Electrolux
Annual Report 2019

Plain-text annual report

Electrolux Annual Report 2019 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 Electrolux is a global leader in household appliances. We reinvent taste, care and wellbeing experiences for more enjoyable and sustainable living around the world. We offer thoughtfully designed, innovative and sustainable solutions, under well-established brands including Electrolux, AEG and Frigidaire. FoCUSed ProFITable groWTH STraTegY We focus on consumer-relevant product innovations to drive profitable growth. Our global presence offers economies of scale, and we invest in modularized product architectures as well as automation and flexibility in production. Sustainability is a key business driver, and a solid balance sheet facilitates profitable growth. 119 sales billion sek 60 million products sold annually 120 markets 49 thousand employees Figures above are for the consumer business, continuing operations, exclusive of the discontinued operations Electrolux Professional. Table of contents CEO STATEMENT Strengthening our innovation and efficiency platform Business overview Key areas to create value and drive profitable growth Well-positioned in a changing world Celebrating a century of better living REPORTING Report by the Board of Directors Notes Proposed distribution of earnings Auditors’ report Eleven-year review Operations by business area, yearly Quarterly information Sustainability reporting Corporate governance report Events and reports Annual General Meeting 100 years of better living 5 6 10 12 14 17 44 81 82 86 88 89 90 101 119 120 121 CONTINUING OPERATIONS The CEO statement on pages 4–15 in this report includes the consumer business, continuing operations, following the deci- sion made by the Board in 2019 to propose to distribute and list the business area Professional Products (Electrolux Professional) as a separate company. 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 17—81. The Annual Report is publis- hed in Swedish and English. ANNUAL REVIEW ON THE WEB Please find more information about business development, strategy and business areas in the Electrolux Annual Review 2019, accessible on all your digital platforms. Please visit the Electrolux Annual Review 2019 at: www.electroluxgroup.com/annualreports/2019 SUSTAINABILITY The Electrolux sustainability framework and execution are described in the Sustainability reporting section on pages 90—98. The full Electrolux Sustainability Report is published online in March 2020 at: www.electroluxgroup.com/sustainabilityreport2019 341 298 Printed matter Larsson Offsettryck Electrolux, AEG and Zanussi are the registered trademarks of AB Electrolux. For further information about trademarks, please contact Electrolux Group Intellectual Property, Trademark. Concept, text and production by Electrolux Investor Relations and Hallvarsson & Halvarsson. Jonas Samuelson, Electrolux President and CEO. CEO statement 5 Strengthening our innovation and efficiency platform In 2019, we intensified our work to make our business even more consumer focused and streamlined, as well as executed on our re-engineering program. Such measures – along with the proposed separation of our professional products business – are key to create even more shareholder value going forward. Building for the future We are in an intense period of transformation and innovation. In 2019, we strengthened our platform for future growth by launching important new product ranges, initiating additional efficiency measures and investing in modularized products in automated manufacturing. During the year, we also announced our intention to split the Group into two listed companies – ‘Electrolux’ for household appliances and ‘Electrolux Professional’ for professional appliances. business areas sales by region share of sales Europe, 38% North America, 33% Latin America, 16% Asia-Pacific, Middle East and Africa, 13% Key data Sales growth,%1) Operating margin, %1) Operating cash flow, SEKm2) Dividend, SEK per share3) 2019 –1.3 3.8 2,280 8.50 2018 1.2 4.8 2,646 8.50 1) Continuing operations. Operating margin is excluding non-recurring items. 2) Continuing operations, after investments. 3) 2019 proposed by the Board. 33% 38% 5% 3% 16% 5% Core markets Growth markets 6 CEO statement “Our targeted innovation approach has strengthened our position in key categories and contributed positively to margin.” Business overview In 2019, we continued to have a favorable sales and earnings impact from product-mix improvements, which means that we are selling more of our innovative and premium products that have higher margins. The new products we launched during the year were very well received by consumers. For example, our new built-in kitchen range in Europe was at launch rated 4.9 stars out of 5 in consumer online reviews. We were also the first to bring built-in Air Fry technology to the North American cooker market, which has been a great success with strong growth and a 4.6 star rating. Our targeted innovation approach has strengthened our position in key categories and contributed positively to margins. Our re-engineering investments in man- ufacturing are building for the future by enabling us to be more efficient and to speed up innovation and enhance the consumer experience of our products. We experienced significant headwinds from raw material costs, trade tariffs and currency – an increase of approximately SEK 1.5bn in 2019 compared to 2018. I am very pleased that we have been able to fully offset these headwinds during the year through pricing. However the complex and resource intensive process to consolidate the U.S. production of refrigerators/freezers to our new Anderson facility in North America impacted sales and earnings negatively in 2019. Importantly, this consolidation will increase our competitiveness going forward. We also had higher marketing investments