain exceptional cases referring toparticularly large projects extending overseveral accounting years, revenue isrecognized while the project is inprogress, on condition that revenue can becomputed for the part of the project thathas been completed and that thiscontributes to more accurate timing ofGroup income and expense.

Costs of research and developmentThese costs are reported on a currentbasis and are included in “Cost of goodssold” in the consolidated incomestatement.

Depreciation on tangible fixed assetsDepreciation according to plan is basedon the original acquisition value of theasset prior to write-offs against invest-ment reserves or their equivalents. Thedepreciation period is based on theestimated useful life of the asset. Depre-ciation according to plan is distributedby function, according to the way theasset is used.

In certain cases, assets in individualcompanies have been revalued at theestimated acquisition cost to the Groupin connection with preparation of theconsolidated balance sheet. Depreci-ation according to plan on these assetsis based on the adjusted value.

The parent company reports thedifference between book depreciationand depreciation according to plan inthe income statement under “Allocations.”The corresponding item in the balancesheet is reported as “Accumulateddepreciation in excess of plan” under“Untaxed reserves.” Accumulateddepreciation in excess of plan on real

estate has been written down againstthe residual value of previous write-ups.Depreciation in excess of plan includesutilization of investment funds, etc. SeeNote 17.

Other operating income and expenseThese items include profits and lossesarising from sale of fixed assets anddivestment of operations, as well as the share of income in associatedcompanies. Other operating expensealso includes depreciation of goodwill.See Notes 3 and 4.

Items affecting comparabilityThis item includes only events andtransactions with effects on income thatare of significance when income for theperiod is compared with that for otherperiods.

TaxesTaxes incurred by the Electrolux Groupare affected by allocations and otherfiscally motivated arrangements inindividual Group companies. They arealso affected by utilization of tax-losscarry-forwards referring to previousyears or to acquired companies. Thisapplies to both Swedish and foreignGroup companies. Tax-loss carry-forwards are recognized only if it isprobable that they will be utilized. A comparison of the Group’s nominaland actual tax rates is given in Note 8.

Receivables and liabilities in foreign currencyFinancial receivables and liabilities inforeign currencies are reported inaccordance with Recommendation no.7of the Swedish National AccountingStandards Board. This means that suchreceivables and liabilities are valued atyear-end rates. In the parent company,

unrealized exchange gains on long-termloans are returned to the incomestatement under “Allocations” and arereported in the balance sheet under“Untaxed reserves.”

Financial receivables and liabilitiesfor which forward contracts have beenarranged are reported at the spot ratesprevailing on the date of the contract.The premium is amortized on a currentbasis and reported as interest.

Loans and forward contractsintended as hedges for equity in foreignsubsidiaries are reported in the parentcompany at the rate prevailing on thedate when the loan or contract arose.

With regard to forward contractsintended as hedges for the cross-borderflow of goods and services, accountsreceivable and accounts payable arevalued at contract rates.

InventoriesInventories are valued at the lower ofacquisition cost and market value.Acquisition cost is computed accordingto the first-in, first-out method (FIFO).Appropriate provisions have been madefor obsolescence.

Financial fixed assetsShares and participations in majorassociated companies are valuedaccording to the equity method. Otherfinancial fixed assets are reported atacquisition value.

US GAAPInformation in conformity with USGAAP (US Generally AcceptedAccounting Principles) is given in Note25 and in the separate 20-F Form whichis submitted annually to the SEC(Securities and Exchange Commission)in the United States.

Note 2. N E T G R O U P S A L E S Net sales Operating income

A N D O P E R AT I N G I N C O M E (SEKm) 1998 1997 1998 1997

Net sales and operating income, by business areaHousehold Appliances 84,581 81,419 4,065 2,943Professional Appliances 11,574 11,413 723 340Outdoor Products 19,295 18,087 1,788 1,680Other 2,074 2,081 –76 67Common Group costs – – –436 –480Items affecting comparability – – 964 –1,896

Total 117,524 113,000 7,028 2,654


Note 3. O T H E R O P E R AT I N G I N C O M E (SEKm) 1998 1997 1998 1997

Gain on sale of:Tangible fixed assets 117 95 2 –Operations and shares 24 54 124 45

Total 141 149 126 45

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 40


2.6 years. Rental costs amounted toSEK 594m, and contracted futureleasing costs to SEK 1,544m.

The Group also has leasing contracts foroffice equipment on normal commercialterms.


Note 4. O T H E R O P E R AT I N G E X P E N S E (SEKm) 1998 1997 1998 1997

Loss on sale of:Tangible fixed assets –50 –76 –27 –Operations and shares 0 –4 –16 –19

Shares of income in associated companies –24 –33 – –Depreciation on goodwill –234 –291 – –

Total –308 –404 –43 –19

Group

Note 5. I T E M S A F F E C T I N G C O M PA R A B I L I T Y (SEKm) 1998 1997

Capital gains 1,153 604Capital losses –189 –Costs of restructuring – –2,500

Total 964 –1,896

Note 6. L E A S I N G

41

In 1998 the Group rented 1.4 millionsquare meters in accordance withoperational leasing contracts withaverage remaining contract periods of


Note 7. I N T E R E S T I N C O M E A N D E X P E N S E (SEKm) 1998 1997 1998 1997

Interest incomeInterest income and similar income-statement items

From subsidiaries – – 263 226From others 1,332 1,267 252 246

Income from other securities and receivables classified as fixed assetsDividends from subsidiaries – – 2,166 1,914Dividends from others 17 18 2 2

Total interest income 1,349 1,285 2,683 2,388

Interest expenseInterest expense and similar income-statement items

To subsidiaries – – –249 –239To others –2,499 –2,737 –1,302 –1,376

Exchange differencesOn loans and forward contracts

as hedges for equity in subsidiaries – – –60 –699On other loans and borrowings, net –28 30 50 57

Total interest expense –2,527 –2,707 –1,561 –2,257

Premiums on forward contracts intendedas hedges for equity in subsidiaries havebeen amortized as interest in the amountof SEK –29m (8).

In the consolidated accounts,exchange differences in the parentcompany on loans and forward

contracts intended as hedges for equityin subsidiaries have been taken directlyto equity after deduction of deferredtaxes. The net change in equity is SEK –864m (–991).

Group interest income includesincome of SEK 26m (224) and interest

expense of SEK 26m (210) referring to interest arbitrage transactions.Receivables and liabilities referring tointerest arbitrage amounted to SEK 3,308m (3,924) at year-end andhave been reported at net value.

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 41

42




Note 8. TA X E S (SEKm) 1998 1997 1998 1997

Income taxes –1,441 –1,315 –57 –70Deferred taxes –483 421 – –Dividend tax –34 –50 – –Minority interests in taxes 13 18 – –Group share of taxes in associated companies –6 –5 – –

Total –1,951 –931 –57 –70

As of December 31, 1998 the Group had atax-loss carry-forward of SEK 4,929m (5,385),which has not been included in computationof deferred tax assets.

Group

Nominal and actual tax rates (%) 1998 1997

Theoretical tax rate 38.6 41.9Losses for which deductions have not been made 3.5 19.2Provision for restructuring – 31.9Non-taxable income-statement items, net –2.6 4.1Timing differences 2.3 3.3Utilized tax-loss carry-forwards –8.0 –39.9Dividend tax 0.6 3.9Other –1.5 8.1

Actual tax rate 32.9 72.5

The theoretical tax rate of the Group iscalculated on the basis of weighted totalGroup net sales per country multipliedby the local statutory tax rates. Inaddition, the theoretical tax rate isadjusted for the effect of non-deductibledepreciation of goodwill. In 1995 theparent company was informed by theSwedish tax authorities that taxableincome would be increased by

approximately SEK 1.3 billion, whichcorresponds to an increase in tax ofapproximately SEK 350 million, andrefers to the fiscal treatment of the resultarising from liquidation of a foreignsubsidiary. Following an appeal, theAdministrative Court of Stockholm hasruled in favor of the company. Thedecision by the Court is definite. Noprovision was made, since Electrolux was

of the opinion that there was no legalbasis for the decision by the taxauthorities. The Court’s decision thus has no impact on the Company’s result or financial position.

Note 9. N E T I N C O M E P E R S H A R E 1998 1997

Net income, SEKm 3,975 352Number of shares in 1998 after a 5:1 stock split: 366,169,580 (73,233,916)Net income per share, SEK 10.85 0.95


Note 10. I N TA N G I B L E A S S E T S (SEKm) Leasehold rights, etc. Goodwill Total Brands, etc.

Opening balance 171 3,346 3,517 73Acquired during the year 1 27 28 8Sold during the year – –75 –75 –Depreciation for the year –20 –234 –254 –70Exchange-rate differences, etc. 4 107 111 –

Closing balance 156 3,171 3,327 11

Three items of goodwill are depreciatedby the Group over 40 years. If thisgoodwill were to be depreciated over20 years instead, in accordance withRecommendation no. RR 1:96 of the

Swedish Financial AccountingStandards Council, income for the yearwould decline by SEK 89m (85), andthe residual value of goodwill would bereduced by SEK 1,038m (907), while

equity would decline in a correspondingamount. Depreciation on goodwill isreported under other operating expense.

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 42


ConstructionMachinery in progress

Buildings and technical Other andNote 11. TA N G I B L E F I X E D A S S E T S (SEKm) and land installations equipment advances Total

GroupAcquisition costsOpening balance 12,231 31,165 5,336 1,410 50,142Acquired during the year 140 1,227 664 1,725 3,756Corporate acquisitions/divestments –405 –913 –229 –19 –1,566Transfer of work in progress and advances 129 1,542 –349 –1,322 –Sales, scrapping, etc. –605 –2,466 –844 –11 –3,926Exchange differences on opening balances

in foreign subsidiaries, etc. 651 1,443 452 93 2,639

Closing balance 12,141 31,998 5,030 1,876 51,045

Accumulated depreciation according to planOpening balance 4,150 20,380 3,093 – 27,623Depreciation for the year 411 2,907 573 – 3,891Corporate acquisitions/divestments –244 –796 –168 – –1,208Sales, scrapping, etc. –214 –1,862 –632 – –2,708Exchange differences on opening balances

in foreign subsidiaries, etc. 225 994 269 – 1,488

Closing balance 4,328 21,623 3,135 – 29,086

Balance-sheet value 7,813 10,375 1,895 1,876 21,959

Tax assessment value, Swedish Group companies:Buildings SEK 545m (784), land SEK 116m (128).Accumulated write-ups on land at year-end: SEK 18m (45).

