BOARD OF DIRECTORS REPORT ON OPERATIONS IN THE 4 TH QUARTER OF 2002

Transcription

1 MERLONI ELETTRODOMESTICI SPA Registered office: V.le A. Merloni, Fabriano Rome office: Via della Scrofa, Roma Capital stock: 99,416, fully paid in Tax/VAT code: Court of Ancona Companies Register: 9677 BOARD OF DIRECTORS REPORT ON OPERATIONS IN THE 4 TH QUARTER OF 2002 Economic background In 2001 the world economy grew by 1.7% thanks to good GDP (gross domestic product) performance by emerging nations and the American economy. The latter recorded growth of 2.3% with respect to 2001, whilst growth in Eastern Europe was led by increased GDP in Poland (1.2%), the CIS (4.1%) and Turkey (6.3%). In the European Union, the UK economy continued to grow, rising 1.8% against an EU average of 0.8%. Money markets In the 4th quarter of 2002 the cost of money in the EU moved to 2.75%, down 0.50% on the figure for the end of In the USA too the variation between the end of 2002 and the end of 2001 was 0.50%, bringing the bank rate to 1.25%. With respect to 2001, the performance of money markets was characterized by the appreciation of the euro against the dollar of around 19% and against sterling of 6.9%. The zloty lost 15.1% of its value, the rouble 27.5% and the Turkish lira 36.9%. Argentina devalued its peso by 301%. The white goods market in Europe Demand for household appliances in Europe in 2002 was slightly up on 2001 (1.1%). In Western Europe, negative trends were recorded in Germany and Portugal (down 7.8% and 6.7% respectively). Demand in all the other countries was more or less stable, except for Spain, where it was up 1.4%. In Eastern Europe and the CIS the trend was positive, being up 11% on average, with peaks in Central Europe.

2 Income statement In the last quarter of 2002 the consolidation area took in the income statement and balance sheet values of the newly acquired GDA (General Domestic Appliances Holdings). These figures were consolidated on a line by line basis for 50% of the economic result. Of the 28% increase in sales, 18% was due to consolidation of GDA revenues and the rest to internal growth, of which 8% through increased quantities sold and 2% to improvements in the sales mix. Operating margin (EBIT) was 70m ( 47m in 2001) with ROS at 10.3% (8.8%), up 49% on the 4th quarter of Consolidated profit and loss (Euro million) 4Q2002 4Q2001 FY2001 SALES variation 28,2% GROSS OPERATING MARGIN (EBITDA) % of sales 15,3% 13,0% 11,5% OPERATING MARGIN (EBIT) % of sales 10,3% 8,8% 7,1% PRE-TAX PROFITS (PBT) variation 17% NET INCOME 0-74 variation n/a n/a The increase in EBITDA (50%) was the result of continual improvements to production efficiency and the benefits of new economies of scale, which more than offset the slight rise in the cost of production supplies in the last quarter of EBIT (up 48%) is net of 35m of amortization and depreciation (against 23m in 2001) and represents 5.1% of sales. The figure includes amortization of a 4m consolidation difference written to tangible and intangible fixed assets; without this effect the incidence of amortization and depreciation would be 4.7% and EBIT would move to 57%. Pre-tax profits (PBT) stand at 49m ( 42m) or 7.2% of sales, up 17% on the last quarter of 2001.

3 Financial performance The impact of Net Working Capital on sales was 1%, against 4% in the 4th quarter of 2001, reflecting a securitization operation that unfroze receivables. The impact of Net Working Capital on Growth Rate of Sales would have been 4% without the extraordinary effect of the securitization and including GDA s quota of Net Working Capital, which accounts for 2% of the impact on Growth Rate of Sales. Consolidated Balance Sheet - (Euro million) th QUARTER th QUARTER Year Trade Receivables Inventory Payables to Suppliers Net Working Capital As a % of sales (12 months rolling ) 1% 4% 4% Other current assets/liabilities, net value (30) (72) (72) Tangible and Intangible Fixed Assets Other medium/long-term assets/liabilities, net value (152) (77) (77) TOTAL ASSETS Net financial indebtedness Group Shareholders' equity (*) Minority Interest Total shareholders' equity and liabilities (*) profit is before tax, because taxation is neither applicable nor required The increase in fixed assets was mainly due to the consolidation of GDA, which entailed a 93m increase in intangible assets ( 37m in goodwill and 56m in brands) and a 23m increase in tangible assets. These figures, based on appraisal values, cover the consolidation difference (the difference between the price paid and the percentage of shareholders equity acquired). Total cash flows, at 82m, were up 7m on year-end 2001 thanks to positive flows from business operations and the full consolidation of GDA balance sheet values.

4 Consolidated cash flows (million euro) th QUARTER th QUARTER Year NET PROFIT Amortization and Depreciation Financial Charges (including exchange rate differences) Net Working Capital Variation (3) Other operating assets/liabilities and accruals variation (21) (32) 29 Cash Flow from operations Investments, net value (Capex) (115) (31) (105) Investment in other operations, net value - Other (9) Cash flow from Investments (115) (31) (114) Dividends 0 0 (16) Financial Charges (including exchange rate differences) (11) (3) (24) Variation in Shareholders' equity, Group Variation in Shareholders' equity, minority interests 74 Exchange in translation reserve variation (5) 3 2 Other 0 0 Cash flow from financial operations 58 0 (21) Total cash flow Net opening financial indebtedness Net closing financial indebtedness Net Financial Indebtedness moved from 151 to 181m, the variation including the effect of the 50% acquisition of GDA. Gearing moved from 41% at the end of 2001 to 38%, based on PBT. 5 th February, 2003 For the Board of Directors Vittorio Merloni Chairman