to support our product launches. Hence, oper- ating margin excluding non-recurring items declined to 3.8%. In Europe, we saw a positive contribution to sales and earnings from product-mix improvements and price increases. High- lights included a strong performance in our focus area built-in kitchen where we gained value market share. Continued market growth was mainly driven by Eastern Europe, although Western Europe also developed positively. North America experienced organic sales decline and lower earnings. The consolida- tion of production to the new plant in Ander- son resulted in manufacturing transition costs related to running three facilities in parallel. In addition, capacity constraints in the ramp-up phase of the plant impacted sales volumes negatively. Cost-based price increases fully offset higher costs from raw materials and trade tariffs. Mix improved, partly driven by our new multidoor refrigerators. In Latin America, we saw good prog- ress despite a volatile environment. Price increases combined with mix improvements – particularly for high-capacity washers and multidoor refrigerators – offset significant headwinds from raw material costs as well as currency due to the macroeconomic turbu- lence. Importantly, we saw market growth in our main market Brazil. In Asia-Pacific, Middle East and Africa sales volumes declined. Mix improvements, predominantly driven by new product launches under the Electrolux brand in Australia contributed to earnings. Significant currency headwinds and lower volumes had a negative impact on operating income. Creating value through a more efficient and streamlined business I believe that the separation of the profes- sional products business into a stand-alone company will create substantial shareholder value over time, given that the two businesses have different markets, customers and suc- cess drivers. The spin-off will ensure that our earnings development1) operating income bridge1) SEKbn 8 6 4 2 0 15 16 17 18 19 Operating income Operating margin % 8 6 4 2 0 SEKbn 10 8 6 4 2 0 1.6 5.5 -1.0 -1.1 -0.5 0.0 4.5 EBIT 2018 Organic contribution Raw material & tariffs Cost efficiency Currency Acq/ Divest EBIT 2019 Operating income for continuing opera- tions excl. non-recurring items in 2019 was SEK 4,533m (5,519), corresponding to a margin of 3.8% (4.8). Our continued focus on consumer driven innovation and several important product launches contributed to earnings in 2019. We strengthened our platform for future profitable growth through additional efficiency measures and extensive re-engineering investments in auto- mated and modularized manufacturing. However, manufacturing transition costs for consol- idating production to our new Anderson facility as well as increased marketing investments impacted operating income (EBIT). Price increases compensated for the strong headwind we faced, from raw material costs, trade tariffs and currency. 1) Operating income is for the consumer business, exclusive of the business area Professional Products, excluding non-recurring items. ELECTROLUX ANNUAL REPORT 2019 CEO statement 7 Taste Making it possible to prepare great-tasting food. We sell cookers, hobs, ovens, hoods, micro wave ovens, refrigerators, freezers and dishwashers for consumers around the world. Electrolux is a leader in kitchen appliances and new function- alities are continuously being developed. In 2019, Electrolux launched the multidoor refrigerator global platform in the Americas to tap into an attractive segment, as well as several steam ovens with the Steamify® function, which enables best-in-class baking, roasting and steaming results. share of sales Taste, 61% Care, 29% Wellbeing, 10% Wellbeing Making it possible to achieve healthy wellbeing in your home. Electrolux vacuum cleaners, air-conditioning equipment, water heaters, heat pumps, small domestic appliances, and accesso- ries are sold to consumers worldwide. We have a strong, global distribution network and an attractive product offering that includes service. Product launches in the Wellbeing segment in 2019 included the PureSense system, which continuously measures indoor and outdoor air quality levels and automatically adjusts the air purifi- cation rate to ensure a healthy indoor environment. Three clear areas for innovation We shape living for the better by reinventing taste, care and wellbeing experiences, for more enjoyable and sustainable living. Care Making it possible to care for your clothes so they stay new for longer. Washing machines and tumble dryers are the core of our product offering for washing and garment care. Demand is driven by innovations that promote user - friendliness and resource efficiency. Care innovations in 2019 included the connected AEG 9000 Premium Edition Washer Dryer with SensiDry® Technology, which can provide a three-hour wash to dry cycle, and optimizes the program to help clothing retain its shape and condition while saving energy and water. 8 CEO statement professional business has improved capital market access and more opportunities for further market consolidation. Following shareholder approval to distribute Electrolux Professional the plan is to list the company on Nasdaq Stockholm on March 23, 2020. Our financial targets for the consumer business as a stand-alone company remain, which requires a further sharpening of our performance to reach the targets, given the higher margin of the professional business. We define profitable growth as sales growth of at least 4% and an operating margin of at least 6% over a business cycle. Offering outstanding consumer experiences, driven by innovation and operational excellence, is at the heart of our strategy to achieve these goals. By creating four regionally focused business areas and reorganizing key global functions during the year, we have improved our consumer focus with the objective of accelerating profitable growth. This