Parent companyAcquisition costsOpening balance 216 1,637 282 24 2,159Acquired during the year 2 132 51 56 241Transfer of work in progress and advances – 11 – –11 –Sales, scrapping, etc. –7 –99 –106 – –212

Closing balance 211 1,681 227 69 2,188

Accumulated depreciation according to planOpening balance 138 1,041 196 – 1,375Depreciation for the year 5 179 35 – 219Sales, scrapping, etc. –4 –102 –75 – –181

Closing balance 139 1,118 156 – 1,413

Balance-sheet value 72 563 71 69 775

Tax assessment value: buildings SEK 252m (411), land SEK 52m (52).Undepreciated write-ups on buildings and land: SEK 9m (9).


Note 12. F I N A N C I A L F I X E D A S S E T S (SEKm) 1998 1997 1998 1997

Participations in associated companies 263 178 – –Participations in other companies 278 280 90 90Shares in subsidiaries – – 26,150 24,554Long-term receivables in subsidiaries – – 4,235 3,640Long-term holdings in securities 261 238 – –Deferred taxes 241 20 – –Other receivables 1,556 1,028 264 311

Total 2,599 1,744 30,739 28,595

A specification of shares and participations is given in Note 24.


Note 13. I N V E N T O R I E S (SEKm) 1998 1997 1998 1997

Raw materials 3,884 4,126 169 142Work in progress 844 847 32 23Finished products 12,597 11,481 391 317Advances to suppliers 67 102 1 –Advances from customers –435 –446 – –

Total 16,957 16,110 593 482

43

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 43



Note 14. A S S E T S P L E D G E D F O R L I A B I L I T I E S Group Parent company

T O C R E D I T I N S T I T U T I O N S (SEKm) 1998 1997 1998 1997

Real-estate mortgages 2,055 2,236 – –Corporate mortgages 14 382 – –Receivables 150 84 – –Inventories 60 44 – –Other 356 227 30 10

Total 2,635 2,973 30 10

Note 15. E Q U I T Y (SEKm)

Share Restricted Retained NetGroup capital reserves earnings income Total

Opening balance 1,831 9,716 8,666 352 20,565Transfer of retained earnings – – 352 –352 –Dividend payment – – –915 – –915Transfers between restricted and unrestricted equity – 1,711 –1,711 – –Translation differences, etc. – – 855 – 855Net income – – – 3,975 3,975

Closing balance 1,831 11,427 7,247 3,975 24,480

44

Disposable consolidated earningsamount to SEK 11,222m. No allocationto restricted reserves is required.

SEK 2,455m (2,180) referring to theshare of equity in timing differences isreported under “Restricted reserves” in

the balance sheet. This amount can betransferred to unrestricted reserves butwill then be subject to taxation.

Share Statutory Retained NetParent company capital reserve earnings income Total

Opening balance 1,831 2,731 4,106 1,652 10,320Transfer of retained earnings – – 1,652 –1,652 –Dividend payment – – –915 – –915Net income – – – 1,989 1,989

Closing balance 1,831 2,731 4,843 1,989 11,394

Note 16. S H A R E C A P I TA L A N D N U M B E R O F S H A R E S (SEKm) Value at par

On December 31, 1998 the share capital comprised the following:10,000,000 A-shares, par value SEK 5 50356,169,580 B-shares, par value SEK 5 1,781

Total 1,831

Opening ClosingNote 17. U N TA X E D R E S E R V E S, PA R E N T C O M PA N Y (SEKm) balance Allocations balance

Tax equalization reserve (L-fund) 19 –6 13Accumulated depreciation in excess of plan on:

Brands 68 –64 4Machinery and equipment 320 4 324Buildings 31 –3 28

Exchange-rate reserve 3 49 52Other financial reserves 21 –6 15Tax allocation reserve 112 – 112

Total 574 –26 548

Other financial reserves include fiscally permissible allocations referring to receivables in subsidiaries in politically and economically unstable countries.

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 44


In 1998 two Group pension funds wereestablished for the Group’s Swedishcompanies in order to secure pensioncommitments related to the ITP plan,i.e. PRI pensions. The ElectroluxGroup’s 1997 fund secures pensions

through 1997, and the ElectroluxGroup’s 1998 fund secures pensionsfrom 1998 onward. During the yearSEK 1,083m was allocated to the 1997fund. An allocation to the 1998 fundwill be made during the spring 1999.

The market value of assets in the 1997fund amounted to SEK 1,179m at year-end 1998, which exceeded the pensionobligations by SEK 39m.

Note 18. P R OV I S I O N S F O R P E N S I O N S Group Parent company

A N D S I M I L A R C O M M I T M E N T S (SEKm) 1998 1997 1998 1997

Interest-bearing pensions 283 1,514 192 848Other pensions 1,486 1,409 – –Other commitments 2,529 3,324 – –

Total 4,298 6,247 192 848


Note 19. O T H E R P R OV I S I O N S (SEKm) 1998 1997 1998 1997

Provision for restructuring 687 1,809 17 68Guarantee commitments 1,215 1,136 76 68Other 2,124 1,711 56 20

Total 4,026 4,656 149 156

Group

Note 20. I N T E R E S T- B E A R I N G L I A B I L I T I E S (SEKm) 1998 1997

Short-term loans 11,275 9,788Long-term loans 17,795 18,691Interest-bearing pensions 283 1,514

Total 29,353 29,993

1998 1997Group long-term borrowings by currency: SEKm SEKm

USD 9,200 9,657ITL 1,893 1,291FRF 1,576 1,417SEK 272 253ESP 1,000 1,429DEM 824 780Other currencies 3,030 3,864

Total 17,795 18,691

1998Long-term borrowings mature as follows: SEKm

1999 3,6992000 3,0052001 3,0062002 1,8662003 6032004 2,903Thereafter, through 2037 2,713

Total 17,795

At year-end 1998 the Group had unutilized credit facilities in the amount of SEK 22,031m (19,244).

45

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 45



Note 23. E M P L O Y E E S A N D PAY R O L L C O S T S

The average number of employees in 1998 was 99,322 (105,950), of which 67,687 (73,031) were men and 31,635 (32,919) werewomen. For specification of number of employees by country, see page 56.

1998 1997

Salaries and Employer Salaries and EmployerSalaries, other remuneration and employer contributions (SEKm) remuneration contributions remuneration contributions

Parent company 1,140 664 1,087 563(of which pension costs) (160)* (155)*

Subsidiaries 17,366 5,124 18,796 5,622(of which pension costs) (481) (415)

Group total 18,506 5,788 19,883 6,185(of which pensions costs) (641) (570)

*Of which SEK 10m (16) refers to pension costs for the current company President and his predecessors.

1998 1997

Salaries and remuneration by geographical area, Boards and Other Boards and Otherfor Board members, etc. and other employees (SEKm) Presidents employees Presidents employees

SwedenParent company 14 1,126 9 1,078Other 46 1,005 55 1,191

Total Sweden 60 2,131 64 2,269

EU excluding Sweden 154 8,973 165 9,862Rest of Europe 38 888 15 891North America 73 4,871 33 4,990Latin America 22 645 15 791Asia 20 479 24 617Africa 1 54 1 38Oceania 3 94 4 104

Total outside Sweden 311 16,004 257 17,293

Group total 371 18,135 321 19,562

Note 21. AC C R U E D E X P E N S E Group Parent company

A N D P R E PA I D I N C O M E (SEKm) 1998 1997 1998 1997

Accrued holiday pay 894 1,026 176 167Other accrued payroll costs 1,150 1,151 155 118Accrued interest expense 394 484 240 293Prepaid income 1,190 1,268 4 6Accrued expense 3,536 2,637 236 147

Total 7,164 6,566 811 731


Note 22. C O N T I N G E N T L I A B I L I T I E S (SEKm) 1998 1997 1998 1997

Discounted bills 72 109 – –Accounts receivable, with recourse 946 1,529 – –Guarantees and other commitments

On behalf of subsidiaries – – 3,744 5,970Other 476 344 94 49

Capital value of pension commitments in excess of reported liability 164 101 29 23

Total 1,658 2,083 3,867 6,042

46

In addition to the above contingentliabilities, guarantees for fulfillment ofcontractual undertakings are given as

part of the Group’s normal course ofbusiness. There was no indication atyear-end that payment will be required

in connection with any contractualguarantees.

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 46


Note 23. (continued) Remuneration, etc. to the Chairman of the Board, the President and other members of senior Group management

Book value, equity Note 24. S H A R E S A N D PA R T I C I PAT I O N S Holding, % method, SEKm

Associated companiesShanghai-Zanussi Elettromeccanica Co. Ltd, China 30.0 71MISR Compressor Manufacturing, Co., S.A.E., Egypt 27.7 61Atlas Eléctrica, S.A., Costa Rica 20.0 60Eureka Forbes Ltd, India 40.0 34Saudi Arabia Refrig Mfg, Saudi Arabia 49.0 28Indústria de Componentes Plásticos Incoplás Ltda, Brazil 40.0 8A/O Khimki Husqvarna, Russia 50.0 5Racks Refrigeração Ltda, Brazil 30.0 3IVG Bulka-Lehel GmbH, Germany 50.0 1Plotter Engenharia S/C Ltda, Brazil 30.0 1Viking Financial Services, USA 50.0 –2Automatic Minibar System Ltd, United Kingdom 50.0 –3Saudi Italian Industrial Co., Ltd, Saudi Arabia 25.0 –4

263

Holding, % Book value, SEKm

Other companiesEmail Ltd, Australia 5.1 124Mutual Fund Investment, Deferred compensation program, USA – 79Sidème S.A., France 34.0 17Winful J/V, China 5.0 16Nordwaggon AB, Sweden 50.0 9Kotimaiset Kotitalouskoneet Oy, Finland 50.0 5Inox Taglio SRL, Italy 10.0 3Other 25

278

47

In accordance with the decision by theAnnual General Meeting, fees to theBoard of Directors were paid in theamount of SEK 3,275,000, comprisingSEK 1,000,000 to the Chairman,SEK 350,000 to the Deputy Chairmanand SEK 275,000 to each of the othermembers and deputy members who arenot employed by the Group. The DeputyChairman receives a pension based on hisprevious employment in the company.

The President and CEO received afixed annual salary of SEK 6,600,000 anda bonus of SEK 3,852,000 for 1998. Thebonus amounts to 0.65‰ of the Group’sincome before taxes, maximized to 60%of the fixed salary. The President has alsoreceived 42,400 options under the 1998options program. The retirement age forthe President is 60. The President iscovered by the ITP plan, and in addition,from the age of 60 is entitled to alifetime pension consisting of 32.5% ofthe portion of salary as of the date ofretirement that corresponds to 20-30times the basic amount according to theSwedish National Insurance Act, 50% ofthe portion corresponding to 30-100times the basic amount, and 32.5% of theportion exceeding 100 times the basicamount. Between 60-65 years, an addi-tional pension will be paid amounting to5% of salary as of the date of retirement,maximized to 30 times the basic amount.Pension rights from previous employmentare included in the above. There is noagreement for special severance pay.

