A young population aspiring for better standards of living, and the ongoing process of social reforms and democratisation make the Middle East & North Africa (MENA) region a market with high potential for future economic growth. This potential has been recognised by Sweden’s Electrolux, which has acquired Egypt’s leading household appliances manufacturer Olympic Group. ScandinaviaMideast.com takes a closer look at the deal and what it means for Electrolux.
The Stockholm-based Electrolux is one of the world’s leading manufacturers of household and professional use appliances. It sells more than 40 million products a year to customers in more than 150 markets. Founded by Axel Wenner-Gren 90 years ago, it manufactures a range of products including refrigerators, dishwashers, washing machines, vacuum cleaners, cookers and air-conditioners under the AEG, Eureka, Frigidaire and Electrolux brands. In 2010, Electrolux had total sales of SEK 106 billion ($17 billion) and more than 52,000 employees around the world.
The Olympic Deal
In early September, Electrolux acquired 98.33 per cent shares in Olympic Group in a deal worth SEK 2.1 billion ($328 million) by completing a mandatory tender offer, launched after it bought in early July a 52 per cent stake in Olympic Group Financial Investment Company from the Cairo-based Paradise Capitalfor EGP 40.60 per share. As of September 2011, Olympic Group has become part of the Electrolux Group.Electrolux aims at de-listing Olympic Group’s shares from the Egyptian Stock Exchange by the end of the first quarter of 2012. Over the next 12 months, it intends to own 100 per cent shares of Olympic by buying the remaining 1.67 per cent shares currently held by minority shareholders.
Electrolux has sold Olympic Group’s shares in its two associated companies – Namaa and B-Tech – which are listed on the Egyptian Stock Exchange to Paradise Capital for EGP 450 million (SEK 470m). It has signed a seven-year technical and management support agreement with Paradise Capital against an annual fee of 2.5 per cent of Olympic Group’s net sales.
The Olympic Group has had a commercial partnership with Electrolux for over three decades through a technology, component supplies, distribution and brand licensing agreement. It has a 30 per cent market share in Egypt and is the largest manufacturer of washing machines, refrigerators, cookers and water heaters in the country. It has 7,300 employees and had sales of EGP 2.3 billion (SEK 2.5 billion) in 2010, and a recurring operating profit of EGP 265 million (SEK 280 million).
The acquisition of Olympic Group provides Electrolux a solid base for manufacturing and distributing its products in the MENA region. Prior to the acquisition, Electrolux had no manufacturing facilities in MENA but it has been selling its products in almost all countries of the region. In 2010, it had total net sales of SEK 1.07 million ($167.19 million) in 2010, of which SEK 363 million ($56.72 million) were in North Africa – Egypt, Algeria, Morocco and Tunisia.
“We are planning to focus a lot on growth in the years to come. We want to increase our presence in emerging markets. In the case of MENA, competition is mainly with local players that are protected by import duties. Manufacturing in the region will increase our competitiveness. We believe Olympic is an interesting opportunity since the Egyptian market and the rest of the region have had a positive growth during the last decade,” says Electrolux spokesman Erik Zsiga.
Push In Pakistan
Over the last three years, Electrolux has also entered the Pakistani market, which currently counts for a very small part of Electrolux sales. Pakistan is the world’s fifth most populous country with a total population of 180 million, and despite all the challenges the multinationals and large-scale consumer products companies are continuing to make good profits. “We currently do not have any manufacturing unit in Pakistan, but we aim to increase our business in emerging markets, and hopefully Pakistan will be one of these markets,” says Zsiga.
Electrolux has a unique message for its customers. Its corporate slogan, ‘thinking of you,’ explains that the company keeps the needs and requirements of its customers in mind when designing new products in a fast-changing global consumer market. Over the last few years, household appliances manufacturers have mushroomed in emerging markets and they are now giving a tough competition to global players who are faced with the challenge of continuing innovation, as well as ensuring that they do not price themselves out of the market.
“Being a global company focused on manufacturing innovative products based on consumer insight, we are aware that consumers have local variations in their preferences to appliances. This is related to food culture, climate and family patterns and our products might vary in different regions. But in general, consumers in MENA probably need the same appliances as consumers in all other parts of the world. Consumers should choose Electrolux products because they are innovative and based on consumer insight, with a sustainable and nice design,” contends Zsiga (ScandinaviaMideast.com).