Electrolux Annual Report 2020 Well positioned to create value A strong focus on innovation to improve the consumer experience and a track record of successfully driving cost efficiency are important competitive assets. A solid balance sheet facilitates profitable growth. This makes Electrolux well positioned to continue to deliver shareholder value. global LEADER FOCUSED PROFITABLE GROWTH STRATEGY Electrolux is a global leader in household We focus on consumer-relevant appliances. We reinvent taste, care and product innovations to drive profitable wellbeing experiences for more enjoyable growth. Our global presence offers and sustainable living around the world. We economies of scale, and we invest in offer thoughtfully designed, innovative and digital transformation, modularized sustainable solutions, under well-established product architectures, automation and brands including Electrolux, AEG and Frigidaire. flexibility in production. Sustainability is a key business driver, and a solid balance sheet facilitates profitable growth. Table of contents CEO STATEMENT Strategy reinforced in an exceptional year 5 Financials 2020 7 Driving profitable growth 8 Sustainability at the heart of our strategy 11 Creating shareholder value 13 REPORTING Report by the Board of Directors 14 Notes 39 Proposed distribution of earnings 77 Auditors’ report 78 Eleven-year review 82 Operations by business area, yearly 84 Quarterly information 85 Sustainability reporting 86 Climate-Related Financial Disclosures 95 Corporate governance report 100 Remuneration report 119 Events and reports 122 Annual General Meeting 123 CONTINUING OPERATIONS The CEO statement on pages 4–13 in this report includes the consumer business, continuing operations, following the listing of the business area Professional Products (Electrolux Professional) as a separate company in March 2020. Electrolux Professional is accounted for as discontinued operations, for more information see Note 26. The Annual Report for AB Electrolux (publ), 556009-4178, consists of the Report by the Board of Directors and Notes to the financial statements, pages 14—77. The Annual Report is publis- hed in Swedish and English. ELECTROLUX INVESTOR RELATIONS ONLINE Please find more information about business development, strategy and business areas on the Electrolux Investor Relations webpage: 116 48 www.electroluxgroup.com/ir sales thousand billion sek employees SUSTAINABILITY The Electrolux sustainability framework and execution are described in the Sustainability reporting section on pages 86–94. The full Electrolux Sustainability Report is published online in March 2021 at: www.electroluxgroup.com/sustainabilityreport2020 60 120 341 298 million products markets Printed matter sold annually Larsson Offsettryck Electrolux, AEG and Zanussi are registered trademarks of AB Electrolux. For further information about trademarks, please contact Electrolux Group Intellectual Property, Trademark. The figures above are for the consumer business, continuing operations, Concept, text and production by excluding the discontinued Electrolux Professional operations. Electrolux Investor Relations and Hallvarsson & Halvarsson. 4 CEO statement Jonas Samuelson, Electrolux President and CEO ELECTROLUX ANNUAL REPORT 2020 CEO statement 5 Strategy reinforced in an exceptional year The coronavirus pandemic in 2020 had a severe impact on all aspects of society, including on our consumers and our business. We have all experienced challenging times but I believe that our execution and consumers’ response validate that we have the right strategy in place. The financial performance improved significantly during the year as a consequence of an attractive product offer and agile execution. The world is facing a global pandemic changing market, to ensure we took the Sales increased in the second half of the that has affected us all in unprecedented right measures at the right time. year driven mainly by pent-up consumer ways, both personally and professionally. demand, people spending more time Our top priorities have been to safeguard Responding to new situations at home and government stimulus pro- the health and safety of our employees Following a sharp decline in demand grams. Again, our agile business enabled and to ensure business continuity. Not during the onset of the coronavirus pan- us to quickly switch from implementing least because household appliances are demic in first half of 2020, we implemented cost savings to capture the strong essential for the daily lives of consumers. temporary cost and cash mitigation increase in consumer demand. Our strategy as well as our agile way actions. These included significantly I am extremely proud of how we as an of working helped us to manage the reduced discretionary