Electrolux currency exposure
The global presence of Electrolux, with manufacturing and sales in a number of countries creates currency exposure for the Group. The principal exchange rate effect arises from transaction flows but Electrolux is also affected by translation effects when the Group's sales and costs are translated into SEK.
Electrolux is a net importer into the market with flows mainly from China and production conducted in Mexico. In addition to this, the operation in Canada has an exposure to USD as Electrolux imports products into that market.
Most of the finished products originate from own factories in the region, while imported input goods such as raw materials and components are to large extent denominated in USD.
A major part of the currency flows in Europe is denominated in EUR, with external imports primarily in USD. Electrolux faces currency exposure when the cost base in the factories differs from the domestic sales.
Majority of operations comprises local production.
The Group is sourcing a larger volume of input goods and finished goods from China to Electrolux global factories. A major part of these are invoiced in USD but also in CNY.
The main import flows are based in THB from Electrolux factory in Thailand, but the import in USD is also significant.
Largest currency exposures, 2018 SEKm
Exchange rate exposure
The global presence of Electrolux, with manufacturing and sales in a number of countries, offsets exchange rate effects to a certain degree. The principal exchange rate effect arises from transaction flows; when purchasing and/or production is/are carried out in one currency and sales occur in another currency. Every month Group Treasury collects forecasts of the transaction flows for the coming 12 months from the operating units and hedges the invoiced flows.
To some extent, the Group also utilizes currency derivatives to hedge forecasted flows with both committed price and volumes. The results from the currency hedges are transferred to the operating units. It is the business areas’ responsibility to manage the FX risk of the forecasted flows through immediate price adjustment and cost reductions.
Electrolux is also affected by translation effects when the Group's sales and costs are translated into SEK. The translation exposure is primaly related to currencies in those regions where the Groups's most substantial operation exist.
Currency effects 2018
Compared with the previous year, changes in exchange rates for the full year 2018 had a negative impact on operating income. The total currency effect (translation effects and transaction effects) amounted to SEK -896m. The net transaction effect was SEK -1,024m and translation effect SEK 128m.
The major part of the currency headwind was related to weaker emerging market currencies resulting in higher import cost, especially for Latin America and Russia. Australia also faced a strong headwind as the Australian dollar fluctuated closely with emerging market currencies during 2018, making Australian imports more expensive. The negative effects were reduced to a degree by cheaper imports from China to the U.S. and Europe.
Sensitivity analysis of currencies
The major currencies for the Electrolux Group are the USD, EUR, CNY, GBP, CAD and CHF. The currency pairs and flows are presented in the map together with an explanation of how they impact the Group. In general, income for Electrolux benefits from a weak USD and EUR and from a strong BRL, GBP, CAD and CHF.
In countries with large manufacturing and logistic centers, effects over time will to a large extent balance out due to natural hedging.
|Currency1) and interest rates||Change +/-||Pre-tax earnings impact, -/+ SEKm|
|USD to EUR||10%||350|
|USD to CAD||10%||260|
|EUR to GBP||10%||260|
|USD to BRL||10%||240|
|EUR to CHF||10%||180|
|CNY to USD||10%||180|
|THB to AUD||10%||120|
|USD to AUD||10%||100|
|EUR to RUB||10%||100|
|USD to THB||10%||90|
|Translation exposure to SEK2||10%||520|
|Interest rate||1 percentage point||50|
1) Including transaction effects but not translation effects.
2) Assuming the Swedish krona appreciates/depreciates against all other currencies.