Over the past few years, the Group has been working on the optimization of the product portfolio with the aim to strengthen the most profitable product categories and exiting unprofitable products. The work is an important part of the Group’s ambition to achieve sustainable profitability and bring value to its customers. A key challenge is to successfully sustain the implementation of such activities. Electrolux has, as part of its strategic priorities, a strong focus on driving an active portfolio management across its business areas in a structured way.
Quality is a fundamental reason for the consumers to choose Electrolux products and a key priority for the Group to successfully execute on its strategy. Electrolux has initiated a "Committed to Quality" program to reinforce a quality focus across Electrolux operations around the world. Quality is a prerequisite for best-in-class consumer experience and long-term consumer brand loyalty.
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.
The appliance industry is characterized by intense competitiveness by manufacturers of appliances, and the pace of change in the market has resulted in ongoing consolidation where regional players are becoming more global and seek to benefit from synergies and economies of scale. Efforts to continuously optimize the operations are therefore essential in achieving a competitive advantage in the face of increasing competition. Electrolux focuses on automation, modularization and adjustments to existing plants to ensure an effective cost structure.
Weakening trading conditions for retailers in markets where demand is sharply declining can pose an operational challenge to manufacturers with a high level of exposure to a certain customer. Electrolux has a high customer concentration in North America and Latin America relative to other markets, mainly due to the high degree of consolidation in those markets. The Group has a comprehensive process for evaluating credit risks and monitoring the financial situation for customers. Similarly, a high concentration to suppliers may create risks in the supply chain. 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. Electrolux offers its suppliers the opportunity to utilize supplier finance.
A large portion of the Electrolux cost base is variable and comprises mainly of costs related to raw materials and components, sourced products, logistics and marketing. In 2016, about 80% of total costs were variable, while 20% were fixed. Electrolux cost structure enables the Group to be flexible and quickly adapt to external risks such as lower market demand or fluctuations in commodity prices. In 2016, Electrolux improved operational efficiency and had lower costs for raw materials.
| SEK bn | |
|---|---|
| Revenues | 121 |
| Direct material | –45 |
| Sourced products | –21 |
| Salaries and other expenses | –49 |
| Operating income | 6 |
| Variable cost to sales | 76% |
| Fixed cost to sales | 19% |
| Operating margin | 5% |
The Annual Report for AB Electrolux (publ) 556009-4178, consists of the Report by the
Board of Directors, Notes, Proposed distribution of earnings and Auditors´ report.