spending and organization have navigated this chal- challenges and uncertainty, as well as reprioritizing capital expenditure by lenging year that put our entire company respond to changing consumer needs, deferring and scaling back investments. to the test. Importantly, for me it validated brought about by the pandemic. I am Cost efficiency is a key part of our busi- that we have the right strategy in place pleased how we managed the situation ness culture, and the pandemic illustrated and that we quickly can act on challenges during the year by quickly adapting to the how we as an organization can quickly as well as seize opportunities. respond to a volatile market environment. sales by brand sales by region Other 20% 36% 39% 33% * 5% 30% 14% 3% *Includes Frigidaire Gallery and Frigidaire Professional. 15% Key data 2020 2019 5% Sales growth,% 3.3 –1.3 Operating margin, %1) 5.0 3.8 Operating cash flow, SEKm2) 8,552 2,280 Dividend, SEK per share3) 8.00 7.00 1) Excluding non-recurring items. 2) Operating cash flow after investments. 3) 2020 proposed by the Board. ELECTROLUX ANNUAL REPORT 2020 6 CEO statement Due to the pandemic, consumers spent more time at home during 2020 and became more digital. The digital consumer – high-quality appliances with features and sumers paying more attention to health well-informed and empowered benefits that enhance their user experi- and hygiene in the home environment, Our strategy is founded on five industry ence. Consumers using their appliances and an increased need for products that trends, with sustainability and increasing more intensively during the pandemic can boost wellbeing in the home, such as consumer power driven by digitalization and allocating more of their household vacuum cleaners, air and water purifiers, being most important. A consequence budgets to home improvement projects dishwashers and washing machines. of the coronavirus pandemic was how it also benefitted our sales. This, in combina- During the pandemic, sustainability rapidly transformed consumer behavior. tion with our relentless focus on consumer became even more important for con- This affected long-term market trends experience innovation, has continued sumers. Even before the pandemic, we for example by accelerating consumer to improve demand for our more highly knew that two thirds of global consumers power and digitalization. featured products, driving a favorable are willing to pay more for sustainable Consumers spent more time at home product mix. We also strengthened our goods.* These changes in consumer due to the pandemic and became more online marketing and communication behavior make our strategy more rele- digital. Online purchases increased and capabilities to capture the growing online vant than ever. consumers became more interested in and e-commerce trend. We also saw con- *Eco Ethical Report, June 2019. Consumer power Growing global Digitalization middle class INDUSTRY TRENDS The global household appliance market is being transformed by five major trends. While these changes place demands on Global scale Sustainabillity investments and economies of scale, they also present major opportunities. ELECTROLUX ANNUAL REPORT 2020 CEO statement 7 Financials 2020 Business overview In North America, market demand increased during the year. For The year was highly volatile with a challenging first half followed Electrolux operations, both price and mix improved while vol- by a strong recovery during the second half. This resulted in a umes were lower. The proactive price and mix management, as significant financial performance improvement for the year, with well as high growth in aftermarket sales, resulted in a significant an operating margin of 5.0% compared to 3.8% last year, exclud- earnings improvement for the year. The improvement was limited, ing non-recurring items. Electrolux organic sales increased 3.2%, however, by lower production volumes as a result of capacity although more than offset by currency translation relating to the constraints. Those were mostly due to the coronavirus situation stronger Swedish Krona, resulting in a small reported net sales affecting the industry as a whole, but also a result of inefficien- decline. cies in the ongoing manufacturing consolidation of the U.S. The organic sales growth was driven by improved mix through freezer/fridge production into a new, highly automated facility in selling more innovative premium products as well as higher net Anderson. prices ,while sales of lower-end products were decreased. After- In Latin America consumer demand is estimated to have market sales, which is one of the Group’s strategic focus areas, increased, driven by the Brazilian market. Electrolux operations increased significantly, accounting for 7% of sales.