Risk and risk management

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.

Risk management

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

Market accessibility is impacted by geopolitical decisions, aggressions, sanctions, export controls, etc. as well as the general prevailing political discourse, e.g. globalization or protectionism, which 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.

Climate change is expected to drive global geographic shifts affecting tourism/business travel, and is a chronic physical risk. In a 4-degree climate change scenario, a large part of our customer base could become exposed to significant risks due to climate change in 2050.

Risk management

Geographic shifts in global tourism/business travel 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. A shift in peak season tourism to shoulder seasons could open up future business opportunities and increase sales in these currently off-peak seasons.

The Group has 13 manufacturing plants in eight countries and manufacturing is a chain of processes. Unfavorable geopolitical 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 a changed 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.

Manufacturing depends on the availability and timely supply of components and raw materials, sourced and purchased primarily from external suppliers. A shortage of electronics and raw materials poses risks related to product costs and 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 complies with laws and the Group’s business principles, which is having a positive effect. We perform regular supplier audits and continuous monitoring of supplier performance and financial stability, and longterm agreements are in place with single-source suppliers. In addition, we are establishing more dual-sourcing 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 products during the manufacturing process as well as through field tests at 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 have been 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 on the rise. 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 conducted regularly. 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.

A prerequisite for the successful implementation of the Group’s business strategy and safeguarding of its long-term interests, including its sustainability, is that the Group can recruit and retain qualified personnel. Difficulties in recruiting and retaining qualified personnel could result in a diminished competitive edge and increased costs.

Risk management

To offer attractive positions and 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.

Electrolux Professional’s solutions and products are manufactured in thirteen facilities located in eight 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 repeat 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 factor determining this risk is the interest-fixing period. In 2023, the Group’s average interestfixing period was 1.1 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.