5 MERLONI ELETTRODOMESTICI GROUP Consolidated Accounting Schedules Balance Sheet (in thousands of Euro) BALANCE SHEET 31 December December 2001 ASSETS Share capital issued and not yet paid - - Fixed assets: - Intangible fixed assets Tangible fixed assets Investments Total fixed assets Current assets: - Inventory Trade receivables and other assets Financial assets Total current assets TOTAL ASSETS LIABILITIES Shareholders equity: Group Shareholders equity * Shareholders equity minority interest Total Reserves for risks and charges Staff leaving indemnity Financing payables Of which long-term portion Trade payables and other liabilities TOTAL LIABILITIES

6 MERLONI ELETTRODOMESTICI GROUP Consolidated Accounting Schedules Income Statement (in thousands of Euro) QUARTERLY INCOME STATEMENT 4th quarter th quarter 2001 Sales variation in inventory of products (19.825) (2.641) + capitalized costs costs/consumption of materials ( ) ( ) + other income = added value Costs of production - labour cost depreciation and amortization accruals and ordinary expenses = OPERATING PROFIT /- financial income and charges (11.797) (3.303) +/- adjustments to the value of financial operations 365 (251) +/- extraordinary income and expenses (9.894) (1.891) (profit) loss for the period minority interest (322) (177) Pre-tax profit INCOME STATEMENT 31 December December 2001 Sales variation in inventory of products capitalized costs costs/consumption of materials ( ) ( ) + other income = added value Costs of production - labour cost depreciation and amortization accruals and ordinary expenses = OPERATING PROFIT /- financial income and charges (25.511) (25.865) +/- adjustments to the value of financial operations /- extraordinary income and expenses (14.203) 902 (profit) loss for the period minority interest (914) (443) Pre-tax profit

7 GRUPPO MERLONI ELETTRODOMESTICI Consolidated accounts Net financial position (in thousands of Euro)) of which longterm of which shortterm Financial fixed assets Working capital Payables TOTAL ( ) ( ) of which longterm of which shortterm Financial fixed assets Working capital Payables ( ) ( ) ( ) TOTAL ( ) ( )

8 COMMENTS ON THE FINANCIAL STATEMENTS GROUP ACCOUNTING PRINCIPLES AND VALUATION CRITERIA The consolidated financial statements at 31 st December 2002 were drawn up in accordance with the accounting principles applicable to half-year reports and comply with Consob recommendations. As permitted by Consob rules on the preparation of half-year reports (Resolution no 11971, 14 th May 1999), which is also applicable to the preparation of quarterly reports, the result for the period is stated before tax and adjustments and provisions for purely fiscal purposes. This approach is therefore reflected in the equity values as well. The only significant change in the consolidation area with respect to 30 th September 2002 is the full consolidation of the GDA balance sheet, while the income statement was 50% consolidated, the other 50% being 3 rd party interests. The table below gives the exchange rates used to convert currencies outside the Euro area: US dollar Currency Opening rate Average rate Cambio Finale Average rate previous year 1, , , ,11795 Argentine peso 1,530 0, , ,11795 UK pound 1, , , ,60978 Swiss franc 0, , , ,66224 PLN Merloni Indesit Polska Spzoo 0, , , ,27260 Average exchange rates were calculated by weighting monthly averages according to the billings of the companies to which they are applied for the purpose of income statement conversion.

9 COMMENTS ON KEY CHANGES IN ASSET AND LIABILITY ITEMS The balance of Tangible fixed assets and Intangible Fixed Assets rose 108m and 155m respectively. These increases refer basically to the first time consolidation of the balance sheet of General Domestic Appliances Holdings Ltd. The balance of the Inventories item increased by about 71m, of which 63m attributable to consolidation of General Domestic Appliances Holdings Ltd and 8m deriving from increased sales volumes. Trade receivables and other assets rose 34m as a result of: an increase of 135m attributable to the consolidation of General Domestic Appliances Holdings Ltd, a decrease of around 9m thanks to improved working capital management and a decrease of 90m due mainly to a securitization operation by the holding company. Shareholders equity, Group rose 70m, being the result of the 164m income for the year, 3m attributable to a capital increase and share premium reserve following the exercising of stock options by group managers; 1m as a result of changes in the consolidation area; a 38m decrease in the conversion reserve for financial statements expressed in foreign currencies; a 60m decrease in retained income (of which 22m following distribution of dividends by the holding company) and 38m in income tax written to the 2001 balance sheet. The Minority interests item rose by 85m, mainly as a result of the line-by-line integration of GDA. The balance of Trade payables and other liabilities increased 177m due to to the consolidation of General Domestic Appliances Holdings Ltd. Net Financial Indebtedness moved from 151 to 181m due to: an increase of 191m attributable to the acquisition of 50% of GDA, a decrease of about 71m as a result of seasonal factors and a decrease of 90m referring to the divestment of receivables as a result of the securitization operation concluded at the end of June.

10 BREAKDOWN OF REVENUES BY TYPE OF ACTIVITY AND GEOGRAPHICAL AREA The breakdown of turnover by type of business is as follows: Revenues from sales and services 31/12/ /12/2001 Revenues from finished product and raw material sales 2,403,337 1,934,635 Revenues from provision of services. 77,081 36,037 Total 2,480,418 1,970,672 The table below is a breakdown of revenues from sales and services by region. Region 31/12/ /12/2001 Italy 435, ,998 EU 1,206, ,554 Rest of world 839, ,120 Total 2,480,418 1,970,672 5 th February, 2003 For the Board of Directors Vittorio Merloni Chairman

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