PORDENONE, Italy (Reuters) - Electrolux expects to lift sales growth at its professional products business above 7 percent after spinning off the unit next year, its executives told Reuters, citing opportunities to buy U.S. targets and add fast-food customers.
The Swedish appliances maker announced plans this year to hand over the unit, which makes commercial kitchen and laundry equipment, to investors, allowing the business to access capital and chase the costly acquisitions in its specialist market.
Chief Executive Jonas Samuelson told Reuters the professional unit - the group’s most profitable - had achieved a compound annual growth rate of 7 percent since 2013. That was thanks in part to organic - or internally-generated - growth, which he expects to continue to outpace the wider market.
“That’s an indication of the potential that the professional business already has and I think there are significant opportunities to accelerate growth, mainly on the inorganic side,” he said at Electrolux’s capital markets day on Wednesday.
The professional business reported 2018 net sales of 8.67 billion Swedish crowns (£709 million) and operating income of 1.13 billion crowns, accounting for about 7 percent and 21 percent of group’s respective totals.
Sources familiar with the matter told Reuters the business is expected to be valued at a mid to high teens multiple of EBIT (earnings before interest and tax), in line with peers Welbilt, MiddleBy and Rational.
Alberto Zanata, head of professional products, said the unit was keen to secure restaurant chain customers, moving beyond its stronghold with hotels and institutions, and was currently rolling out beverage stations at sandwich chain Subway.
“We are heavily weighed on Europe, and the international chains are most of all American, and to serve them you have to grow in North America, and that’s why one of the priority for acquisitions is to get companies in North America,” he said.
Electrolux and rival Whirlpool are facing higher costs due to Washington’s trade war with Beijing and Electrolux has hiked prices and is pursuing an 8 billion crown plan to modernise its South American and U.S. plants to offset the blow.
The company said on Wednesday it expected the upgrade programme to generate annual cost savings of about 3 billion crowns, with the full effect from 2024. It had previously forecast savings of 1 billion, fully effective from 2022.
Samuelson said this would cover the 0.6 percentage point hit to profit margins that would result from the professional unit spin-off, allowing the core consumer products business to meet the group margin target of at least 6 percent.
Electrolux also said it planned to double aftermarket sales from 5 percent of group sales to 10 percent by 2025.
Reporting by Giulio Piovaccari in Pordenone, Italy, and Esha Vaish in Stockholm; Editing by Niklas Pollard, David Evans and Mark Potter