The Group’s ability to improve operational performance and create value for its shareholders is linked to achieving outstanding consumer innovation with a clear focus on profitable growth and continuous improvement. Executing on these requires effective and controlled risk management. Risks within operations are mainly managed by the Group’s business area boards. The Group also has internal bodies that pro-actively monitor and manage operational risks.
Over the past few years, the Group has been working on the optimization of the product portfolio with the aim to strengthen the highest performing product categories and brands and exiting unprofitable products. The work is an important part of the Group’s focus on targeted growth and to deliver a competitive offering while achieving sustainable profitability. A key challenge is to grow in targeted areas and markets while maintaining investments and resources to the most strategic brands and categories. Electrolux has as part of these priorities, a strong focus on driving an active portfolio management across its business areas.
The appliance industry is characterized by intense competition among manufacturers of appliances, which has resulted in an ongoing consolidation, where regional players are becoming more global and seek to benefit from economies of scale. Electrolux efforts to continuously optimize operations are therefore essential in maintaining a competitive advantage. Electrolux focuses on automation and modernization of existing plants to ensure a competitive production footprint and effective cost structure. If projects to optimize operations cannot be executed according to plan, achieving continuous improvement across the Group may be affected.
Talent and teamship
Teamship is the Electrolux way of working. It’s about setting aligned goals, collaboration and being a learning organization. It is also about engagement and passion regarding outstanding consumer experiences. Dedicated employees and leaders with the right skills play a crucial role in Electrolux achieving its vision and targets. It is therefore a prerequisite for the Group to attract and maintain competences and employees through its way of working or through well-functioning teams. Wherever Electrolux operates in the world, the company needs to apply the same high standards and principles of conduct. Electrolux has a global Ethics Program, encompassing both ethics training and a whistle-blowing system – the Electrolux Ethics Helpline. Being a global company, the Group must ensure and nurture a collaborative culture in the organization to support continued execution and growth of its global operations.
Exposure to customers and suppliers
Weakening trading conditions for retailers in markets where demand is sharply declining can pose an operational challenge to manufacturers with a high level of exposure to a certain customer. Electrolux has a high customer concentration in North America and Latin America relative to other markets, mainly due to a high degree of consolidation in those markets. The Group has a comprehensive process for evaluating credit risks and monitoring the financial situation for customers. Similarly, a high concentration to suppliers may create risks in the supply chain. Authority for approving and responsibility to manage credit limits are regulated by the Group’s Credit Policy. A global credit insurance program is in place for many countries to reduce credit risk. Electrolux offers its suppliers the opportunity to utilize supplier finance.
Flexible cost structure
A large portion of the Electrolux cost base is variable and comprises mainly of costs related to raw materials and components, sourced products, logistics and marketing. About 70% of the costs base is variable, while about 30% is structural. Electrolux aims to maintain a flexible cost structure that enables the Group to be agile and adapt quickly to external risks such as fluctuations in market demand or increased commodity prices. In recent years, Electrolux has improved operational efficiency and reduced costs significantly.
Electrolux cost structure 2018
|Other variable costs
|Operational structural cost
|Innovation and marketing structural cost