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Risk and risk management

Electrolux Professional Group is an international company with a wide geographical presence, entailing exposure to various forms of strategic, operational, and financial risks. Risks are managed through a systematic and enterprise-wide risk management framework to enhance resilience and empower the Group to achieve its goals and objectives.

The Group’s most significant strategic, operational, financial,  and sustainability risks are described below on this page.

Sustainability risks

Electrolux Professional Group’s global operations expose the Group to risks related to sustainability factors such as environmental impact, human rights, employment conditions, and corruption. These risks could arise in several phases of the value chain, such as in purchasing and sales, but also in connection with third-party service partners providing preventive and corrective maintenance services to end customers.

Countries are increasingly adopting new rules and regulations aimed at imposing mandatory rules on sustainability-related areas, particularly in human rights and modern slavery. Failure to comply with standards and regulations on the work environment, anti-corruption, human rights, and business ethics could have an adverse effect on the Group’s reputation, results of operations, and financial position.

Climate risks

During 2022, Electrolux Professional Group made a climate scenario risk and opportunity analysis for 2022 according to the recommendations from Taskforce on Climate-related Financial Disclosures (TCFD). In the risk tables in this page, transition risks and physical risks have been included. Read about climate scenario terms in the Annual and Sustainability report 2022.

Strategic risks

Strategic risks are related to macro-economic factors and geopolitical conditions resulting in changes in the business environment with potential significant effects on operations and business objectives.

Demand for Electrolux Professional Group´s products depends on the general economic climate within the professional equipment industry, which in turn is affected by macroeconomic factors in the countries and regions where the Group conducts operations, including the rate of growth in the global and
local economy.

Climate change is expected to drive global tourism/business travel geographic shifts due to changing climate as a chronic physical risk. A large part of the customer base might become exposed to a high risk of climate change in 2050 in a 4-degree scenario.

Risk management

Strategic risks are managed through strategic plans and business decisions taken by the Board of Directors, the Group Management Team, and management teams throughout the Group.

Changes to global tourism/business travel geographic shifts could have a financial impact in terms of reduced demand for products and a shift to new geographies towards the higher latitudes, unless we keep up with this shift in demand. Shifting peak season tourism to shoulder seasons could open a future business opportunity and increase sales in these current off-peak seasons.

Part of the Group’s strategy is to accelerate growth through acquisitions. Mergers and acquisitions generate risks related to the ability to achieve expected growth synergies and profitability and to retain key employees.

Risk management

Mergers and acquisitions are decided by the Board of Directors, and managed and implemented by dedicated teams of senior executives and employees during the acquisition and integration process. External expert support and advice are obtained as required and according to customary practices.

The effect of the coronavirus pandemic continues to affect the economic situation and business environment in parts of the world. The subsequent uncertainty affects both markets and manufacturing mainly in APAC.

Risk management

The Group is closely monitoring developments and based on previous experience, is prepared to take necessary measures to mitigate potential new impacts from the coronavirus pandemic.

Denial of access to markets due to geopolitical decisions, agressions, sanctions, export controls, etc. as well as the general currently prevailing political discourse, e.g. globalization or protectionism, that ultimately affects the legal possibilities to do business in certain areas of the world as well as general supply and demand.

Risk management

Close monitoring of the geopolitical developments in countries with political risk exposure. Readiness to act to ensure continuity of business.

Potential energy labeling and circular economy legislation changes have been identified as transition risks associated with climate change. This transitional risk can demand a change in product mix and drive increases in product cost..

Risk management

We have a clear strategy for developing low carbon and water/energy efficient solutions given the EU’s potential regulations in Eco-design and/or energy labelling, and we continue to be the market leader in sustainability. By offering integrated products and services, including logistics and transportation, compared to our competitors, we can reduce complexity for our customers, thereby reducing greenhouse gas emissions.

Other strategic risks include increased market competition, inability to adopt new technologies or new business models, and the inability to find suitable targets for a merger or acquisition to leverage as an accelerator in line with market expectations.

Risk management

Electrolux Professional Group develops its technologies through continuous investments in research and development with a strong focus on development of products and services.

Operational risks 

Operational risks are risks that stem from business operations with a potential impact on the financial position and performance. These risks are mainly associated with the development, design, and manufacturing of the Group’s products, the supply chain, and the sales of these products and services worldwide.

The Group has 12 manufacturing plants in seven countries and manufacturing comprises a chain of processes. Geopolitically unfavorable developments, fire, natural disasters, extreme weather conditions, epidemics, pandemics, systems failure, mechanical failure, or equipment failure could affect the Group’s manufacturing capacity.

Any extensive outages or disruptions due to such events could have an adverse effect on the Group’s business and financial position.

Disruption to the Group’s manufacturing capacity in operations and supply chain due to extreme weather events has been identified as an acute climate change physical risk. Electrolux Professional’s manufacturing and supplier sites may become increasingly affected by extreme weather events in the coming years.

Risk management

Manufacturing units continuously monitor the production process, test the safety and quality of products, conduct risk assessments, and train employees. The Group works in a structured manner to ensure the health and well-being of its employees and by regularly assessing and managing safety and health risks in operations.

Manufacturing sites are surveyed annually through a group-wide loss prevention standard which includes risk management, emergency procedures, business continuity, and security. The program ensures continuous improvement and sharing lessons learned between sites.

The Group has transferred part of its property damage and business interruption risks to the direct insurance market.