was rein- forced by the creation of a global function for Consumer Experience that pulled together central functions into a new organizational structure. As these activities progressed, we iden- tified additional opportunities to improve efficiency and create an even more stream- lined setup for our consumer business. Our SEK 8 bn re-engineering investment program in automation, digitalization and innovation continued during 2019. We con- solidated our U.S. refrigeration and freezer production and started up production in our new Anderson facility in the U.S., which is the biggest step we have ever taken in terms of automation. We also continued our invest- ments in production facilities in Latin America. All initiatives under the investment program have now been announced. Targets1) operating margin capital turnover-rate return on net assets SEKbn 8 6 4 2 0 15 16 17 18 Operating income Operating margin Target, ≥6% % 8 6 4 2 0 3.2 2.7 19 Times 10 8 6 4 2 0 4.5 15 16 17 18 19 Capital turnover-rate, times Target, ≥4 times SEKbn 30 25 20 15 10 5 0 26.5 12.0 15 16 17 18 19 Average net assets Return on net assets Target, >20% % 30 25 20 15 10 5 0 In 2019, operating income included non-recurring items of SEK –1,344m. Reducing the amount of capital tied up in opera- tions creates opportunities for profitable growth. Sustained profitability and a small, efficient capital base enable us to achieve a high long-term return on capital. 1) Financial targets are for the consumer business, the figures in the graphs above exclude the business area Professional Products. Targets are over a business cycle. ELECTROLUX ANNUAL REPORT 2019  CaSe STorY Keeping leadership in a fast growing, attractive category The market for high-capacity Top Load Washing Machines (TLWMs) has grown rapidly in Latin America in recent years, driven by consumer need to save time and resources by washing more clothes in a single batch. Electrolux is the largest player in this attractive TLWM category with nearly one-third of the market and has increased sales by 35% between 2015 and 2019. The company has developed a 17 kg capacity washing machine for the premium segment that uses ‘perfect dilution’ technology to ensure the perfect mix of detergent and softener to care for clothes and avoid stains. The consumer response has not only resulted in a strengthened market position, but also high consumer ratings in 2019 – for example 4.6 in Brazil. Read more in the Electrolux Annual Review 2019: www.electroluxgroup.com/annualreports/2019 CaSe STorY Meeting consumer needs through consumer-centric innovation In 2019, Electrolux launched a new kitchen range based on deep consumer insight to drive premium market growth in Europe under the sharpened Electrolux brand. A deep kitchen consumer analysis in Europe provided valuable consumer insight that highlighted the need for more intuitive products. During the second half of 2019, Electrolux launched a kitchen range of products that meet the consumer demand for more intuitive usability to enable them to get the most out of their products. The new range has been very well received by consumers, which is significant as positive consumer reviews drive sales. The consumer rating for the new Electrolux kitchen range was 4.9 at launch compared with an average of 4.6 for the range that it replaced. Read more in the Electrolux Annual Review 2019: www.electroluxgroup.com/annualreports/2019 sales growth employee engagement sustainability SEKbn 125 100 75 50 25 0 -25 %1) 10 119 8 6 4 2 0 15 16 17 18 –1.3 19 -2 Net sales Sales growth Target, ≥4% 1) Total sales growth excluding currency translation effects. 73 15 16 – 18 19 Engagement index Target, 80 80 75 70 65 60 -32% Target1) -50% 05 - 16 17 18 19 Product use Greenhouse gas Manufacturing Transport In 2017, a mini survey was carried out to monitor the teams with low scores in previous surveys. The survey showed progress. 1) Reduce CO₂ impact by 50% by 2020 through focusing on product efficiency in the main product categories. Sales volumes and emission factors are normalized to 2005. To reach the growth target, we are continuing to strengthen our positions in core markets, new markets and segments. The employee engagement survey (EES) is an important tool to assess engagement, leader- ship and commitment to strategy. Sustainability leadership is a key business driver and important to realizing the Electrolux strategy for profitable growth. 1) Financial targets are for the consumer business, the figures in the graphs above exclude the business area Professional Products. Targets are over a business cycle. ELECTROLUX ANNUAL REPORT 2019 10 CEO statement Key areas to drive profitable growth Create Value Following the intended separation of Professional Products, the consumer business will retain its financial targets for profitable growth. As I previously mentioned, this will require a sharpening of our targets given the higher margin of the professional business. Our two key areas to drive profitable growth are: • Driving sustainable consumer experience innovation • Increasing efficiency through digitaliza- tion, automation and modularization Driving sustainable consumer experience innovation A streamlined and innovative product portfolio, with proven consumer benefits, enables great tasting food, care for clothes and healthy wellbeing in the home. Our new global consumer experience organization established during the year intensifies our focus on deep consumer insight. Our well-established brands with a strong innovation heritage, together with sustain- ability leadership differentiate Electrolux and are key to drive profitable growth. We have a clear roadmap to strengthen our position in emerging markets, which represents huge business opportunities. We also aim to strengthen our position in the high-margin aftermarket business by doubling aftermarket sales by 2025. We are increasing direct