Slump ‘no bearing on plant’s future’

Oct 23 2007 by Andrew Mernin, The Journal

STRUGGLING manufacturer Electrolux delivered a 25% plunge in European income yesterday but analysts said the poor result would have no direct bearing on the future of the firm’s troubled County Durham plant.

Earlier this month the Swedish electronics giant said it would launch a two-month investigation into the future viability of its loss-making cooker factory in Spennymoor, which employs 500 people.

And staff at the plant, which will close if significant cost-cutting measures cannot be made by December, were given little respite yesterday as the firm blamed higher than expected costs in Europe for disappointing third quarter results.

European sales in the third quarter were 3% higher than last year at £883m but operating income in Europe fell 25% to £39m while third quarter profit after financial items fell by 8.6%. Peter Caldwell, analyst at Barclays Wealth, said the company’s European performance, which Electrolux described as a “great disappointment” would not necessarily affect the future of the firm’s North-East operations.

He said: “The way things are going, manufacturers are being hit by higher commodity prices on the industry so it doesn’t necessarily mean the UK plant will be directly hit.”

Similarly Alan Hall, director of manufacturers’ organisation EEF, said the results showed a Europe-wide problem for Electrolux so they were unlikely to directly lead to the closure of the Spennymoor plant.

Electrolux chief executive Hans Straberg said the company was “working intensively” to lower its costs but warned it would take time to achieve improvements. Alongside risks of further falls in the US, Electrolux said it had also seen weakening demand in key European markets, including the UK, Germany and Spain.

Electrolux said the lower operating income reflected the higher costs of its raw material and product launches.

The firm saw a much stronger performance in emerging markets. In Brazil, Electrolux’s major Latin American market, sales volumes rose by 20% due to strong sales of refrigerators and microwave ovens. The company’s Asia and Pacific operations also enjoyed good growth.

The company, which employs around 56,000 people worldwide, sells products including refrigerators, dishwashers, washing machines, vacuum cleaners and cookers under the Electrolux brand.

The business was formed in 1919 by the merger of two Swedish businesses and was a key player in the development of the modern vacuum cleaner and the refrigerator almost 100 years ago.