The long-term view of the location of sites is managed through strategic plans and business decisions taken by the Board of Directors, the Group Management Team, and management teams throughout the Group.

The Group´s manufacturing process depends on the availability and timely supply of components and raw materials, sourced and purchased primarily from third-party suppliers. A shortage of electronics and raw materials poses risks related to product costs and to timely delivery to customers.

Some key parts and customized components are available only from a single supplier or a limited group of suppliers and there is a risk that the Group will be unable to obtain these products for a certain period, which could have an adverse effect on the Group’s ability to manufacture single types or categories of products within a reasonable time or at an acceptable cost. Potentially increased costs for materials, energy, and transportation as a knock-on effect of carbon pricing has been identified as a climate change transition risk.

Risk management

Proactive efforts are being made to establish a robust and flexible supply chain with multiple sourcing that follows laws and the Group’s business principles. We carry out regular supplier audits and continued surveillance of supplier performance and financial stability, and long-term agreements are in place with single-source suppliers. In addition, dual-sourcing is in place for key components and raw materials.

Most of Electrolux Professional Group’s products and product lines are subject to regulations that set out basic health and safety requirements applicable to products released onto the market. Should any of the Group’s products have defects that lead to serious accidents or ill-health when used, there is a risk that competent authorities could decide to prohibit sales, require recall of the product from the market, or provide warning information. Such market interventions and any product liability claim from contracting parties or third parties could have an adverse effect on the Group’s business, reputation, results of operations, and financial position.

Risk management

The Group aims to ensure customer safety and reduce risks by focusing on product safety during the product development phase and the manufacturing of its products. Tests are performed on the products during the manufacturing process as well as through field tests on customer sites. The Group also uses third-party laboratories to review products from a safety standpoint. In recent years we have started to perform ergonomic certifications on certain products (ERGOCERT). The Group has transferred part of its product liability risk to the direct insurance market.

Electrolux Professional Group conducts its business in many jurisdictions with different legislation, rules and regulations. Non-compliance with trade compliance rules, product certification requirements, privacy rules, and so on could result in fines and penalties, trade restrictions, and reputational impact.

Risk management

In addition to the Code of Conduct, the Group has issued policies and procedures on legal compliance that are applicable to all employees worldwide. The procedures are regularly reviewed and followed up, and whistleblowing procedures are implemented.

Regular training is held for relevant employees (face-to-face, via video or e-learning).

The Group is dependent on information technology and systems. Cyber security risks are increasing globally, and the risk of a cyber intrusion is continuously increasing. A cyber security breach could disrupt manufacturing processes and IT systems, which could impact the Group’s financial position and result.

Risk management

The Group has an IT security strategy including information security policies and procedures, and IT General Controls (ITGC). There are different levels of access controls for internal employees and contractors, and regular vulnerability testing is carried out. Internet Security training for employees is regularly conducted. The system landscape is based on well-proven products and market-leading service providers. There is a designated Chief Information Security Officer function at Group level.

Electrolux Professional Group is dependent on technical experts and industry talent, mainly for its production facilities and research and development departments, and it is also dependent on key personnel for certain Group functions. Difficulties in recruiting and retaining qualified personnel could result in a loss of competitive edge and increased costs.

Risk management

To offer attractive positions, personal and professional development, a good working environment and competitive compensation and benefits are prioritized within the Group.

Salaries and other conditions are adapted to the market and linked to business priorities. The Group strives to maintain good relationships with unions.

Financial risks

The Group is exposed to several risks from liquid funds, trade receivables, borrowings, commodity prices, tax, foreign exchange etc. These risks are categorized as financial risks, some of which are presented below. More information about financial risks and management of
the risks can be found in the web page sensitivity analysis and in the Annual report 2022.

Electrolux Professional’s solutions and products are manufactured in twelve facilities located in seven countries around the world and sold in approximately 110 countries. Accordingly, the Group is exposed to currency risks. Foreign exchange risk is defined as the risk that fluctuations in currency exchange rates have a negative impact on the Group’s financial position, profitability or cash flow and includes transaction exposure and translation exposure.

Credit risk on financial transactions is the risk that the counterpart is not able to fulfill its contractual obligations related to the Group’s investments of liquid funds and derivatives. Credit risks also arise in connection with trade receivables. Electrolux Professional’s client base is characterized by a mix of recurring customers such as distributors and one-time customers, as well as multi-operator stores or spare-part customers.

If Electrolux Professional is unable to fully collect its trade receivables from major customers, the Group’s result would be adversely affected.

Interest-rate risk refers to the adverse effects of changes in interest rates on the Group’s income. The main factors determining this risk include the interest-fixing period. In 2022, the Group’s average interest-fixing period was 0.42 years.

The Group is comprised of subsidiaries that are subject to taxation in approximately 30 jurisdictions. There is a risk that Electrolux Professional’s understanding and interpretation of tax laws, tax treaties, and other provisions are not correct in all aspects.

There is also a risk that tax authorities in the relevant jurisdictions make assessments and decisions that differ from Electrolux Professional’s understanding and interpretation, which could negatively impact the Group’s tax expense and effective tax rate. In addition, valuation of deferred taxes is based on projections of future taxable income and there is a risk that changes in assumptions or erroneous estimates result in significant differences in the valuation of deferred taxes.

Risk and risk management 2019-10-16T07:28:00+00:00 Electrolux Professional