consumer con- tact by digital consumer service interfaces and by expanding our range of connected products based on a global IoT platform. In addition, we are strengthening our service product offering through extended warran- ties and fixed price repair models. Increasing efficiency through digitalization, automation and modularization Delivering continuous cost improvements is an important part of our strategy. We have a strong track record of delivering cost reduc- tions and since 2015 we have reduced costs by approximately SEK 5bn. We are implementing our SEK 8bn global product architecture and automation pro- gram to further strengthen competitiveness. These re-engineering investments together with additional streamlining measures are expected to generate approximately SEK 3.5bn in annual cost savings with full effect by 2024, while also reducing our envi- ronmental footprint. We are increasingly leveraging our global scale while at the same time benefiting from deep local understanding to capture regional opportunities. Our digitally inte- grated supply chain and manufacturing helps drive improved productivity and flexi- bility in our operations. ELECTROLUX ANNUAL REPORT 2019 Financial targets for profitable growth*OPERATING MARGINSALESGROWTHRONA**≥6%≥4%>20%Driving sustainable consumer experience innovationIncreasing efficiency through digitalization, automation and modularizationSolid balance sheet facilitates profitable growth* Financial targets are over a business cycle** Return on net assets CaSe STorY Fixed price repair service targets high-margin aftermarket growth Electrolux is launching services, such as fixed price repair in Europe, that aim to access the largely untapped aftermarket business, with the overall objective of doubling Group aftermarket sales to 10% by 2025. Electrolux has launched a fixed price repair service to tap into the significant aftermarket potential. The service allows consumers to make an informed decision on whether to repair or replace an appliance based on their quote from Electrolux. Such services increase the lifetime value for consumers, which also drives loyalty and repur- chasing rates. The new service has been well received since its launch in 2017, with its Net Promoter Score* more than doubling. Read more in the Electrolux Annual Review 2019: www.electroluxgroup.com/annualreports/2019 * Measures the willingness of consumers to recommend a company’s products or services to others. ELECTROLUX ANNUAL REPORT 2019 CEO statement 11 CaSe STorY Re-engineering further strengthens competitiveness The Anderson refrigeration plant in South Carolina in the U.S. will become one of the Group’s most automated facilities following a USD 250m re-engineering investment. Best-in-class automation solutions, modularization and more energy- efficient production at Anderson will result in significant cost savings. Auto- mation level will increase to about 35% compared to previously less than 10%. The food preservation category is the largest in North America for Electrolux – accounting for nearly half of business area sales. A new range of innovative Frigidaire refrigerator and freezer products has been enabled by the re-engineering investment in Anderson. The new refrig- erator and freezer range is based on completely new product architectures to speed up innovation and enhance the consumer experience. Read more in the Electrolux Annual Review 2019: www.electroluxgroup.com/ annualreports/2019 12 CEO statement Global trends Growing global middle class Consumer power Trends in our industry Digitalization Consolidation Sustainability trends The increasing pace of change in the global market stems from a number of trends that influence volumes and the types of products that are in demand, but also how these products are produced, marketed and sold. Well-positioned in a changing world The world in which we operate is con- stantly changing due to the influence of global megatrends. These create chal- lenges for our business – but also bring about enormous opportunities. Increasing consumer power is a key trend. I am convinced our consumer-fo- cused business model gives us a com- petitive advantage in a market where consumers are very well informed. This trend is closely related to digitalization as many consumers have access to a huge amount of consumer-related information via the internet and social media. I con- sider this trend to be very favorable for Electrolux as positive consumer reviews of our products drive further sales. Digitali- zation also presents us with opportunities to connect appliances. This is a key tool to create new consumer experiences and cultivate consumer relationships during the product use phase, as well as increase efficiency in our operations. Sustainability is increasingly important to consumers, and therefore a key driver of demand. This is a competitive advan- tage for us as we have a leading position when it comes to sustainability in our industry. Resource efficient products as well as greater resource efficiency in our operations continue to be a priority for us. I believe the growing global middle class presents many exciting opportunities for Electrolux. This is why we recognize emerging markets as a driver of our future business. We are increasingly drawing on our global scale, deep local insight and modularized product platforms to quickly bring products to emerging markets, meeting the needs of local consumers. Many of these global trends require significant investment, which favors larger players and therefore drives industry consolidation. Electrolux is a leading global player that is well positioned to continue to drive profitable growth by drawing on the opportunities from global megatrends. ELECTROLUX ANNUAL REPORT 2019 Our focused strategy for profitable growth CEO statement 13 path to profitable growth Electrolux applies a three-step model for all business