Similar pension agreements apply forother members of Group managementemployed in Sweden, although thepensionable age is 65 (in one case 58).For members of Group managementemployed outside Sweden, differentpension terms apply according to thecountry of employment, with the right toreceive pensions at 60 years of age at theearliest. There are no agreements forspecial severance pay.

The total capital value of pensioncommitments referring to the currentPresident, his predecessors and theirsurvivors amount to SEK 103m (99).

Synthetic options 1993Of the approximately 150 seniormanagers who were offered syntheticoptions in 1993, 112 exercised the rightto subscribe these options in January1994. A total of 506,000 options wereissued, priced according to prevailingmarket conditions at SEK 35.

At year-end 1998 there were 22 (24)owners remaining with total holdings of534,020 (552,260) options. The numberof options has been adjusted as a result ofthe 5:1 stock split authorized by theAnnual General Meeting. The strike priceis SEK 81, and the options matureJanuary 10, 2002.

The value of the options is indexedto the Electrolux share price. The optionscannot be used for purchase of the com-pany’s shares, but will be redeemed incash by the company. The change in

the value of these synthetic options isincluded in the annual Electroluxincome statement. At year-end thetotal liability was SEK 32m (20), andnet income for the year has beencharged with SEK 13m (25).

Option program 1998The annual option program introduced in1998 entitles 93 persons to allotment ofoptions. Three categories of personnel arecovered by the program, and eachcategory is allotted a specific number ofoptions, based on the value created aftercharging the Group’s reported netincome with a return on net Group assetsthat is defined by market criteria. Nooptions are issued if there is no increasein value.

The options cannot be used topurchase Electrolux shares, but will beredeemed for cash by the Company.The value of the options is linked to thetrading price of the Electrolux B-shares.The strike price is 115% of the tradingprice on the date the options are issued.The maturity period of the options is5 years. The first options will be issuedduring the first half of 1999 on the basisof the increase in value from 1997 to1998. The provision for the 1998 optionsprogram amounted to SEK 38m plusemployer payroll contributions.

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 47



Note 24. (continued)

Holding, %

Subsidiaries

Major Group companies:

Austria Electrolux Beteiligungs G.m.b.H. 100Electrolux Austria G.m.b.H. 100Verdichter OE G.m.b.H. 100

Belgium N.V. Zanker, S.A. 100Electrolux Belgium N.V. 100

Brazil Electrolux Ltda 100Electrolux do Brasil S.A. 99.9

Canada Frigidaire Home Products Canada Inc. 100

China Electrolux (China) Co. Ltd 100Electrolux Zhongyi (Changsha) Refrigerators Co. Ltd 60Zanussi Zhongyi (Changsha) Refrigerators Co. Ltd 60Zanussi Elettromeccanica Tianjin Compressor Co. Ltd 50

Denmark Electrolux Holding A/S 100Electrolux Hvidevareselskaber A/S 100A/S Vestfrost 50.1

Finland Oy Electrolux AB 100

France Electrolux S.A. 100UFAM S.A. 100Electrolux Professionnel S.A. 100

Germany Electrolux Deutschland GmbH 100AEG Hausgeräte GmbH 100Electrolux-Zanussi Hausgeräte GmbH 100FHP Motors GmbH 100Electrolux Siegen GmbH 100

Hungary Electrolux Lehel Hütögépgyár Kft 100Electrolux Leisure Appliances Kft 100

India Electrolux Kelvinator Ltd 55.8Electrolux-Voltas Ltd 74

Italy Electrolux Zanussi S.p.A. 100Zanussi Elettromeccanica S.p.A. 100Electrolux Zanussi Grandi Impianti S.p.A. 100Electrolux Zanussi Italia S.p.A. 100

Luxembourg Electrolux Luxembourg S.à r.l. 100Electrolux Reinsurance (Luxembourg) S.A. 100

Mexico Mexectro, S.A. de CV 100Kelvinator de Mexico S.A. de CV 100

The Netherlands Electrolux Associated Company B.V. 100Electrolux Holding B.V. 100

Norway Electrolux Norge AS 100

Spain Electrolux España S.A. 100Electrolux Electrodomésticos España S.A. 100Electrolux Production España S.L. 100

Sweden Husqvarna AB 100Electrolux Professional AB 100Electrolux Scandinavia AB 100

Switzerland Electrolux Holding AG 100

United Kingdom Electrolux UK Ltd 100Electrolux Holdings Ltd 100Electrolux Outdoor Products Ltd 100Electrolux Professional Ltd 100Electrolux Household Appliances Ltd 100

USA White Consolidated Industries, Inc. 100

48

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 48


Note 25. C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S AC C O R D I N G T O U S G A A P

49

The consolidated accounts have beenprepared in accordance with Swedishaccounting standards, which differ incertain significant respects fromAmerican accounting principles (US GAAP). The most importantdifferences are described below:

Adjustment for acquisitionsIn accordance with Swedish accountingprinciples, the tax benefit arising fromapplication of tax-loss carry-forwards inacquired companies is deducted by theGroup from the current year’s tax costs.According to US GAAP, this tax benefitshould be booked as a retroactiveadjustment of the value of acquiredintangible assets.

PensionsAccording to the American recom-mendations for pensions known asFAS 87 (Employers’ Accounting forPensions), computation of the projectedbenefit obligation and pension costs forthe year must take account of assump-tions regarding such factors as futuresalary increases and inflation which insome aspects differ from the actuarialassumptions used for the pension planswithin Electrolux.

SecuritiesAccording to Swedish accountingprinciples, holdings of debt and equitysecurities should be reported accordingto the lowest-value principle. Accordingto FAS 115 (Accounting for CertainInvestments in Debt and EquitySecurities), these holdings should beclassified with respect to intention, i.e.if they are to be traded, if they are to be

retained until maturity, or if they are inan intermediate category. Valuation andreporting of income differ according tothe classification of the securities. ForElectrolux, this means that certainsecurities must be reported at marketvalue in the balance sheet, while thedifference between market andacquisition value must be taken directly to equity, according to US GAAP. In connection with the sale of these securities, the change invalue previously reported directlyagainst equity is reported in the income statement.

Deferred taxesTaxation and financial reporting areaffected during different periods bycertain items. Electrolux reportsdeferred taxes on the most importanttiming differences, which refer mainlyto untaxed reserves, with due consid-eration in certain cases for the futurefiscal effects of tax-loss carry-forwards.US GAAP requires reporting of fiscaleffects for all significant differences andtax-loss carry-forwards, with the provisothat deferred tax assets may be reportedonly if it is probable that the tax benefitwill be utilized.

Timing differencesAccording to Swedish accountingprinciples, provisions for costs referringto a shutdown are booked when thedecision is made to shut down theplant. US GAAP rules require meetingadditional criteria before provisions canbe made for severance pay and othercosts related to shutdowns. Therefore,compliance with US GAAP requires

that provisions for these and similarcosts be made at a later date.

Distribution of GrängesIn accordance with the decision by theAnnual General Meeting in April 1997,all shares in Gränges AB weredistributed to Electrolux shareholderson May 20, 1997. In accordance withSwedish accounting principles, Grängeshas been removed from the Group’sfinancial statements for 1997.

According to US GAAP, Grängesshould be included in the Group’sbalance sheet and income statement upto the date that the decision todistribute the shares was made, andshould be reported in the incomestatement as a divested operation.

Comprehensive incomeAccording to FAS 130 (ReportingComprehensive Income), the financialstatements should include an incomeconcept “Comprehensive income”which, in addition to net income for the year according to the incomestatement, should include other itemsaffecting equity. Comprehensiveincome includes all changes in equityexcept capital transactions with theowners. Examples of items that shouldbe included are translation differences,certain changes in provisions forpensions that according to US GAAPare charged directly to equity andchanged values during the holding ofsecurities where the profit/loss is notshown in the income statement beforedisposal. The accounting standard ismandatory for Electrolux as from 1998.

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 49



Note 25. (continued)

A P P L I C AT I O N O F U S G A A P WO U L D H AV E T H E F O L L OW I N G A P P R OX I M AT E E F F E C T SO N C O N S O L I DAT E D N E T I N C O M E , E Q U I T Y A N D T H E B A L A N C E S H E E T

A. Consolidated net income (SEKm) 1998 1997

Net income as reported in the consolidated income statement 3,975 352Adjustments before taxes:

Acquisitions 27 6Timing differences –306 669Other –49 19

Taxes on above adjustments 89 –191Other taxes 12 –39

Approximate net income according to US GAAP, excluding divested operation 3,748 816Divested operation – 61

Approximate net income according to US GAAP 3,748 877

Approximate net income per share in SEK according to US GAAP, excluding divested operation 10.25 2.25

Approximate net income per share in SEK according to US GAAP 10.25 2.40(No. of shares in 1998 after a 5:1 stock split: 366,169,580)

B. Comprehensive income (SEKm) 1998 1997

Approximate net income according to US GAAP 3,748 877Translation differences 910 473Securities, unrealized changes in value –56 –32Provisions for pensions (minimum liability) –1 –51

Approximate comprehensive income according to US GAAP 4,601 1,267

C. Equity (SEKm) 1998 1997

Equity as reported in the consolidated balance sheet 24,480 20,565Adjustments:

Acquisitions –1,046 –1,090Pensions –163 –127Securities 30 123Timing differences 655 971Other –26 –45

Taxes on the above adjustments –129 –247Other taxes 217 182

Approximate equity according to US GAAP 24,018 20,332

D. Balance sheet (SEKm)

The table below summarizes the consolidated balance sheets preparedin accordance with Swedish accounting principles and US GAAP. According to According to

Swedish principles US GAAP

1998 1997 1998 1997

Intangible assets 3,327 3,517 2,366 2,546Tangible assets 21,959 22,519 21,913 22,442Financial assets 2,599 1,744 2,779 1,876Current assets 55,404 51,860 58,642 55,710

Total assets 83,289 79,640 85,700 82,574

Equity 24,480 20,565 24,018 20,332Minority interests 953 913 953 913Provisions for pensions and similar commitments 4,298 6,247 4,518 6,461Other provisions 4,026 4,656 3,371 3,685Financial liabilities 29,070 28,479 32,378 32,403Operating liabilities 20,462 18,780 20,462 18,780

Total liabilities and equity 83,289 79,640 85,700 82,574

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 50


Proposed distribution of earnings

According to the consolidated financial statements, the Group’s unappropriated earnings amount to SEK 11,222m.No allocation to restricted equity is required.

