Electrolux 2011 Annual Report Download - page 74

Managing risks to maximize returns
The Group’s major markets were characterized by considerable uncertainty in 2011.
Raw-material prices continued to rise and price pressure prevailed in the Group’s major markets.
annual report 2011 risks
Cost item
% of
total cost
Personnel 16
Depreciation 3
Fixed costs 19
Raw materials and components 40
Transports 7
Product development 2
Brand investments 2
Other¹)30
Variable costs 81
Total 100
1) Marketing, IT, energy costs, consultant costs, etc.
Risk Change
Pre-tax earnings
impact, SEKm
Raw materials
Steel 10% +/– 900
Plastics 10% +/– 600
Currencies¹) and interest rates
USD/SEK –10% +810
EUR/SEK –10% +410
BRL/SEK –10% –300
AUD/SEK –10% –260
GBP/SEK –10% –180
Interest rate 1 percentage point +/– 60
1) Includes translation and transaction effects.
Sensitivity analysis, year-end 2011 Cost structure 2011
• Financing risks
• Interest-rate risks
• Pension commitments
• Foreign-exchange risks
Financial risks
and commitments
• Regulatory risks
Other risks
• Variations in demand
• Price competition
• Customer exposure
• Commodity prices
• Restructuring
Operational risks
Examples of management of risk
Financial policy | Credit policy | Pension policy | Code of Ethics | Enviromental policy
Electrolux monitors and minimizes key risks in a structured and pro active
manner. Capacity has been adjusted in response to weak demand,
working capital has undergone structural improvements, the focus on
price has intensified and the purchasing process for raw materials has
been further streamlined. The diagram above describes the major risks
and the Group’s response in order to manage and minimize them.
Operational risks
The Group’s ability to improve profitability and increase shareholder
return is based on three elements: innovative products, strong brands
and cost-efficient operations. Realizing this potential requires effec-
tive and controlled risk management. The major risks at present are
described below.
Fluctuation in demand
In 2011, demand for appliances declined in the major markets of
Electrolux. The North American market contracted by 4% during the
year. In Europe, demand in the West declined by 3%, while it grew
by 9% in the East. In Latin America, growth diminished in Brazil
towards the latter part of the year. In the Asia/Pacific region, demand
in Australia increased due to high growth of air-conditioning equip-
ment and the Asian markets continued to grow healthily.
Weak demand in earlier years resulted in Electrolux operations
being run at an average of 60% capacity. Decisive actions and sav-
ings packages throughout the Group have proven that Electrolux
can quickly adjust its cost structure when demand for the Group’s
products declines.
Price competition
Most of the markets served by Electrolux are experiencing strong
price competition. This is particularly severe in the low-price seg-
ments and in product categories with a great deal of overcapacity.
In 2011, pressure on prices was evident in the Group’s major mar-
kets. Sales promotion continued in the North American market at
the same time as prices declined continuously during the year in
Europe. To offset the intense price pressure, Electrolux carried out
two price increases in North America in 2011. Further price hikes
have been announced in North America and Europe for early 2012.
Price pressure also prevailed in Australia.
Exposure to customers and suppliers
The weak trend in the major Electrolux markets in 2011 impacted the
Group’s retailers who experienced difficult trading conditions but
this did not result in any increases in credit losses for Electrolux.
In general, there are three types of
risks: Operational risks, which are
normally managed by the Group’s
operational units; financial risks,
which are managed by Group
Treasury; and other risks.
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