areas. It starts with ensuring stability and predictability in all key processes in combination with clear focus. In the second step, the business model has resilience to external factors and clear competitive advantages that enable profitability over time. The third step is to accelerate growth in a targeted way. 1 Stability & Focus 2 Sustainable Profitability 3 Targeted Growth Profitable Growth Taste, Care & Wellbeing Innovation A clear consumer focus sets us apart Branded Star Products with Preferred Partners Outstanding Consumer Experiences Engaging Ownership & Quality Experience Operational Excellence Talent, Teamship & Continuous Improvement Execution to increase competitiveness Emerging Markets Acceleration Digital Transformation Sustainable Development With drivers that prepare us for the future the electrolux business model By focusing on creating Outstanding Consumer Experiences, the Electrolux business model is designed to achieve the Group’s purpose – Shape living for the better – and drive profitable growth. ELECTROLUX ANNUAL REPORT 2019 14 CEO statement Celebrating a century of better living Electrolux 100 years Electrolux turned 100 years in 2019 and we can be proud of our achievements over the past century. I believe our well-established brands, strong innova- tion heritage, winning sales orientation, contribution to societal development and sustainability leadership are all key strengths that ensure Electrolux is well positioned to deliver profitable growth going forward. A century of better living By creating great taste, care and well- being experiences, and better living for hundreds of millions of people around the world over the past century, Electrolux has not only enhanced the quality of life of its consumers, but also the societies in which they live. Our company is part of an industry that has revolutionized domestic duties, as well as general hygiene and eat- ing habits within less than half a century. Sustainability leadership – a key differentiator In the 1990s, we were the first appliance company to focus on sustainability, which has been at the heart of our strategy ever since. Today, the Electrolux brand is asso- ciated with sustainability, which I believe is a differentiator that results in additional growth opportunities. Sustainable products are more prof- itable. Our most resource-efficient prod- ucts accounted for 23% of total products sold and 32% of gross profit in 2019. We celebrated our anniversary year by launching the Better Living Program, which is a bold initiative to enable us to continue to be at the forefront of sustainability. The program includes a broad range of actions and targets until 2030 and is our first step to contributing to more sustainable lifestyles for the next 100 years. Creating shareholder value Offering outstanding consumer experi- ences, driven by innovation and opera- tional excellence, is at the heart of our strategy and essential to deliver on our financial targets. ELECTROLUX ANNUAL REPORT 2019 CEO statement 15 Better Living Program Better eating Make sustainable eating the preferred choice. Better garment care Make clothes last twice as long with half the environmental impact. Better home environment Make homes healthier and more sustainable through smart solutions for air, water and floors. Better company Make our business circular and climate neutral. Our journey toward profitable growth continues in 2020. As we now have an even more consumer-focused organization with key global capabilities to accelerate product innovation and efficiency, I am confident that we are better positioned than ever to deliver long-term shareholder value. I would finally like to thank all our employees for their individual contributions during the year. I am proud of the dedication, professionalism and expertise our employees have shown throughout the Group. Stockholm, February 2020 Jonas Samuelson President and CEO Electrolux Annual Review 2019 – For more information visit the Annual Review 2019, accessible on all your digital platforms. The Annual Review includes comprehensive information about business development, strategy for profitable growth, business areas as well as profitable growth case studies. VISIT OUR ONLINE REPORT www.electroluxgroup.com/annualreports/2019 ELECTROLUX ANNUAL REPORT 2019 Report by the Board of Directors In 2019, the Electrolux Board of Directors decided to propose to shareholders to distribute the business area Professional Products as a separate company under the name of Electrolux Professional. The intention is to list the company on Nasdaq Stockholm. Distribution of, and first day of trading in, the shares in Electrolux Professional is planned to take place on March 23, 2020. Electrolux Professional is in this report accounted for as discontinued operations. The comments in this report refers to the consumer business, continuing operations, exclusive of Electrolux Professional, unless otherwise stated. For information on accounting principles, see Note 1 and Note 26. Board of Directors’ report and financial statements 17 Report by the Board of Directors • Net sales for continuing operations amounted to SEK 118,981m (115,463). The sales growth excluding currency translation effects was –1.3%. • Operating income for continuing operations amounted to SEK 3,189m (4,176), corresponding to a margin of 2.7% (3.6). • Excluding non-recurring items of SEK –1,344m (–1,343), operating income for continuing operations amounted to SEK 4,533m (5,519), corresponding to a margin of 3.8% (4.8). • Income for the period for the Group, including discontinued operations, amounted to SEK 2,509m (3,805), corresponding to SEK 8.73 (13.24) per share. • Operating cash flow after investments for the Group, including discontinued operations, amounted to SEK 3,433m (3,649). • Extraordinary General Meeting is held on February 21, 2020, to resolve on the distribution