Thousandsof kronor

The Board of Directors and the President propose that net income for the year 1,988,911and retained earnings 4,842,867

totalling 6,831,778

be distributed as follows:A dividend of SEK 3.00 per share

to each shareholder, totalling 1,098,509To be carried forward 5,733,269

Total 6,831,778

Stockholm, February 16, 1999

R U N E A N D E R S S O NChairman of the Board

G Ö S TA B Y S T E D TDeputy Chairman

P E G G Y B R U Z E L I U S T H O M A S H A LVO R S E NL O U I S R . H U G H E S N O B U Y U K I I D E IS T E FA N P E R S S O N J AC O B WA L L E N B E R G

K A R E L V U U R S T E E N H A N S E L F V I N GI N G E M A R L A R S S O N R O L A N D M O

. .R K

M I C H A E L T R E S C H OWPresident

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 51

Auditors’ report


52

To the Annual General Meeting of the shareholders of AB Electrolux (Reg. no. 556009-4178)

We have audited the parent company and the consolidated financialstatements, the accounts and the administration of the Board ofDirectors and the President of AB Electrolux for the 12-month periodending December, 1998. These accounts and the administration of theCompany are the responsibility of the Board of Directors and thePresident. Our responsibility is to express an opinion on the financialstatements and the administration based on our audit.

We conducted our audit in accordance with Generally AcceptedAuditing Standards in Sweden. These Standards require that we planand perform the audit to obtain reasonable assurance that the financialstatements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessingthe accounting principles used and their application by the Board ofDirectors and the President, as well as evaluating the overallpresentation of information in the financial statements. We examinedsignificant decisions, actions taken and circumstances of the Company inorder to be able to determine the possible liability to the Company ofany Board member or the President or whether they have in some otherway acted in contravention of the Companies Act, the Annual AccountsAct or the Articles of Association. We believe that our audit provides areasonable basis for our opinion set out below.

In our opinion, the parent company and the consolidated financialstatements have been prepared in accordance with the Annual AccountsAct, and, consequently we recommend

that the income statements and the balance sheets of the ParentCompany and the Group be adopted, and

that the profit of the Parent Company be dealt with in accordancewith the proposal in the Administration Report.

In our opinion, the Board members and the President have notcommitted any act or been guilty of any omission which could give riseto any liability to the Company. We therefore recommend

that the members of the Board of Directors and the President bedischarged from liability for the financial year.

Stockholm, February 16, 1999

Ernst & Young ABG U N N A R W I D H AG E NAuthorized Public Accountant

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 52


1998 per1998 employee, 1997

C A L C U L AT I O N O F A D D E D VA L U E SEKm % SEK ’000 SEKm %

Total revenues 117,524 100 1,183 113,000 100Cost of purchased goods and services –82,077 –70 –826 –80,023 –71

Added value 35,447 30 357 32,977 29

1998 per1998 employee, 1997

D I S T R I B U T I O N O F A D D E D VA L U E SEKm % SEK ’000 SEKm %

To employeesSalaries 18,506 52 186 19,883 60Employer contributions 5,788 16 58 6,185 19

24,294 68 244 26,068 79To State and municipalities

Taxes 1,958 6 20 944 3To credit institutions

Interest, etc. 1,178 3 12 1,422 4To shareholders

Dividend payment (1998: Proposed) 1,099 3 11 915 3

4,235 12 43 3,281 10Retained in the Group

For wear on fixed assets (depreciation) 4,125 12 42 4,255 13Other 2,793 8 28 –627 –2

6,918 20 70 3,628 11

Added value 35,447 100 357 32,977 100

Statement of added value






53

Added value represents the contributionmade by a company’s production, i.e.the increase in value arising frommanufacture, handling, etc. within thecompany. It is defined as sales revenuesless the costs of purchased goods andservices.

Sales revenues for the ElectroluxGroup in 1998 totalled SEK 117,524m(113,000). After deduction of purchases

of goods and services, the value addedby the Group amounted to SEK35,447m (32,977), an increase of 7%(-7) from the previous year. During the past five years, added value hasincreased at an average annual rate of2.1% (4.5).

In 1998, SEK 6,918m (3,628) ofthe value added remained within theGroup and was utilized among other

things for capital expenditure as well asproduct development and marketing.Dividend payments to shareholdersaccounted for 3% (3) of added value in1998, or 5% (4) of the Group’s totalpayroll costs.

The added value generated withinthe Group over the past two years and itsdistribution are shown in the tables below.

941)

Added value

Added value, SEKm

Added value per employee, SEK ’000

SEKm42,000

28,000

21,000

14,000

7,000

0

SEK ’000600

400

35,000 500

300

200

100

0

93 95 96 972)

982)

1)1994 Excluding capital gain 2)1997–98 Including items affecting comparability

Salaries andemployer

contributions68%

Distribution of added value in 1998

Retained in the Group 20%Dividend payment to shareholders 3%Interest, etc. 3%Taxes6%

The added value per employee increased in 1998by 15% to SEK 357,000.

In 1998, the added value retained in the Groupincreased with approximately 90% to SEK 6,918m.

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 53

Eleven-year review


Amounts in SEKm unless otherwise indicated 1998 1997 1996 1995 1994 1993

Net sales and incomeNet sales 117,524 113,000 110,000 115,800 108,004 100,121Operating income1) 7,028 2,654 4,448 5,311 5,034 2,945Margin, % 6.0 2.3 4.0 4.6 4.7 2.9Income after financial items1) 5,850 1,232 3,250 4,016 3,595 1,250Margin, % 5.0 1.1 3.0 3.5 3.3 1.2Income before taxes1) 11) 5,926 1,283 3,032 3,947 3,479 1,171Margin, % 5.0 1.1 2.8 3.4 3.2 1.2Net income1) 2) 3,975 352 1,850 2,748 2,195 584

Financial positionTotal assets 83,289 79,640 85,169 83,156 84,183 77,647Net assets2) 3) 43,399 41,637 43,824 39,422 39,477 42,568Accounts receivable 21,859 21,184 20,494 19,602 20,015 18,522Inventories 17,325 16,454 17,334 18,359 18,514 16,698Accounts payable 10,476 9,879 9,422 10,027 11,066 9,486Equity2) 24,480 20,565 22,428 21,304 20,465 16,853

Data per share, SEK4)

Net income1) 2) 10.85 0.95 5.05 7.50 6.00 1.60Net income according to US GAAP5) 10.25 2.40 4.55 7.95 15.45 1.00Equity2) 67 56 61 58 56 46Dividend, adjusted for share issues6) 3.00 2.50 2.50 2.50 2.50 1.25Trading price of B-shares at year-end8) 139.50 110.20 79.20 54.50 75.40 56.80

Key ratiosReturn on equity, %1) 2) 19.3 1.6 8.7 13.4 13.0 3.5Return on net assets, %1) 2) 3) 16.3 6.1 10.3 12.5 11.9 6.8Net assets as % of net sales2) 3) 7) 9) 36.2 36.5 39.1 36.1 35.6 40.9Accounts receivable as % of net sales7) 9) 18.2 18.6 18.3 18.0 18.0 17.8Inventories as % of net sales7) 9) 14.4 14.4 15.5 16.8 16.7 16.1Net debt/equity3) 0.71 0.94 0.80 0.80 0.88 1.49Interest coverage ratio 3.46 1.42 2.26 2.77 2.38 1.28Equity/assets ratio, %2) 3) 35.4 30.8 33.8 31.8 29.5 24.9Dividend as % of equity2) 6) 4.5 4.4 4.1 4.3 4.5 2.7

Other dataGross capital expenditure

on real estate, equipment and tools10) 4,053 4,450 7,088 5,238 7,537 3,727exclusive of opening value in acquisitions during the year10) 3,756 4,329 4,807 5,115 3,998 3,682

Capital expenditure as % of sales 3.2 3.8 4.4 4.4 3.7 3.7Average number of employees 99,322 105,950 112,140 112,300 109,470 114,700Salaries and remuneration 18,506 19,883 20,249 20,788 19,431 18,691Number of shareholders 50,500 45,660 48,300 54,600 55,400 65,700






54

Definitions

C A P I TA L I N D I C AT O R S

Net liquidityLiquid funds less short-termborrowings.

Net assetsTotal assets exclusive of liquid funds,less non-interest-bearing liabilities andprovisions.

Adjusted total assetsTotal assets less liquid funds.

Total adjusted equityEquity, including minority interests.

N E T I N C O M E P E R S H A R E

Net income per shareNet income divided by the number of shares.

Net income per share according to US GAAPSee information on US GAAP in Note 25.All computations have been adjusted forfull dilution, stock splits, bonus issues andnew issues. In connection with new issues,the number of shares is computed as theaverage number of shares for the year.

Number of sharesThe number of shares in 1998 amountedto 366,169,580 after a 5:1 stock split.

O T H E R K E Y R AT I O S

In computation of key ratios wherecapital is related to net sales, the latterare annualized and converted at year-end exchange rates, so that dueconsideration is given to changes inexchange rates and Group structure.

Operating marginOperating income expressed as apercentage of net sales.

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 54







55

Averagegrowth rate, %

1992 1991 1990 1989 1988 5 years 10 years

80,436 79,027 82,434 84,919 73,960 3.4 5.11,992 2,382 2,992 5,085 4,595 – –

2.5 3.0 3.6 6.0 6.2 – –758 825 1,153 3,412 3,425 – –0.9 1.0 1.4 4.0 4.6 – –671 738 – –0.8 0.9 – –

183 377 741 2,579 2,371 – –

71,618 62,329 65,793 63,298 56,840 1.5 4.141,728 35,521 39,347 38,623 30,863 0.6 4.016,509 13,893 14,707 14,547 13,728 3.4 5.015,883 14,955 16,042 16,409 14,359 0.9 2.18,281 7,370 7,985 7,626 7,817 2.4 3.4

16,772 15,758 16,565 17,025 14,873 8.3 5.5

0.50 1.05 2.00 7.05 6.45 – –0.50 1.10 2.25 6.25 5.75 – –

46 43 45 46 41 8.3 5.51.25 2.50 2.50 2.50 2.30 21.2 6.9

47.60 43.60 32.00 56.00 58.60 23.2 13.4

1.2 2.3 4.3 17.3 18.65.3 6.2 7.6 14.2 16.3

46.1 45.0 48.6 46.9 40.718.2 17.6 18.0 17.7 18.117.5 18.9 19.7 19.9 19.01.49 1.25 1.38 1.25 1.221.18 1.25 1.38 2.21 2.7326.4 28.0 27.2 28.7 28.12.7 5.8 5.5 5.3 5.6

3,737 3,704 4,444 6,237 5,292

3,623 3,414 4,018 5,389 4,772 1.5 –1.24.5 4.3 4.9 6.3 6.5

121,200 134,200 150,900 152,900 147,200 –2.8 –3.715,902 15,507 17,213 17,458 15,257 –0.1 2.368,100 70,000 74,000 68,000 70,000

1) 1994: Exclusive of capital gain on Autoliv.2) 1988 and previous years, computed after

50% tax on allocations and untaxedreserves.

