Electrolux 2005 Annual Report Download - page 117
Download and view the complete annual report
Please find page 117 of the 2005 Electrolux annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Electrolux Annual Report 2005 113
Risk Factors
chain by improving integration of the supply chain and demand flow
management. There can be no assurances that these measures of
approximately SEK 8–10 billion in respect of the years 2005–2008
will generate the level of cost savings that Electrolux has estimated
going forward.
Electrolux is dependent on third party suppliers to deliver key
components and materials for its products.
Electrolux manufacturing process depends on the availability and
timely supply of components and raw materials, generally from third
party suppliers. While supply problems can affect the performance of
most of Electrolux business sectors, Electrolux is particularly sensi-
tive to supply problems related to electronic components, compres-
sors, steel, plastics, aluminum and copper. Electrolux works closely
with its suppliers to avoid supply-related problems and is increasing
its supply of sourced finished products, but there can be no assur-
ances that it will not experience problems in the future. Such prob-
lems could have material adverse effects on the business, results of
operations or financial condition of Electrolux. In addition, unantici-
pated increases in the price of components or raw materials due to
market shortages could also adversely affect the financial results of
Electrolux businesses.
Electrolux is subject to risks related to changes in
commodity prices.
Electrolux is subject to risks related to changes in commodity prices
as the ability to recover increased cost through higher pricing may be
limited by the competitive environment in which Electrolux operates.
The recent development in many commodity markets has resulted in
higher prices, particularly for steel and plastics. This has had an
adverse effect on the Group’s operating results in 2005 and may
have a negative effect on the Group’s operating result in 2006.
Electrolux commodity risk is mainly hedged through bilateral con-
tracts with suppliers.
Electrolux is exposed to foreign exchange risks and interest rate risk.
Electrolux operates in approximately 60 countries around the world
and as a result is subject to the risks associated with cross-border
transactions. In particular, Electrolux is exposed to foreign currency
exchange rate risks and risks relating to delayed payments from
customers in certain countries or difficulties in the collection of
receivables generally. Electrolux is also subject to risks arising from
translation of balance sheets and income statements of foreign
subsidiaries. The major currencies that Electrolux is exposed to are
the Euro, the U.S. dollar (including currencies correlating with the
dollar), the British pound and Canadian dollar. While Electrolux
geographically widespread production and its hedging transactions
reduce the effects of changes in exchange rates, there can be no
assurances that these measures will be sufficient.
In addition, Electrolux holds assets and liabilities to manage the
liquidity and cash needs of its day-to-day operations. These interest
rate sensitive assets and liabilities are subject to interest rate risk.
While these interest rate exposures are minimized to some extent by
the use of derivative financial instruments, there can be no assur-
ances that these hedging activities will be effective or sufficient.
Electrolux business is affected by global economic conditions.
Current conditions in many of the economies in which Electrolux
operates and the global economy remain very uncertain. As a result,
it is difficult to estimate the global and regional economic develop-
ment for the foreseeable future. In addition, the business environ-
ment and the economic condition of Electrolux markets are influ-
enced by political uncertainties, including the current political
situation in the Middle East. A lengthy recession or sustained loss of
consumer confidence in the markets in which Electrolux operates
could trigger a significant industry-wide decline in sales and could
also lead to slower economic growth and a corresponding significant
reduction in demand. Electrolux generates a substantial portion of its
net sales from North America and Europe, both of which have experi-
enced a slow economy in the past. In the last two years, North America
has demonstrated a rebound in its economy. Terrorist attacks in
recent years have had a negative impact also on tourism, which has
negatively affected the performance of Electrolux Professional Indoor
business operations. These global and regional conditions could
have an adverse impact on the operations of Electrolux, with a resulting
material adverse effect on results of operations and financial condition.
Electrolux is subject to regulatory risks associated
with its international operations.
As a result of its worldwide operations, Electrolux is subject to a wide
variety of complex laws, regulations and controls, and various non-
binding treaties and guidelines, such as those related to employee
safety, employee relations, product safety and exchange controls.
Electrolux expects that sales to, as well as manufacturing in, and
sourcing from, emerging markets, particularly in China, Southeast
Asia, Eastern Europe and Mexico, will continue to be an increasing
portion of its total operations. Changes in regulatory requirements,
economic and political instability, tariffs and other trade barriers and
price or exchange controls could limit its operations in these coun-
tries and make the repatriation of profits difficult. In addition, the
uncertainty of the legal environment in certain of the countries in
which it operates could limit Electrolux ability to effectively enforce its
rights in those markets. Electrolux products are also affected by
environmental legislation in various markets, which principally
involves limits for energy consumption (which relate to certain of its
white goods products) and emissions (which relate to certain of its
outdoor products that are powered by gasoline) as well as the obliga-
tion to recycle waste of electrical products.
Electrolux is subject to certain environmental risks.
Electrolux operations are subject to numerous European Union, or
EU, national and local environmental, health and safety directives,
laws and regulations, including those pertaining to the storage,
handling, treatment, transportation and disposal of hazardous and
toxic materials, the construction and operation of its plants and
standards relating to the discharge of pollutants to air, soil and water.
Although Electrolux believes its operations are in substantial compli-
ance with presently applicable environmental, health and safety laws
and regulations, violations of such laws and regulations have
occurred from time to time and may occur in the future. In addition,
risks of substantial costs and liabilities, including for the investigation
and remediation of past or present contamination, are inherent in
Electrolux ongoing operations and its ownership or occupation of
industrial properties, and may arise specifically from its planned
closure of certain of its manufacturing plants.
Other developments, such as increased requirements under
environmental, health and safety laws and regulations, increasingly
strict enforcement of them by governmental authorities, and claims for