of Electrolux Professional. • The Board proposes a dividend for 2019 of SEK 8.50 (8.50) per share, to be paid in two installments. Key data sekm Continuing operations Net sales Sales growth, %1) Organic growth, % Acquisitions, % Divestments, % Changes in exchange rates, % Operating income2) Operating margin, % Income after financial items Income for the period Earnings per share, SEK3) Operating cash flow after investments5) Return on net assets, % Capital turnover-rate, times/year Average number of employees Net debt/equity ratio Total Group, including discontinued operations Income for the period Earnings per share Operating cash flow after investments Dividend per share, SEK Net debt/equity ratio Return on equity, % 2019 2018 Change, % 118,981 115,463 3 –1.3 –1.0 — –0.3 4.3 3,189 2.7 2,456 1,820 6.33 2,280 12.0 4.5 1.2 1.2 0.4 –0.4 0.9 4,176 3.6 3,754 2,854 9.93 2,646 20.2 5.6 48,652 0.34 51,253 — 2,509 8.73 3,433 8.504) — 11.4 3,805 13.24 3,649 8.50 0.08 18.2 –24 –35 –36 –34 1) Change in net sales adjusted for currency translation effects. 2) Operating income for 2019 includes non-recurring items of SEK –1,344m (–1,343). Excluding these items, operating income amounted to SEK 4,533m, (5,519) corresponding to a margin of 3.8% (4.8), see Note 7. 3) Basic, based on an average of 287.4 (287.4) million shares for the full year, excluding shares held by Electrolux. 4) Proposed by the Board of Directors. 5) See page 30. AB Electrolux (publ), 556009–4178 Annual Report 2019, page 17–81 Sustainability Reporting 2019, page 90–98 Corporate Governance Report 2019, page 101–118 ELECTROLUX ANNUAL REPORT 2019 18 Board of Directors’ report and financial statements 2019 in summary • The organic sales decline of 1.0% was related to lower volumes, primarily in North America. • Operating income declined to SEK 3,189m (4,176) and includes non-recurring items of SEK –1,344m (–1,343). • Lower volumes and manufacturing transition costs in North America impacted earnings negatively, while price increases offset higher costs for raw materials, trade tariffs and currency headwinds. • Major product launches, e.g. under a sharpened Electrolux brand, contributed to mix improvements. • Proposal to shareholders to distribute Electrolux Professional as a standalone company. • Comprehensive manufacturing consolidation projects and global streamlining measures initiated. Net sales and operating income Net sales for continuing operations increased by 3.0% in 2019. Organic sales declined by 1.0%, the net contribution of acquisi- tions and divestments was –0.3% and currency translation had a positive impact of 4.3%. The organic sales decline was primarily due to lower volumes in North America, where sales under private label declined and temporary capacity constraints in the new facility in Anderson impacted volumes negatively. Price increases and mix improvements contributed to sales. The busi- ness areas Europe and Latin America reported organic sales growth. Product-mix improvements and price increases explain the growth in Europe. The sales growth in Latin America was mainly driven by Brazil and increased volumes, mix improve- ments and price increases also contributed positively. Asia- Pacific, Middle East and Africa reported a sales decline. Operating income amounted to SEK 3,189m (4,176), corresponding to a margin of 2.7% (3.6). Operating income was negatively impacted by SEK –1,344m (–1,343) related to non- recurring items. These items comprised of restructuring charges for consolidation of manufacturing in North America and Latin America, efficiency measures and outsourcing projects across the Group, recovery of overpaid sales tax in Brazil and a legal settlement in the U.S. For more information see Note 7. Exclud- ing these non-recurring items, operating income amounted to SEK 4,533m (5,519), corresponding to a margin of 3.8% (4.8). Mix improvements across business areas contributed posi- tively to operating income, as a result of major product launches and focus on core brands to improve the product mix. However, lower volumes and manufacturing transition costs in North America, higher marketing investments as well as costs related to the preparation of the separation of Professional Products had a negative impact on earnings. Headwinds from higher raw material costs, trade tariffs and currency were fully offset by price increases. Distribution of Professional Products In December 2019, Electrolux Board decided to propose to shareholders to split the Group in two listed companies Electrolux for household appliances and Electrolux Professional for professional appliances. A split will enable both companies to focus on their respective opportunities to drive profitable growth, with distinct strategies for innovation and customer focus, as well as a high level of capital efficiency. The intention is to list Electrolux Professional on March 23, 2020. Electrolux Professional is reported as discontinued operations in this report and the results are included as a single net in the income statement under the item; Income for the period, discontinued operations. For more information on Electrolux Professional and accounting principles, see page 25 and Note 26. Strategic initiatives to improve profitability Electrolux has a clear strategy to deliver profitable growth and create shareholder value. At the heart of the strategy is a strong consumer focus. In 2019, Electrolux continued executing on the path to profitable growth. Product mix improved through contin- ued focus on product portfolios with strong consumer benefits. To accelerate profitable growth, the business was reor- ganized in four regional consumer-focused business areas ensuring a unified approach to each market. This meant that the Home Care & SDA business area was combined with the four major appliances business areas. A new global consumer experience organization responsible for functions such as mar- Financial overview by business area, continuing operations sekm Net sales Operating income: Europe North America Latin America Asia-Pacific, Middle East and Africa Other, Group common costs, etc. Total Operating margin, % Operating margin excl. non-recurring items, %1) 1) For more information on non-recurring items, see Note 7. 