Risk management

Exposure to customers and suppliers

The uncertain market conditions in some of Electrolux major markets in 2014 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 credits and monitoring the financial situation of customers. 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.

Raw materials and components represent the largest cost item

Materials account for a large share of the Group’s costs. In 2014, Electrolux purchased raw materials and components for approximately SEK 47bn, of which approximately SEK 18bn referred to the former. The Group’s exposure to raw materials comprises mainly steel, plastics, copper and aluminum. 

Market prices for raw materials was under pressure during the year. Steel prices declined through the year, while prices for plastics weakened 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 2014 was somewhat lower than in 2013.

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 2014, the ongoing restructuring program to adapt capacity and reduce overhead costs continued. In total, restructuring charges of SEK 2.8bn have been taken during 2013-2014. This program was finalized at the end of the year. The annual savings are estimated to approximately SEK 1.8bn 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. Additional 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 average maturity of at least two years, an even spread of maturities and an average fixed-interest period of one to three years. At year-end 2014, the Group’s long-term borrowings, including long-term borrowings with maturities within 12 months, amounted to SEK 12,123m with an average ­maturity of 2.8 years. Loans are raised primarily in USD, EUR and SEK. The average interest rate at year-end for the total borrowings was 2.4%. The average fixed-­interest period for long-term borrowings was 1.2 years. Long-term loans with maturities within 12 months amount to SEK 2,595m. Liquid funds on December 31, 2014, amounted to SEK 9,835m.

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 periods in 2014, a change of 1 percentage point in interest rates would affect Group income in the amount of +/– SEK 40m. For additional information on loans, see Notes 2 and 18.

Pension commitments

At year-end 2014, Electrolux had commitments for pensions and benefits that amounted to approximately SEK 29bn. Through pension funds, the Group manages pension assets of approximately SEK 24bn. At year-end, approximately 34% of these assets were invested in equities, 44% in bonds, and 22% in other assets. Net provisions for post-employment benefits amounted to SEK 5,162m. 

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 2014 in the amount of SEK 754m. In the interest of accurate control and cost-effective management, the Group’s pension commitments are managed centrally by Group Treasury. Electrolux uses interest-rate derivatives to hedge parts of the risks related to pensions. For additional information, see Note 22.

Other risks 

Reputational, regulatory and sustainability risks can potentially impact Electrolux ability to successfully conduct business. There are a number of processes in place to control these risks such as internal and supplier auditing, environmental management and certification, the Ethics program and the safety management system. The regulatory environment is monitored in order to be prepared for changes that impact the business. The process to identify material sustainability issues is described in the Sustainability Report. available at www.electroluxgroup.com.