Profits improve at Elmo

The market for automotive leather in Europe is dominated by a handful of large suppliers while the market for furniture leather is more fragmented, with several smaller tanneries. The Elmo Leather Group describe themselves as the largest manufacturer of exclusive furniture leather and one of the six largest suppliers of leather to the automotive industry. For 2002 the group report a significant improvement with profits rising by SEK138.5 million to SEK13.1 million (-SEK125.4 million). The 2001 figures were badly affected by the shutting down of production in the US in December 2001. While net sales in 2002 fell by 17% to SEK815.6 million (SEK984.8 million) and sales volumes fell to 3.2 million sq m of finished leather (3.6 million), if US produced volumes during 2001 were excluded from the figures then sales for 2002 rose by 2% and sales volumes went up by 6%. The markets for furniture and automotive leather have been exposed to stiff competition and weak profitability for many years. A consolidation process is taking place in the sector with several suppliers in the US and Europe being forced to close down or reconstruct their operations. In 2002 the leather market saw continued weak demand for furniture leather while orders for automotive leather remained on a par with the previous year. Elmo say that the amount of leather being used for car interiors is continually increasing. Uncertainty in the US economy remains unchanged and is the reason the furniture leather market is still depressed. The economic situation in Germany has gradually dampened demand for leather in home furniture and public environments. This has badly affected demand in the surrounding countries because producers there depend on a strong demand from the German market. Following the extreme price increases on raw hides in 2001 the price level stabilised in 2002 at a relatively high level. Elmo sell their leather in more than 40 markets throughout the world. About 90% of sales are to markets outside Sweden. Around half of the sales volume is for furniture leather; the rest goes to the automotive industry. Since the beginning of 2002, the group's production has been concentrated at sites in Svenljunga, Sweden, and Svendborg on Fyn in Denmark. Elmo have since decided to concentrate their Danish business in Svendborg at the plant in Vestergade and close the beamhouse at Dronningemaen. This alleviates the immediate necessity of investing around DKK8-10 million in the liming operation and the impact on the sensitive environment of Dronningemaen ceases. As a consequence, 26 of the company's 117 employees in Svendborg will be made redundant this summer. Production equipment and inventory in the US was sold in 2002 and in March 2003 the sale of the factory site and production equipment in the US was finalised. A further reduction of net debt will take place in 2003 due to the final payment for production equipment and payments from property sales.