Electrolux 2013 Annual Report Download - page 79

evident in some of the Group’s major markets. Sales promo-
tions continued in the North American market, at the same time
as prices continued to deteriorate in Europe during the year. In
Latin America, higher inflation combined with currency fluctua-
tions resulted in Electrolux carrying out several price increases
to offset the negative effect. Price pressure in Australia softened
towards the end of the year.
Exposure to customers and suppliers
The weak trend in some of Electrolux major markets in 2013
impacted the Group’s customers, who experienced difficult
trading conditions, but this did not result in any major increases
in credit losses for Electrolux.
Electrolux has a comprehensive process for evaluating cred-
its and monitoring the financial situation of customers. Authority
for approving and responsibility to manage credit limits are reg-
ulated by the Group’s credit policy. A global credit insurance
program is in place for many countries to reduce credit risk.
Raw materials and components represent the largest
cost item
Materials account for a large share of the Group’s costs. In
2013, Electrolux purchased raw materials and components for
approximately SEK44 billion, of which approximately SEK19
billion referred to the former. The Group’s exposure to raw mate-
rials comprises mainly steel, plastics, copper and aluminum.
Market prices for raw material remained stable in the first half
of the year, but was at a somewhat higher level towards the end
of the year. Electrolux utilizes bilateral contracts to manage risks
related to steel prices. Some raw materials are purchased at
market prices. The total cost of raw materials in 2013 was
somewhat lower than in 2012.
Restructuring for competitive production
A large share of the Group’s production has been moved from
high-cost to low-cost areas. Restructuring is a complex
process that requires managing a number of different activities
and risks. Increased costs related to relocation of production
can affect income in specific quarters. When relocating,
Electrolux is also dependent on the capacity of suppliers for
cost-efficient delivery of components and semi-finished goods.
In 2013, additional measures were presented to further adapt
capacity and reduce overhead costs in mature markets to a
lower demand. Annual savings were estimated to approximately
SEK1.8 billion as of 2016.
Financial risks and commitments
The Group’s financial risks are regulated in accordance with the
financial policy that has been adopted by the Electrolux Board
of Directors. Management of these risks is centralized to Group
Treasury and is mainly based on financial instruments. Addi-
tional details regarding accounting principles, risk management
and risk exposure are given in Notes 1, 2 and 18.
Financing risk and interest-rate risks
For long-term borrowings, the Group’s goal is to have an aver-
age maturity of at least two years, an even spread of maturities
and an average fixed-interest period of one to three year. At
year-end 2013, Group borrowings amounted to SEK14,905m,
of which SEK11,935m referred to long-term loans with an aver-
age maturity of 3.3 years. Loans are raised primarily in USD,
EUR and SEK. The average interest rate at year-end for the total
borrowings was 3.2%. At year-end 2013, the average fixed-
interest period for long-term borrowings was 1.0 years. Long-
term loans with maturities within 12 months amount to
SEK272m. Liquid funds on December 31, 2013, amounted to
SEK7,23 2m.
In addition, the Group has two unutilized credit facilities.
Since 2010, Electrolux has an unused committed multicurrency
revolving credit facility of SEK3,400m maturing in 2017 as well
as an unused multicurrency revolving credit facility of
EUR500m maturing in 2018. These two facilities can be used
as either long-term or short-term back-up facilities.
On the basis of the volume of loans and the interest-rate peri-
ods in 2013, a change of 1 percentage point in interest rates
would affect Group income in the amount of +/– SEK70m. For
additional information on loans, see Notes 2 and 18.
Pension commitments
At year-end 2013, Electrolux had commitments for pensions
and benefits that amounted to approximately SEK23 billion.
Through pension funds, the Group manages pension assets of
approximately SEK20 billion. At year-end, approximately 35%
of these assets were invested in equities, 42% in bonds, and
23% in other assets. Net provisions for post-employment bene-
fits amounted to SEK3,425m.
Yearly changes in the value of assets and commitments
depend primarily on developments in the interest-rate market
and on stock exchanges. Other factors that affect pension
commitments include revised assumptions regarding average
life expectancy and healthcare costs.
Costs for pensions and benefits are recognized in the income
statement for 2013 in the amount of SEK727m. In the interest of
accurate control and cost-effective management, the Group’s
pension commitments are managed centrally by Group Trea-
sury. Electrolux uses interest-rate derivatives to hedge parts of
the risks related to pensions. For additional information, see
Note 22.
Raw material exposure 2013 Trend for steel and plastics prices,
weighted market prices indexed
Index
0
20
40
60
80
100
120
Q4Q3Q2Q1Q4Q3Q2Q1
Steel
Plastics
2012 2013
Carbon steel, 32%
Plastics, 32%
Copper and aluminum, 10%
Stainless steel, 7%
Other, 19%
77ANNUAL REPORT 2013