Macroeconomic conditions, political uncertainties, technological transformations and changes in industry dynamics are factors that impact the environment which Electrolux operates in. The Electrolux board and the business area boards monitor the development in key markets and proactively assess external risks as well as opportunities that may influence the Group’s strategy and operations.
Macroeconomic and political risk
Political uncertainties and weak macroeconomic conditions may impact consumer sentiment and demand for appliances. This can in turn have implications for the Group’s business and strategy in regions which carry high political and economic risks. Companies that invest in developing capabilities to move fast and be agile with alternative strategies can sustain their competitive advantage despite operating in risky markets. Electrolux acts proactively to assess and manage risks and opportunities in its business environment.
The pace of change in global markets along with the digital transformation are leading to new trends that influence the appliance industry. Increased consumer power, digitalization, consolidation and sustainable development place increasing demand on investments and the ability to adapt, but also open up major opportunities. Electrolux is focusing investments on innovation and areas such as digitalization and connectivity and has transformed its product offering by reinventing taste, care and wellbeing experiences. The Group has also set ambitious targets to strengthen its sustainability footprint.
Variations in demand
In times of fast changes in market conditions and fluctuating demand for the Group’s products, decisive actions and cost savings initiatives throughout the Group have proven that Electrolux can be agile and make timely adjustments in its production and cost structure. When there is strong market demand, it is essential that Electrolux can benefit from its global scale by delivering new innovative products and experiences with a high speed to market.
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. In markets with high inflation combined with currency rate fluctuations, Electrolux has a better possibility to carry out price increases to offset potential negative effects.
Regulatory changes (industry, environmental, social, labour and human rights) can impact reputation and the Group’s ability to successfully conduct business. There are a number of processes in place to control these risks such as internal and supplier auditing, environmental management and certification, the Ethics program and the safety management system. The regulatory environment is monitored in order to be prepared for changes that impact the business.
Raw material impact
Materials account for a large share of the Group’s costs. Electrolux purchases raw materials and components for approximately SEK 50bn, of which approximately SEK 20bn referred to the former in 2018. Fluctuations in commodity prices impact the Group’s input costs and its profitability. In order to mitigate increased headwinds related to higher raw material prices, Electrolux has to take action to raise prices of its products, increase cost efficiency, and negotiate purchasing contracts for commodities such as steel and chemicals.
For a sensitivity analysis on the impact of raw materials, see table below.
Sensitivity analysis year-end 2018
|Raw materials||Change +/-||Pre-tax earnings impact -/+, SEKm|
Changes in raw materials refer to Electrolux prices and contracts, which may differ from market prices. The figures in the sensitivity table are rounded and as of year-end 2018.