Electrolux 2010 Annual Report Download - page 54
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Raw-material costs
Raw materials account for a large share of the Group’s costs. In
2010, Electrolux purchased components and raw materials for
approximately SEK 44 billion, of which raw materials represented
approximately SEK 20 billion. The raw materials to which the Group
is primarily exposed comprise steel, plastics, copper and aluminum.
Raw-material prices rose sharply in 2004-2008, which resulted in an
increase of SEK 9 billion in the Group’s costs. In light of the highly
competitive nature of the market, mainly cost savings were used to
offset the increase in the cost of raw materials. Following a decline
in the second half of 2008 and beginning of 2009, prices of raw
materials began to rise again. In 2010, the cost of raw materials rose
by SEK 1.1 billion for Electrolux, and in 2011 the increase is expected
to be SEK 1.5 – 2.0 billion.
Electrolux can manage long-term, rising raw-material costs
through cost-cutting measures, price increases and an improved
product mix. However, adjusting operations in the short-term in
response to substantial, rapid price movements is more challeng-
ing. Electrolux prefers a steady increase in price over a longer period
rather than volatile movements that substantially increase or
decrease prices.
The operations of Electrolux are exposed to a number of strong external factors
that affect the Group’s opportunities to increase profitability and return, and thus
its ability to achieve the Group’s financial goals.
External factors affecting
operations
Rising raw-material costs have been offset by improvements
annual report 2010 | part 1 | strategy | external factors
Plastics
Steel
100
Q1
20102009
Q4Q3Q2
80
60
20
40
0
120
Q1 Q4Q3Q2
Index
Price development of steel and plastics
Operating margin
2003
Improved
efficiency
4.6
6.1
Increased raw-
material costs
Other cost
increases
Operating margin
2010
20
15
10
5
0
margin,%
+–
–
Electrolux can manage long-term, rising raw-
material costs through cost-cutting measures,
price increases and an improved product mix.
Since 2004, raw-material costs have increased
by approximately SEK 9 billion. At the same time
investments in brand marketing and product
development have increased. Higher costs for raw
materials have been compensated for, among
other things, by efficiencies within manufacturing
and purchasing. Operating margin, excluding
items affecting comparability has improved from
4.6% in 2003 to 6.1% in 2010.
Indexed price development for Electrolux in
North America and Europe (average).
50