3) As of 1993, minority interests are includedin adjusted equity.

4) The figures for 1988-97 have been adjustedfor the 5:1 stock split in 1998.

5) Adjusted in connection with introductionof FAS 106 and 109 in 1993.

6) 1998: Proposed by the Board.7) Net sales are annualized.8) Last price paid for B-shares.9) As of 1992, adjusted for exchange-rate

effects.10) As of 1992, calculated as annual average.11) As of 1991, the minority’s share is included

in income before tax. 1988-90 has not been recalculated.

Return on equityNet income expressed as a percentageof opening equity. For 1988 andprevious years, this ratio is computed as income after financial items lessminority interests and 50% standardtax, expressed as a percentage ofopening equity plus 50% of untaxedreserves. The latter is adjusted fordebentures converted during the yearand for new issues.

Return on net assetsOperating income expressed as apercentage of average net assets.

Interest coverage rateOperating income plus financial items,in relation to total interest expense.

Net borrowingsTotal interest-bearing liabilities lessliquid funds.

Net debt/equity ratioNet borrowings in relation to adjustedequity.

Equity/assets ratioAdjusted equity expressed as apercentage of adjusted total assets.

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 55

Net sales and average number of employees, by country


1998 1997 1998 1997

Net sales, % of Net sales, % of Number of Number ofE U SEKm Group total SEKm Group total employees employees

Germany 13,968 11.9 14,705 13.0 9,166 10,601UK 7,055 6.0 7,088 6.3 3,923 4,909Italy 6,494 5.5 5,943 5.3 13,215 13,306France 6,033 5.1 5,887 5.2 2,614 2,897Sweden 5,651 4.8 5,878 5.2 9,749 10,029Spain 3,305 2.8 3,010 2.7 3,414 3,684Denmark 2,283 1.9 2,256 2.0 2,829 3,076The Netherlands 2,239 1.9 2,267 2.0 755 727Finland 1,758 1.5 1,588 1.4 597 724Belgium 1,345 1.1 1,460 1.3 273 354Austria 1,235 1.1 1,412 1.3 912 1,109Ireland 525 0.4 494 0.4 101 86Portugal 444 0.4 380 0.3 76 89Greece 403 0.3 403 0.4 84 82Luxembourg 133 0.1 135 0.1 220 261

Total 52,871 45.0 52,906 46.9 47,928 51,934

1998 1997 1998 1997

Net sales, % of Net sales, % of Number of Number ofR E S T O F E U R O P E SEKm Group total SEKm Group total employees employees

Switzerland 2,272 1.9 2,046 1.8 1,233 1,266Norway 1,779 1.5 1,798 1.6 711 794Russia 897 0.8 860 0.8 109 124Poland 866 0.7 806 0.7 182 183Czech Republic 698 0.6 661 0.6 283 292Hungary 627 0.5 568 0.5 3,771 3,920Turkey 586 0.5 672 0.6 179 187Baltic States 344 0.3 336 0.3 135 137Rumania 315 0.3 149 0.1 1,469 31Slovakia 194 0.2 145 0.1 228 215Slovenia 131 0.1 119 0.1 39 38Bulgaria 88 0.1 55 0.1 20 23Other 434 0.4 317 0.2 42 34

Total 9,231 7.8 8,532 7.5 8,401 7,244

Total EUROPE 62,102 52.8 61,438 54.4 56,329 59,178

1998 1997 1998 1997

Net sales, % of Net sales, % of Number of Number ofN O R T H A M E R I C A SEKm Group total SEKm Group total employees employees

USA 37,703 32.1 32,422 28.7 23,713 22,823Canada 3,567 3.0 3,306 2.9 1,073 1,089

Total 41,270 35.1 35,728 31.6 24,786 23,912

1998 1997 1998 1997

Net sales, % of Net sales, % of Number of Number ofL AT I N A M E R I C A SEKm Group total SEKm Group total employees employees

Brazil 4,306 3.7 5,696 5.0 4,072 5,539Mexico 540 0.5 452 0.4 1,261 1,051Argentina 524 0.4 528 0.5 99 80Venezuela 171 0.1 114 0.1 209 256Colombia 125 0.1 135 0.1 513 653Paraguay 118 0.1 139 0.1 361 429Peru 73 0.1 82 0.1 548 718Ecuador 72 0.1 63 0.1 254 232Chile 69 0.1 97 0.1 126 193Uruguay 36 0.0 41 0.0 – –Other 882 0.8 677 0.6 74 576

Total 6,916 5.9 8,024 7.1 7,517 9,727






56

Eng A/R-98 PP 34-57 Q3 99-04-06 13.01 Sidan 56


1998 1997 1998 1997

Net sales, % of Net sales, % of Number of Number ofA S I A SEKm Group total SEKm Group total employees employees

Far EastChina 1,097 0.9 677 0.6 2,494 2,535Japan 928 0.8 1,029 0.9 725 856India 610 0.5 327 0.3 1,456 1,076Thailand 302 0.3 668 0.6 2,028 2,704Malaysia 276 0.2 456 0.4 957 1,079Hong Kong 202 0.2 291 0.3 103 145South Korea 167 0.1 202 0.2 85 95Taiwan 160 0.1 168 0.2 220 256Indonesia 147 0.1 489 0.4 1,053 2,692Singapore 102 0.1 156 0.1 256 150Vietnam 47 0.0 42 0.0 – –The Philippines 45 0.0 64 0.1 368 457Other 134 0.1 62 0.0 – 69

Total 4,217 3.6 4,631 4.1 9,745 12,114

Middle EastSaudi Arabia 241 0.2 252 0.2 – –United Arab Emirates 160 0.1 170 0.2 – –Lebanon 106 0.1 107 0.1 – –Kuwait 81 0.1 62 0.1 – –Iran 60 0.1 48 0.0 – –Other 275 0.2 310 0.1 – –

Total 923 0.8 949 0.7 – –

Total ASIA 5,140 4.4 5,580 4.8 9,745 12,114

1998 1997 1998 1997

Net sales, % of Net sales, % of Number of Number ofA F R I C A SEKm Group total SEKm Group total employees employees

Egypt 365 0.3 335 0.3 – –South Africa 262 0.2 322 0.3 410 408Tunisia 94 0.1 59 0.1 31 26Algeria 79 0.1 59 0.1 – –Other 278 0.2 370 0.3 – –

Total 1,078 0.9 1,145 1.1 441 434

1998 1997 1998 1997

Net sales, % of Net sales, % of Number of Number ofO C E A N I A SEKm Group total SEKm Group total employees employees

Australia 801 0.7 842 0.8 418 493New Zealand 173 0.1 209 0.2 86 92Other 44 0.0 34 0.0 – –

Total 1,018 0.9 1,085 1.0 504 585

19981) 19971) 1998 1997Net sales, Net sales, Number of Number of

SEKm SEKm employees employees

G R O U P T O TA L 117,524 113,000 99,322 105,950

1) Sales by country receiving products.






57

Eng A/R-98 PP 34-57 Q3 99-03-31 19.04 Sidan 57


Board of Directors

Rune AnderssonChairmanBorn 1944, M. Eng., Hon. Tech. D. Board Chairman: Akila AB, Svedala Industri AB and Trelleborg AB. Board Member: Doro Telefoni AB, Meaning Green AB. Various positions at Electrolux 1977-1982, includinghead of operation in food-service equipment.Elected 1998.

Shareholding in AB Electrolux: 500,000 A-shares.

Gösta BystedtDeputy ChairmanBorn 1929, M. Eng., M. Econ. Deputy Chairman: Kalmar Industries AB, Axel Johnson AB. Board Member: Atlas Copco AB,Federation of Swedish Industries. Elected 1969.

Shareholding in AB Electrolux: 318,795 B-shares.

Peggy BruzeliusBorn 1949, M. Econ. Board Chairman: GrandHotel Holding AB. Board Member: Axel JohnsonAB, AB Ratos, Scania AB, Swedish Trade Council. Member of Industry and CommerceStock Exchange Committee. Elected 1996.


Thomas HalvorsenBorn 1949, B.A. President, National PensionInsurance Fund, Fourth Fund Board. BoardMember: Beijer & Alma AB, Sydkraft AB.Elected 1996.

Shareholding in AB Electrolux: 0 shares.

Louis R. HughesBorn 1949, B.S., M. Eng., MBA. Executive Vice-President, General Motors Corporation, Detroit,Michigan, USA. Board Chairman: Saab Automobile AB. Board Member: Deutsche Bank AG, Swiss-American Chamber of Commerce. Elected 1996.


Nobuyuki IdeiBorn 1937, B.A. Econ. President, RepresentativeDirector, Co-CEO Sony Corporation, Tokyo,Japan. Co-Chairman Committee on New Businesses, Keidaren (Japan Federation of Economic Organizations). Elected 1998.


Stefan PerssonBorn 1947. Board Chairman: H&M Hennes &Mauritz AB. Board Member: Ingka Holding B.V.(IKEA). Elected 1994.


Karel VuursteenBorn 1941, M. Eng. President and CEOHeineken N.V., Amsterdam, The Netherlands.Board Member: Gucci Group N.V., NijenrodeUniversity, Whitbread Plc. Advisory CouncilMember ING Group. Elected 1998.


Jacob WallenbergBorn 1956, M. Econ., MBA. Board Chairman:SEB, Skandinaviska Enskilda Banken. ExecutiveVice-President Investor AB. Board Member:Atlas Copco AB, Investor AB, WM-Data AB,Knut and Alice Wallenbergs Foundation.Elected 1998.


Michael TreschowPresident and CEOBorn 1943, M. Eng. Board Chairman: SwedishTrade Council. Deputy Chairman: Saab Automobile AB. Board Member: Atlas Copco AB,Investor AB. Elected 1997.


