corporate investor

Risk and risk management

Electrolux Professional is an international group with a wide geographical presence, entailing exposure to various forms of strategic, operational, and financial risks. Risks that are managed incorrectly can result in negative financial consequences, whilst risks that are managed correctly can create opportunities and lead to value creation. It is therefore essential to have a systematic and efficient risk assessment process and an enterprise-wide risk management framework that manage and mitigate risks so that the Group achieves its goals and objectives.

Strategic risks 2021

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’s products depend 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.

Risk management

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

Part of the Group’s strategy depends on accelerating growth through acquisitions. Mergers and acquisitions give risks related to the ability to achieve expected growth synergies and profitability and to retain key employees. There is a risk that due diligence reviews do not identify all relevant issues.

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 global outbreak of the coronavirus continues to affect the general economic situation, and could impact the hospitality industry long-term, resulting in negatively impacted demand from the Group’s end markets and a permanent change in customer behaviors.

Risk management

During the pandemic, the Group has been able to partially mitigate the negative impact the decrease in demand by focus on cost saving measures, as well as focus on the less affected Laundry business. The Group is closely monitoring the development of the pandemic and is, based on previous experience, prepared to take necessary measures to mitigate potential new impacts from the pandemic.

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

Political instability in the markets in which Electrolux Professional operates can trigger an industry-wide decline in sales.

Risk management

Close monitoring of the geopolitical developments in countries with political risk exposure. Product stocks can be held outside production areas at risk, and there is a possibility to move production short-term.

Operational risks 2021

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. The 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.

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 wellbeing of its employees and by regularly assessing and managing safety and health risks in operations. Manufacturing sites are surveyed annually through a loss prevention common group 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.

Electrolux Professional’s manufacturing process depends on the availability and timely supply of components and raw materials, sourced and purchased primarily from third-party suppliers. A global general 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 is 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.

Risk management

Proactive efforts are made to establish a robust and flexible supply chain that follows laws and the Group´s business principles. Regular supplier audits, continued surveillance of supplier performance and financial stability is carried out, 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’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 in-field tests on customer sites. The Group also uses third-party laboratories to review products from a safety standpoint. In recent years, Electrolux Professional has also 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 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. Regular training for relevant employees is conducted (face-toface, via video or e-learning).

Other operational risks are dependencies on information technology and systems. Cyber security risks are increasing globally, and the risk of a cyber intrusion has increased significantly during the Coronavirus pandemic with many employees working remotely. 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 trainings are regularly conducted among employees. 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 is dependent on technical experts and industry talent, mainly for its production facilities and research and development departments, but 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. Employee health and safety risks have increased in general because of the Coronavirus pandemic. Stress, remote working, and long recovery time after being affected by the virus are risks that could impact the Group’s operations and the overall wellbeing of the Group’s employees.

Risk management

To offer interesting 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. The Group’s crisis team was activated in early 2020 when the pandemic started in China and has implemented protocols for remote working, enhanced cleaning measures, and reporting procedures on positive cases, amongst other measures. Material on how to manage teams remotely and how to stay healthy has been distributed.

Sustainability risks 2021

Electrolux Professional’s global operations exposes 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 in particular in the areas of human rights and modern slavery.

Failure to comply with standards and regulations on 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.

A systematic environmental approach is the basis for reducing Electrolux Professional’s environmental impact. The greatest direct environmental impact relates to water and energy consumption, wastewater, waste, and transportation.

From a product life cycle perspective, the main environmental impact occurs in the product use phase at the customer’s location. The company complies with environmental legislation and is not involved in any environmental disputes. As of December 31, 2021, Electrolux Professional had manufacturing operations in seven countries.

The Swedish factory in Ljungby conducts notifiable activities according to Swedish legislation. There are no injunctions under the Swedish Environmental Legislation. The factories operate according to national legislation, apply for necessary permits, and report to local authorities in accordance with applicable legislation. All factories conduct systematic environmental work that includes action plans and monitoring of a number of environmental aspects. The environmental work is an integral part of our operations and environmental aspects are taken into account during decision making.

Evaluation and follow-up on measures taken increases awareness of the impacts the business has on the environment.

Financial risks 2021

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.

The Group has 12 manufacturing plants in seven countries. The 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.

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 2021, the Group’s average interest-fixing period was 0.44 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 line 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