2019 118,981 2018 Change, % 115,463 3 2,493 –516 1,821 446 –1,055 3,189 2.7 3.8 2,128 1,104 492 979 –527 4,176 3.6 4.8 17 n.m. 270 –54 –100 –24 ELECTROLUX ANNUAL REPORT 2019 Board of Directors’ report and financial statements 19 Financial targets over a business cycle1) SALES GROWTH OPERATING MARGIN SEKM 125,000 100,000 75,000 50,000 25,000 0 -25,000 % 10 8 6 4 2 0 -2 Net sales Sales growth Target: at least 4% Total sales growth excluding currency translation effects. SEKM 8,000 6,000 4,000 2,000 0 15 16 17 18 19 15 16 17 18 19 CAPITAL TURNOVER-RATE RETURN ON NET ASSETS TIMES 8 6 4 2 0 Capital turnover-rate Target: at least 4 times SEKM 30,000 22,500 15,000 7,500 0 15 16 17 18 19 15 16 17 18 19 1) For comparable reasons the figures in the graphs above are exclusive of the business area Professional Products. Operating income Operating margin Operating margin excl. non-recurring items Target: at least 6% For non-recurring items included in operating income, see Note 7 and page 88. Average net assets Return on net assets Target: >20% % 8 6 4 2 0 % 40 30 20 10 0 keting, design and digital consumer solutions was established to support the business areas. The investments in modularized products in automated production continued. These are impor- tant to further increase the competitiveness in order to drive growth through more innovative products as well as lowering costs. The re-engineering program, totaling SEK 8bn, contin- ued in 2019. The freezer and refrigerator production in U.S. was consolidated to a new factory in Anderson. The cost savings from this program and the streamlining measures above are expected to be approximately SEK 3.5bn annually, with full effect from 2024. Launches of new products Electrolux aims to drive profitable growth by creating out- standing consumer experiences. Product development focuses on three main areas: great tasting food, care for clothes and healthy well-being in the home. Taste innovations in 2019 included launches under a sharp- ened Electrolux brand in several global markets, including Europe and Australia. New kitchen products included steam ovens with the steamify function for best baking and cooking results. The new kitchen range received high recognition in consumer reviews. Other examples in 2019 included the Air- Fry cooker in North America, the first on the market built into a cooker. Multidoor refrigerators adapted to local preferences using a common manufacturing platform were launched in North America and Latin America. Multidoor is the largest and fastest growing refrigeration category. Care innovations in 2019 included the development of Top Load Washing Machines (TLWMs) in Latin America. The market for high-capacity TLWMs has experienced fast growth in recent years and Electrolux is the largest player in this category. Resource-efficient washing machines with Electrolux UltraCare technology were launched in Europe. In the Wellbeing area, the stylish Electrolux Pure A9 air purifier was launched in South Korea and the Nordics. Changes in Group Management during 2019 In February, as described on page 18, the business was reor- ganized into four regional consumer-focused business areas where the four major appliances business areas were combined with the previous business area Home Care & SDA. At the same time a new global consumer experience function was estab- lished to accelerate product and ownership experience innova- tion. This new function is headed by Ola Nilsson, previously head of Home Care & SDA, as Group Chief Experience Officer (CXO) as of February 1, 2019. As a consequence of the new organiza- tional structure, the Chief Marketing Officer Lars Hygrell is no longer member of Group Management. Jan Brockman, Chief Operations Officer, was also appointed as Executive Vice Presi- dent of AB Electrolux. In December, Alan Shaw, head of the business area North America, decided to retire from his position. Nolan Pike, previ- ously Senior Vice President within Electrolux global Consumer Experience organization, was appointed new head of the busi- ness area as of January 1, 2020. For more information, visit www.electroluxgroup.com ELECTROLUX ANNUAL REPORT 2019 20 Board of Directors’ report and financial statements Net sales and income • Sales for continuing operations increased by 3.0%. This was a result of positive currency translation effects of 4.3%, while organic sales declined by 1.0% and divestment had a negative impact of 0.3%. • Operating income for continuing operations amounted to SEK 3,189m (4,176), corresponding to a margin of 2.7% (3.6). • Excluding non-recurring items of SEK –1,344m (–1,343), operating income amounted to SEK 4,533m (5,519), corresponding to a margin of 3.8% (4.8). • Lower volumes and manufacturing transition costs in North America impacted earnings negatively, while mix improvements across business areas contributed positively. • Price increases fully offset headwinds from higher raw material costs, trade tariffs and currency. • Income for the period for the Group, including discontinued operations, amounted to SEK 2,509m (3,805), corresponding to SEK 8.73 (13.24) per share. Net sales Net sales for continuing operations in 2019 amounted to SEK 118,981m (115,463), which is an increase of 3.0%. Organic sales decreased by 1.0%, while divestments had a negative impact of 0.3% and currency translation had a positive impact of 4.3%. The organic sales decline was primarily related to North America, where sales under private label declined and capac- ity constraints related to the manufacturing consolidation