Rune Andersson

Gösta Bystedt

Louis R. Hughes

Karel Vuursteen

Peggy Bruzelius

Nobuyuki Idei

Jacob Wallenberg

Thomas Halvorsen

Stefan Persson

Michael Treschow

ENG A/R-98 PP 58-59 Q3 99-04-14 07.43 Sidan 58


EMPLOYEE REPRESENTATIVES DEPUTY MEMBERS

Hans ElfvingBorn 1941. Representative of the Federation ofSalaried Employees in Industry and Services.Elected 1993.

Shareholding in AB Electrolux: 585 B-shares.

Ingemar LarssonBorn 1939. Representative of the Swedish Confederation of Trade Unions. Deputy Member, 1990–1995. Ordinary Member, 1996.


Roland MörkBorn 1938. Representative of the Swedish Confederation of Trade Unions. Elected 1988.


Richard DellnerBorn 1953. Representative of the Federation ofSalaried Employees in Industry and Services.Elected 1996.


Bert GustafssonBorn 1951. Representative of the Federation ofSalaried Employees in Industry and Services.Elected 1997.


Gunnar JanssonBorn 1954. Representative of the Swedish Confederation of Trade Unions. Elected 1996.


Hans WerthénBorn 1919, M. Eng., Hon. Tech. D. President of AB Electrolux 1967–1973, and Chairman of theBoard 1974–1991. Honorary Chairman since1991.

EMPLOYEE REPRESENTATIVESMEMBERS

Hans Elfving

Ingemar Larsson

Roland Mörk

Richard Dellner

Bert Gustafsson

Gunnar Jansson

HONORARY CHAIRMANOF THE BOARD

Hans Werthén

ENG A/R-98 PP 58-59 Q3 99-04-14 07.43 Sidan 59

60


Group organization

Michael TreschowPresident and CEOBorn 1943, M. Eng. Employed by Atlas CopcoAB 1975, as President and CEO 1991–1997.Joined Electrolux in April, 1997. Shareholdingin AB Electrolux: 33,000 B-shares.

Detlef MünchowHead of business sector Professional appliancesBorn 1952, MBA and PhD Econ., University of Münster, Germany. Member of seniormanagement in consulting firm KnightWendling/Wegenstein AG 1980–1989, GMOAG 1989–1992 and FAG Bearings AG since1993, most recently as Chief Operating Officerin FAG Bearings Corporation, Connecticut,USA. Executive Vice-President AB Electrolux asof January, 1999.Shareholding in AB Electrolux: 0 shares.

Detlef Münchow succeeds Aldo Sessogolo.

Lennart RibohnHead of business sector New markets,Components, Direct salesBorn 1943, B.A. With AB Electrolux since 1963.Group Controller 1971, Executive Vice-President and CFO 1981, Senior ExecutiveVice-President since 1988. Responsible for Newmarkets 1994. Head of business sector Newmarkets, Components and Direct sales 1997.Shareholding in AB Electrolux: 229,720 B-shares and 108,250 options.

Bengt AnderssonHead of business sector Outdoor productsBorn 1944, Mech. Eng. Sector Manager Facit-Addo 1976, Technical Director ElectroluxMotor 1980, Product-line Manager outdoor products North America 1990, Product-lineManager forestry and garden equipment Husqvarna and Flymo 1991. Executive Vice-President AB Electrolux 1997.Shareholding in AB Electrolux: 5,000 B-shares.

MatsOla PalmHead of business sector White goods EuropeBorn 1941. Employed at IBM 1966–1978 andVolvo Group 1979–1995, most recently as headof Volvo North America 1992–1995. JoinedElectrolux as head of sales and marketing forwhite goods in Europe 1995. Executive Vice-President AB Electrolux 1996.Shareholding in AB Electrolux: 12,000 B-shares.

Robert E. CookHead of business sector White goods and Outdoorproducts North America Born 1943, Graduate in Law, Denver College,Colorado, USA. President Roper Corporation,USA 1985 and American Yard Products, USA,1988. President Frigidaire Home Products, 1997.Executive Vice-President AB Electrolux 1997.Shareholding in AB Electrolux: 12,500 ADRsand 54,125 options.

Detlef Münchow

Hans Stråberg

Bengt Andersson

MatsOla Palm

Johan Bygge

Michael Regan

Michael Treschow

Robert E. Cook

Lennart Ribohn

Matts P. Ekman

Cecilia ViewegLars Göran Johansson

ENG A/R-98 PP 60-61 Q3 99-04-14 07.47 Sidan 60

61


Hans StråbergHead of business sector Floor-care products andLight appliancesBorn 1957, M. Eng. With AB Electrolux since1983. Head of product area dishwashers andwashing machines 1987–1992. Head of productdivision floor-care products, Västervik,1992–1995. Executive Vice-President FrigidaireHome Products, USA 1995–1998. ExecutiveVice-President AB Electrolux 1998.Shareholding in AB Electrolux: 2,870 B-shares.

Hans Stråberg succeeds Hans G. Bäckman.

Lars Göran JohanssonHead of Group staff Communication and Public AffairsBorn 1954, M. Econ. Project Manager at consulting company KREAB 1978, President1985. Led campaign for “Yes to Europe” 1992.Senior Vice-President Communication andPublic Affairs AB Electrolux 1995.Shareholding in AB Electrolux: 500 B-shares.

Johan ByggeHead of Group staff Controlling, Accounting,Auditing, ITBorn 1956, M. Econ. Project Manager andDeputy Group Controller, TelefonaktiebolagetLM Ericsson 1983, head of Cash Management1986. Group Controller in AB Electrolux 1987,Senior Vice-President Group Controller 1994.Senior Vice-President Group Controlling,Administration and Information Technology 1996.Shareholding in AB Electrolux: 1,500 B-shares.

Michael ReganHead of Group staff Organizational Developmentand Management ResourcesBorn 1949, B.A. Personnel Director white-goodsdivision Thorn EMI, UK 1985. Director HumanResources and responsible for CorporateCommunications Electrolux UK 1988. DirectorHuman Resources Operations for Europe 1995.Senior Vice-President Organizational Development and Management Resources 1997.Shareholding in AB Electrolux: 0 shares.

Hans G. BäckmanAppointed Divisional Manager of Husqvarna ABin 1977, Product-line Manager outdoor products1983. Executive Vice-President AB Electroluxsince 1988. President Frigidaire Company andProduct-line Manager outdoor products NorthAmerica 1991. Head of the business sectorFloor-care, Leisure and Complementary products1997. Retired with a pension in October 1998.

Matts P. EkmanHead of Group staff TreasuryBorn 1946, M. Econ., MBA. Various positions atGränges AB, Treasury Department 1972–1980,Finance Director, 1980–1981. Senior Vice-President Group Treasurer AB Electrolux 1981.Shareholding in AB Electrolux: 25,000 B-sharesand 25,000 options.

Cecilia ViewegHead of Group staff LegalBorn 1955, B. of Law. Attorney with Berglund &Co Advokatbyrå, Gothenburg 1987–1990,Corporate Legal Counsel, AB Volvo 1990–1992.General Counsel, Volvo Car Corporation1992–1997. Attorney and partner in WahlinAdvokatbyrå, Gothenburg 1998. GeneralCounsel AB Electrolux as of March 1999.Shareholding in AB Electrolux: 0 shares.

Cecilia Vieweg succeeds Ulf Magnusson.

Aldo SessegoloJoined Zanussi in 1970 and subsequently heldvarious positions in Electrolux, most recently asExecutive Vice-President AB Electrolux andhead of the business sector Professionalappliances. Retired with a pension in December 1998.

Ulf MagnussonGeneral Counsel for Gränges AB 1967–1981.General Counsel AB Electrolux since 1981.Retired with a pension in March 1999.

President and CEO

Communicationand Public Affairs Legal

Organizational Developmentand Management Resources

Controlling, Accounting,Auditing, IT Treasury

Professionalappliances

Detlef Münchow

New markets,Components,Direct sales

Lennart Ribohn

White goods andOutdoor productsNorth America

Robert E. Cook

Floor-care productsand Light appliances

Hans StråbergOutdoor productsBengt Andersson

White goodsEurope

MatsOla Palm

Staffs

Business sectors

Advisory to President and Group managementin respective areas

Leisure appliances and Complementary products

Sven Stork

Technology Environment

Quality

Hans G. Bäckman

Aldo Sessegolo Ulf Magnusson

ENG A/R-98 PP 60-61 Q3 99-04-14 07.47 Sidan 61

Electrolux shares

The market capitalization of Electroluxat year-end 1998 was SEK 51.1 billion(40.3), which represents an increase ofSEK 10.8 billion or 27% compared withyear-end 1997. The market capitali-zation corresponded to 2.1% (1.9) ofthe total market capitalization of theStockholm Stock Exchange.

The trading price for B-shares roseby 27% during the year. The generalindex for the Stockholm StockExchange rose by 10%. The highesttrading price for B-shares was SEK 161on May 26, and the lowest wasSEK 87.50 on October 8. The high forthe A-share was SEK 180 on June 3,and the low was SEK 98 on October 9.

Trading volumeIn 1998, 268.9 million (297.6) Electroluxshares were traded on the StockholmStock Exchange to a value of SEK 34.1billion (32.5). This represented 1.8%(2.4) of the total share trading volume ofSEK 1,830 billion (1,346) for the year.

The average value of the totalnumber of A- and B-shares traded dailywas SEK 136.4m (130.4).

The total number of Electrolux sharestraded on the London Stock Exchangein 1998 was 452.7 million (706.4), andin NASDAQ 7.2 million (14.3) ADRs.At year-end, 3,346,761 depositaryreceipts were outstanding. Tradingvolume on other exchanges wasconsiderably lower.

Beta-valueThe Beta-value indicates the volatility ofthe trading price for a share relative tothe general market trend. The Beta-valueof Electrolux shares for the past fouryears was 0.91 (1.21), which means thatthe volatility of Electrolux shares was9% lower than the general index.

Effective yieldEffective yield indicates the actualprofitability of a placement in shares,and comprises dividends received pluschange in trading price.

The average annual effective yieldon a placement in Electrolux shares was13.7% over the past ten years, includingthe distribution of Gränges in 1996 andadjusted for the 5:1 stock split in 1998.The corresponding figure for theStockholm Stock Exchange was 15.1%.

Options program 1998An annual options program for topmanagement was introduced in 1998.The program entitles an allotment ofoptions, which will be redeemed forcash by the Company. The value of theoptions is linked to the trading price ofthe Electrolux B-shares. The strike price

is 115% of the trading price on the datethe options are issued.

The options mature in five years.The first options will be allotted duringthe first half of 1999.

