Active risk management is essential for Electrolux to drive successful operations. The Group’s strategic framework in combination with the external environment generates opportunities but also risks which in turn impact how the company manage those risks in the daily operations. Electrolux monitors and minimizes key risks in a structured and proactive manner.
The Group has several processes to manage risks through operational activities that are performed by the business area boards. The Group has also established internal bodies that manage these risk exposures on a regular basis. Example of internal bodies are: Risk Management Board, Insider Committee, Ethics & Human Rights Steering Group, Audit Board and the Tax Board. Electrolux organizational structure and system for internal control and risk management are included in the Corporate Governance report.
Macroeconomic trends, political uncertainties and overall changes in industry dynamics are factors that may impact the appliance industry and the markets in which Electrolux operates. To manage external risks, Electrolux puts close attention to understanding the economic and political development in its key markets and pro-actively manage and adapt operations. External risks include:
In times of weak markets and decline in demand for the Group’s products, decisive actions and cost savings initiatives throughout the Group have proven that Electrolux can make timely adjustments to its cost structure. In times of strong market demand, it is essential that Electrolux can benefit from its global scale by delivering new innovative products and best-in-class consumer experiences with speed to market.
The fast pace of change in the industry has led to new trends, such as increased consumer power, digitalization, consolidation and sustainability. These changes place increasing demand on investments and ability to adapt, but also opens up major opportunities. Electrolux has in recent years invested in R&D and new innovation and transformed its business into a consumer oriented company with strong focus on consumer benefits. Electrolux has also communicated ambitious targets to improve its sustainability footprint.
A number of Electrolux markets are experiencing price competition. This is particularly evident in the low-cost segments and in product categories with significant overcapacity. Electrolux has historically aimed at keeping a disciplined approach in its pricing strategy. However, in markets with high inflation combined with currency-rate fluctuations, Electrolux can chose to carry out price increases to offset potential negative effects.
Materials account for a large share of the Group’s costs. Electrolux purchases raw materials and components for approximately SEK 45bn, of which approximately SEK 19bn refers to the former. Fluctuations in commodity prices impact the Group’s input costs and, therefore, its profitability. In order to mitigate increased input costs related to higher raw-material prices, Electrolux may have to take actions to increase cost efficiency, negotiate purchasing contracts for commodities such as steel and chemicals or increase the prices of its products.
Political uncertainties and weak macro-economic conditions may indirectly impact demand for appliances. This has implications for Electrolux business and strategy in regions which carry a high political and macro risk. Such regions have been Latin America and the Middle East and Africa. Consequently, Electrolux must take proactive steps to assess the risks and manage them accordingly.
Risks, risk management and risk exposure are described in more detail in Note 1 Accounting principles, Note 2 Financial risk management and in Note 18 Financial instruments.
|Change +/-||Pre-tax earnings impact,
|Currencies2) and interest rates|
|Interest rate||1 percentage||70|
1) Changes in raw materials refer to Electrolux prices and contracts, which may differ from market prices.
2) Transactional exposure.
3) Assuming the Swedish krona appreciates/depreciates against all other currencies.
|Carbon steel, 31%||31|
|Copper and aluminum, 7%||7|
|Stainless steel, 10%||10|
In 2016, Electrolux purchased raw materials for approximately SEK 19 billion. Purchases of steel accounted for the largest cost.