DividendThe Board has decided to propose anincreased dividend for 1998 ofSEK 3.00 per share at the AnnualGeneral Meeting, corresponding to 34%(51) of net income, exclusive of itemsaffecting comparability.

Stock split and increase in votingrights for B-sharesIn April 1998 the Annual GeneralMeeting authorized a stock split of 5:1and a change in the Company’s Articlesof Association that enabled increasingthe voting rights of B-shares from1/1000 to 1/10. The share of the totalvoting rights in the Company repre-sented by B-shares thus increased from3.4% to 78.1%, and the share of A-shares decreased from 96.6% to21.9%. The stock split involves changingthe par value of all shares in Electroluxfrom SEK 25.00 to SEK 5.00.

As of June 2, 1998 the shares werelisted at the new par value and withincreased voting rights for B-shares onall European stock exchanges where theGroup is registered, and in the US as ofJune 11, 1998. Electrolux B-shares arelisted in the US within NASDAQ in theform of depositary receipts (ADRs). Therelation between ADRs and B-shareswas accordingly adjusted, so that one

62


Electrolux share listingsExchange Year

London, B-shares 1928Stockholm, A- and B-shares 1930Geneva, B-shares 1955Paris, B-shares 1983Zurich, Basel, B-shares 1987USA, NASDAQ (ADRs)1) 19871) American Depositary Receipts. One ADR

corresponds to two B-shares.

93 94* 95 96 97 9889 90 91 92

After full tax*Excluding capital gain

Net income per share

10

12

8

6

4

2

0

SEK

93 94 95 96 97 9889 90 91 92

Dividend, SEK

Share of equity, %

Dividend per share

2.50

4

3.00

2.00

1.50

1.00

0.50

%6

5

3

2

1

00.00

SEK

93 94 95 96 97 9889 90 91 92

Trading price per B-share at year-end

Equity per share

Trading price and equity per share

125

150

100

75

50

25

0

SEK

Net income per share including items affectingcomparability increased to SEK 10.85 in 1998.

At year-end 1998, the price/equity ratio forElectrolux B-shares was 2.09.

The Board of Directors propose an increase of thedividend to SEK 3.00 per share.

Eng A/R-98 PP 62-64 Q3 99-03-31 19.35 Sidan 62


63

Per-share data 1989-19981) 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989

Year-end trading price, SEK2) 139.50 110.20 79.20 54.50 75.40 56.80 47.60 43.60 32.00 56.00Highest trading price, B-shares, SEK 161.00 139.80 85.40 77.40 87.80 62.60 57.80 58.00 63.20 77.00Lowest trading price, B-shares, SEK 87.50 77.70 54.30 50.80 56.40 38.60 28.40 30.80 24.20 47.20Change in price during the year, % 27 39 45 –28 33 19 9 36 –43 –4Equity, SEK 67 56 61 58 56 46 46 43 45 46Trading price/equity, % 209 196 129 94 135 123 104 101 71 121Dividend, SEK 3.003) 2.50 2.504) 2.50 2.50 1.25 1.25 2.50 2.50 2.50Dividend, %5) 34.07) 51.47) 49.4 33.3 41.7 78.1 250.0 240.0 123.8 35.5Direct yield, %6) 2.2 2.3 3.2 4.6 3.3 2.2 2.6 5.7 7.8 4.5Net income, SEK 8.857) 4.857) 5.05 7.50 6.007) 1.60 0.50 1.05 2.00 7.05EBIT multiple8) 10.0 4.6 2.2 1.4 1.8 3.2 4.2 3.0 2.4 1.6EBIT multiple7) 8) 11.5 2.6P/E ratio9) 15.8 22.7 15.7 7.3 12.6 35.5 95.2 41.9 15.8 8.0Number of shareholders 50,500 45,660 48,300 54,600 55,400 65,700 68,100 70,000 74,000 68,0001) The figures for 1989-1997 have been adjusted for the

5:1 stock split in 1998.2) Last price paid for B-shares.3) Proposed by the Board.4) Plus 1/2 share in Gränges for every Electrolux share.5) As % of net income.

6) Dividend per share divided by trading price at year-end.7) Excluding items affecting comparability.8) Market capitalization plus net borrowings and minority interests, divided by

operating income.9) Trading price in relation to net income per share after full dilution. For 1989-1998,

computed as net income per share after full tax.

Trading volume of Electrolux shares in Stockholm, London and New York

(Thousands) 1998 1997 1996 1995 1994

Stockholm, A- and B-shares(ELUXa and ELUXb) 268,920 297,577 234,300 292,825 313,075

London, B-shares(ELXB) 452,749 706,370 247,270 307,650 294,000

New York, ADRs(ELUX) 7,246 14,315 5,953 5,470 3,748

JP Morgan, Morgan Guarantee Trust Company, is the depositary bank for ADRs.

Average daily trading volume of Electrolux shares on the Stockholm Stock Exchange,

in thousands of kronor1998 1997 1996 1995 1994

A-shares 89 17 27 9 58B-shares 136,353 130,378 64,441 77,736 93,720

Total 136,442 130,395 64,468 77,745 93,778

Price and trading volume of Electrolux B-shares on the Stockholm Stock Exchange, 1994–February 1999

General indexElectrolux B, monthly high/low, SEK

Trading volume, thousands of shares

10,00020,00030,00040,00050,000

(c) SIX Findata

1994

40

50

60

70

80

90

100

110

120

130

140

150

160170

1995 1996 1997 1998 1999

ADR now corresponds to two B-shares,instead of the previous one.

Listing in euroAs of January 4, 1999 Electrolux B-shares are listed in euro on the stockexchange in Paris.

In order to facilitate trading andgreater distribution of shares, the Boardhas decided to list the B-shares in botheuro and Swedish kronor on theStockholm Stock Exchange.

Share capital and number of sharesOn December 31, 1998 there were10,000,000 Electrolux A-shares and356,169,580 B-shares, for a total of366,169,580 shares. Each share has a parvalue of SEK 5.00. Total share capital atyear-end amounted to SEK 1,830.8m.

Change in share capital 1989–1998

Total Of whichshare capital through

SEKm conversion

1989 1,818 61990 1,831 131991 1,831 –1992 1,831 –1993 1,831 –1994 1,831 –1995 1,831 –1996 1,831 –1997 1,831 –1998 1,831 –

Eng A/R-98 PP 62-64 Q3 99-03-31 19.35 Sidan 63

Electrolux shares

64


Distribution of shareholdings inAB Electrolux

No. of As % ofShareholding shareholders shareholders

1–1,000 42,173 83.51,001–10,000 7,419 14.710,001–100,000 678 1.3100,001– 259 0.5

Total 50,529 100.0

The above information is based on the registerof shareholders in AB Electrolux at the VPC(Swedish Securities Register Center) as ofDecember 31, 1998.

Major shareholders in AB Electrolux Number Share VotingAs of December 31, 1998 of shares capital, % rights, %

4th National Pension Insurance Fund 26,556,520 7.25 5.82SPP 13,476,155 3.68 2.95Investor 13,288,890 3.63 21.04Skandia 9,526,820 2.60 2.39Trygg-Hansa 5,930,019 1.62 1.30SEB/Trygg/ABB investment funds 5,496,775 1.50 1.21Svenska Handelsbanken

investment funds 4,905,600 1.34 1.08AMF Sjukförsäkring 4,539,050 1.24 1.00Wasa Försäkring 3,451,295 0.94 0.76AMF Pensionsförsäkring 3,210,000 0.88 0.70As of December 31, 1998, 57% of the total share capital was owned by foreign investors, 34% bySwedish institutions and mutual funds, and about 9% by private Swedish investors. Most of the sharesowned by foreign investors are registered through trustees, so that the actual shareholders are not officially registered.

Shareholders by country

USA 30% Sweden 43%

UK 15% Other 12%

Source: DN Ägarservice

As of December 31, 1998, 57% of the total sharecapital was owned by foreigners.

Eng A/R-98 PP 62-64 Q3 99-03-31 19.35 Sidan 64

Human resources


A company must be able to successfullyrecruit and develop personnel, but mustalso encourage and reward them.

While unemployment is on the risein many countries, companies find itdifficult to recruit suitably qualifiedpersonnel. This is closely related toincreasing competition and greatercomplexity and specialization in theglobal economy. Continuously higherlevels of knowledge and skills isrequired of personnel at all levels. Skills must also be maintained anddeveloped continuously.

More diversity requiredThis situation applies especially tomanagerial positions. Today, even acompany with operations in only onecountry may find it difficult to recruitproperly qualified personnel. This taskis even more challenging for a globalorganization such as Electrolux, withcompanies in 60 countries and 90% ofemployees outside Sweden. In thissituation, an international managementteam of professionals with a diversity ofnations and cultures is required toensure successful operations worldwide.

A disproportionate ratio of ourexecutives currently hail from Sweden,Italy and the United States, countrieswhere Electrolux has had a presence formany years. Our relatively recententrance into China, India, SouthAmerica and Central and Eastern Europehas not yet substantially affected thecomposition of management. There arestill far too few women in leadingpositions at Electrolux. And the agespread at management level is uneven.

Top priority is therefore beingassigned to creating a management profilethat better reflects our geographicalspread, our personnel and our customerbase. A number of measures have alreadybeen implemented to ensure quality,diversity and an international orientationamong new employees. Other importantfactors include exchanging personnelbetween countries and business sectors,and job rotation within and between lineand staff functions.

Methods have been developed tomeasure the ability to retain recruitedpersonnel. The Group will be more

active in communicating with potentialemployees in terms of describing the jobassignments and individual developmentopportunities offered by Electrolux.

Open internal labor marketIn 1998, the “Electrolux Open LaborMarket” was expanded. Established in1997 to attract the most desirablecandidates for various positions, thispilot project offers Electroluxemployees better access to careeropportunities within the Group.

The Electrolux Open Labor Marketenables all employees to be informed ofand apply for any vacancy in any of theparticipating countries and businessareas, which helps to accelerate jobrotation and mobility between countries.

The Electrolux Open Labor Marketwill be launched throughout the Group in1999, and the goal is to make it the mainplatform for internal promotion whilesimultaneously attracting externalcandidates on the Internet.

Electrolux UniversityEstablished in 1995, the ElectroluxUniversity conducts programs inleadership, strategic development,project management and qualitycontrol, among other subjects.

The primary mission of our centraldevelopment activities is to help createa common Electrolux culture and acommon approach to how work shouldbe performed in practice within theGroup. In order to emphasize thismission, training will be led to anincreasing degree by our own linemanagement.

The goal is for all our managers toreceive at least one week of trainingeach year.

The People Empowerment Process(PEP) continued during 1998 withinwhite goods in Europe. PEP is aimed at enabling employees to work towardcommon goals, and comprises fourmain phases:

• Individual planning sessions betweenemployees and managers, devotedto evaluation, feedback and careerplanning

• Team planning sessions forenhancing group morale anddefining common goals

• Employee attitude surveys thattrack perceptions of team spirit andthe workplace

• Reward programs that honorspecific efforts and results.

More than 60 units are participating inthe process, which is implementedtwice a year.

The goal is for PEP to provide abetter understanding of strategies andobjectives for the white-goodsoperation, which will result in betterperformance. The Group has alsodeveloped a management trainingprogram to support the implementationof PEP. By year-end 1998, 150 managershad participated in the program, whichwill continue during 1999.

The PEP program

ENG A/R-98 PP 65 Q3 99-03-31 19.41 Sidan 65

The Group's environmental activities


66

The Electrolux environmental strategy isto lead the development of products andprocesses with high environmentalperformance and to actively promotedemand for these products.

Driving forcesThis strategy is based on the followingmain factors:

● Increasing demand for productswith lower environmental impactand lower consumption of resourcessuch as electricity, water andchemicals

● The potential for reducing con-sumption of resources andenvironmental impact inproduction, thus reducing costs

● Stricter environmental criteria inthe form of laws and regulations,mainly referring to energy con-sumption, recycling and the use ofchemicals.

In general, the greatest environmentalimpact of the Group’s products isgenerated during use by consumption ofresources such as energy and water. Thismeans that a product with higherenvironmental performance has a lowerlife-cycle cost. Products that are highlyresource-efficient and generate lowenvironmental impact thus provide acompetitive benefit, which is the basisof Electrolux pro-active environmentalstrategy.

Increased demand Household AppliancesIn terms of Household Appliances, theGroup’s largest business area, environ-mental impact is generated mainlythrough use of products. Replacementof the older generation of white goodswith new resource-efficient productsoffers a considerable business potential,primarily in Europe and North America.

Professional AppliancesProfessional users often perceive the life-cycle cost of a product as part of aninvestment. Improved environmentalperformance is therefore in demand.

Outdoor ProductsCustomer preferences and stricterlegislation are creating demand forproducts with lower environmentalimpact, e.g. lower exhaust emissions andnoise levels as well as improvedergonomics. This applies to both profes-sional and private users.

Internal minimum environmentalrequirements Each business sector develops its ownenvironmental strategy, on the basis of acommon set of minimum requirementsfor the Group. These include environ-mental management systems, for whichISO 14001 is the Group standard, aswell as performance indicators andcompetence levels.

Environmental strategy contributes toprofitabilityThe Group’s performance indicators forthe “Green Range”, i.e. the productswith the best environmentalperformance, show that in 1998 theGroup’s pro-active environmentalstrategy continued to contribute tohigher profitability and to create valuefor shareholders. Within white goods inEurope, products with the bestenvironmental performance accountedfor 16% of total sold units and 24% ofgross margin.

Green Range for white goods in Europe 1998 1997 1996

Share of number of units sold, % 16 10 5

Share of gross margin, % 24 15 8

Resource-efficiencyChanges in the Group’s productionsystems aimed at reducing consumptionof material, water and energy have alsocontributed to lower costs and reducedenvironmental impact.

Material-efficiency for the Group isabout 86%. This means that 100 kg ofmaterials are required as input to man-ufacture 86 kg of product.

Implementation of environmentalmanagement systems is a major steptoward higher resource-efficiency.

In 1995 the Group started toimplement environmental managementsystems according to ISO 14001 in all production units. All systems arescheduled to be in place by 2000. In1998, 16 units were certified, so that 35of the Group’s approximately 130 plantshad been certified by year-end.

Resource-efficiency is also an impor-tant feature of the Group’s products.Although top-loading washing machineswith vertical axes have dominated theNorth American market, Frigidaire HomeProducts’ Gallery Tumble Action Washer, a front-loading water-efficient washingmachine with a horizontal axis, hasachieved market success. Sales of thismachine were considerably higher in 1998.

Energy24%

Water 8%

Purchase price 33%

Service3%

Environmental impact of a washing machine

Production 20%

Use 80%

Life-cycle cost of a washing machine

Detergent32%

The graphs show the environmental impact and cost of a washing machine throughout its life cycle, excluding recycling.

ENG A/R-98 PP 66-67 Q3 99-03-31 19.52 Sidan 66


67

RegulationsElectrolux operations in all businessareas are affected by local, national andinternational environmental legislation.The Group continuously monitorsdecision-making processes and trends, aswell as participates in advisory functionsat different levels.

Phase-out of freonsThe white goods market in theindustrialized countries is now totallyfree of CFC, i.e. hard freons. Electroluxhas been a leader in this respect, andsince 1995 the Group's refrigerators andfreezers in Europe contain no substancesthat can damage the ozone layer.

In 1995, 1996 and 1998 the Groupacquired refrigerator plants in newmarkets in Brazil, India and China, whereCFC was used in production. By 1998,investments in product development and production systems had enabled areduction of about 60% in use of sub-stances that can damage the ozone layer.All Group products made in China areentirely free of CFC, and most of themare also free of HCFC. Conversion iscontinuing in 1999.

Producer responsibilityLegislation stipulating mandatoryrecovery of used products, i.e. producerresponsibility, is under discussionthroughout the world. In 1998 decisionswere made regarding producer respon-sibility for the types of products madeby Electrolux in a number of countries,including The Netherlands, Norway,Switzerland and Japan. Discussions atEU-level and in countries such asSweden and Italy have been in progressfor some time. There is no consensus ofopinion within the industry. Electroluxbelieves that regulations for producerresponsibility should promote market-driven solutions. Whether producerresponsibility will lead to higher costs orrevenues depends wholly on the type of product and how regulations areformulated. Producer responsibility isnot under discussion at present in NorthAmerica.

Energy directives and labelingIn 1995 the EU introduced a system forenergy labeling of white goods thatcovers refrigerators, freezers, washingmachines, tumble-dryers andcombination washers/tumble-dryers. Asof 2000 the system will also apply todishwashers. Corresponding systemshave been introduced in North America.

In the EU, limits for energyconsumption in refrigerators andfreezers have been set and will go intoeffect in the autumn of 1999. This

means that about 40% of the productswhich were on the market when theseregulations were presented in the mid-90s will no longer be allowed to be sold.After the regulations were published,the Group’s product range was modifiedto comply with the limits by a widemargin.

Environmental investments and costsEnvironmental investments are inte-grated in the Group's total capitalexpenditure for products and processes,and in most cases cannot be reportedseparately.

One example is the Group'scomprehensive investments in newtechnology at the North Americanrefrigerator plants. The new generationof refrigerators will comply by a widemargin with the more restrictive energydirectives that are anticipated, on thebasis of a 30% reduction in energyconsumption. These appliances will alsobe free of both CFC and HCFC.

In connection with acquisitions ofcompanies and plants, analyses areperformed in order to estimate the riskof environmental liabilities related tooperations in previous years, and toassess the investment requirement forenvironmental adaptation of production.

Additional information on the Group's environ-mental activities is given in a separate Environ-mental Report for 1998, which is available atwww.electrolux.com and on request from Electrolux Environmental Affairs, tel. +46 8 738 65 98, fax +46 8 738 76 66.

Issue Typical regulations Related business areas

Energy Energy standards in the Household AppliancesEU, US and in new markets Professional Appliances

Producer responsibility Regulations in the EU, Japan, Norway, Switzerland All business areas

Emissions from combustion engines EU, US Outdoor Products

Air- and waterborne emissions, solid waste EU, US, new markets All plants

Greenhouse effect Kyoto protocol, national implementation pending All business areas

Ozone depletion Montreal protocol, laws in Household Appliancesthe EU and US Professional Appliances

The table shows typical issues for which regulations that affect the Group’s business areas in varyingdegrees either exist or are being discussed.

Increased demandShare of freezers in energy classes A and B sold in Europe*

Electrolux

The market, all producers

* Refers to Austria, Belgium, Germany, Italy, The Netherlands, Spain, Sweden and the UK.

27%

31% 32%

41%

97 98

Demand is increasing for resource-efficient productssuch as freezers in energy classes A and B. The graphshows that this market segment grew in 1998, andthat Electrolux has a stronger position within it.

ENG A/R-98 PP 66-67 Q3 99-03-31 19.52 Sidan 67

Annual General Meeting


The Annual General Meeting will beheld at 5 p.m. on Tuesday, April 27,1999 at the Berwald Hall, Strandvägen69, Stockholm.

RegistrationShareholders who intend to participatein the Annual General Meeting must beregistered with the VPC AB (SwedishSecurities Register Center) not laterthan Friday, April 16, 1999. Shareholderswhose shares are registered throughbanks or trustees must have their sharestemporarily registered in their ownnames at the VPC in good time.

ParticipationIn addition, notice of intent to partic-ipate must be given to Electrolux notlater than 4 p.m. on Thursday, April 22,1999 by mail to AB Electrolux, Dept.C-J, SE-105 45 Stockholm, Sweden, orby telephone at +46 8 738 6793 or 738 6338. Notice can also be given at:www.electrolux.com/agm

Notice should include the share-holder’s name, registration number, ifany, address and telephone number.Shareholders participating by proxy must submit a copy of the proxyauthorization prior to the date of the AGM.

DividendThe Board has proposed April 30, 1999as record date, after which it is expectedthat dividends will be paid by the VPCon May 7, 1999.

April 27, 1999 is the last day fortrading in Electrolux shares that entitlea dividend for 1998.

68

The cover and inside pages of this report areprinted on 280g and 170g chlorine-free GalleriArt Silk paper, which is produced from pulp that isbleached without chlorine gas or chemicalscontaining chlorine.

NO

RD

IC

ENVIRONMENTALLA

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P

RINTED MATTER

341 039

Production: Electrolux Investor Relations

Graphic design and technical production: Pauffley Ltd and Generator Ltd, London, UK

Printing: Tryckcentra, Västerås, Sweden, 1999

Eng A/R-98 PP 68 Q3 99-04-07 13.35 Sidan 68

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ENG 02-04 Covers Q3 99-03-31 21.47 Sidan 4

5991

413-

52/6

SE-105 45 Stockholm, SwedenTelephone +46 8 738 60 00 Telefax +46 8 656 44 78www.electrolux.com

New visiting address as from July 1, 1999:S:t Göransgatan 143, Stockholm

Electrolux Annual Report 1998

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