impacted sales volumes of refrigerators and freezers negatively. The business areas Europe and Latin America reported organic sales growth, while sales in Asia-Pacific, Middle East and Africa declined. Operating income Operating income for continuing operations for 2019 amounted to SEK 3,189m (4,176), corresponding to a margin of 2.7% (3.6). Operating income included non-recurring items of SEK –1,344m (–1,343). These items refer to restructuring charges for the con- solidation of the U.S. cooking production of SEK –829m, closure of a refrigerator production line in Latin America of SEK –225m, efficiency measures and outsourcing projects across business areas and Group common costs of SEK –1,496m as well as over- paid sales tax in Brazil of SEK 1,403m and a legal settlement in the U.S. of SEK –197m, see Note 7. Excluding these non-recurring items, operating income amounted to SEK 4,533m (5,519), cor- responding to a margin of 3.8% (4.8). Lower volumes and manufacturing transition costs in North America impacted earnings negatively while mix improvements across business areas contributed positively. Price increases fully offset higher costs for raw material, trade tariffs and currency. Operating income excluding non-recurring items declined significantly for the business area North America. The busi- ness area Asia-Pacific, Middle East and Africa also reported a decline. Earnings for the business areas Europe and Latin America increased. For more information on the performance of each business area, see page 22–24. Effects of changes in exchange rates Changes in exchange rates had a negative impact of SEK –476m on operating income year-over-year. The impact of transaction effects was SEK –696m. Translation effects amounted to SEK 220m. Financial net Net financial items amounted to SEK –733m (–422). The change was mainly due to interest expense on lease liabilities following the implementation of IFRS 16 as well as a general increase in interest net. Income after financial items Income after financial items amounted to SEK 2,456m (3,754), corresponding to 2.1% (3.2) of net sales. Taxes Total taxes for 2019 amounted to SEK –636m (–900), corresponding to a tax rate of 25.9% (24.0). Income for the period and earnings per share Income for the period for continuing operations, amounted to SEK 1,820m (2,854), corresponding to SEK 6.33 (9.93) in earnings per share before dilution. Income for the period for the Group, including discontinued operations, amounted to SEK 2,509m (3,805), corresponding to SEK 8.73 (13.24) in earnings per share before dilution. NET SALES AND OPERATING MARGIN1) EARNINGS PER SHARE2) SEKM 125,000 100,000 75,000 50,000 25,000 0 Net sales Operating margin Operating margin excl. non-recurring items % 7,5 6,0 4,5 3,0 1,5 0,0 SEK 20 15 10 5 0 15 16 17 18 19 15 16 17 18 19 1) For comparable reasons the figures in the graph above excludes the business area 2) The figures for 2018 and 2019 are for continuing operations, exclusive of Professional Products. Electrolux Professional. ELECTROLUX ANNUAL REPORT 2019 Board of Directors’ report and financial statements 21 Consolidated statement of comprehensive income note 2019 2018 3, 4 5, 7 5, 7 5, 7 6, 7, 29 3, 8 9 10 26 22 11, 18 11 11 20 20 118,981 –99,182 19,799 –12,186 –5,481 115,463 –95,462 20,001 –11,344 –4,667 1,057 3,189 –733 2,456 –636 1,820 688 2,509 –103 3 –100 –10 1,030 24 1,044 944 3,452 2,509 –1 2,509 3,453 –1 3,452 6.33 2.40 8.73 6.30 2.38 8.69 287.4 288.8 185 4,176 –422 3,754 –900 2,854 951 3,805 –448 128 –319 –2 203 23 224 –95 3,710 3,805 –0 3,805 3,710 – 0 3,710 9.93 3.31 13.24 9.86 3.29 13.14 287.4 289.5 sekm Continuing operations Net sales Cost of goods sold Gross operating income Selling expenses Administrative expenses Other operating income and expenses Operating income Financial items, net Income after financial items Taxes Income for the period, continuing operations Income for the period, discontinued operations Income for the period Items that will not be reclassified to income for the period: Remeasurement of provisions for post–employment benefits Income tax relating to items that will not be reclassified Items that may be reclassified subsequently to income for the period: Cash flow hedges Exchange–rate differences on translation of foreign operations Income tax relating to items that may be reclassified Other comprehensive income, net of tax Total comprehensive income for the period Income for the period attributable to: Equity holders of the Parent Company Non–controlling interests Total Total comprehensive income for the period attributable to: Equity holders of the Parent Company Non–controlling interests Total Earnings per share For income attributable to the equity holders of the Parent Company: Basic, continuing operations, SEK Basic, discontinued operations, SEK Basic, total Group, SEK Diluted, continuing operations, SEK Diluted, discontinued operations, SEK Diluted, total Group, SEK Average number of shares Basic, million Diluted, million ELECTROLUX ANNUAL REPORT 2019 22 Board of Directors’ report and financial statements Operations by business area • Solid earnings and value market share gains in Europe. • North America negatively impacted by lower volumes and manufacturing transition cost. • Strong organic sales growth in Latin America with improved operating margin. • Asia-Pacific, Middle East and Africa impacted by lower sales and strong currency headwind. SHARE OF SALES BY BUSINESS AREA Europe, 38% North America, 33% Latin America, 16% Asia-Pacific, Middle East and Africa, 13% During the year, Electrolux revised its business area structure to create four consumer-focused regional business areas to ensure a unified approach in each market with common branded platforms and interaction with consumers. The previ- ous business area Home Care & SDA, was combined with the four major appliances business areas. The business areas are Europe, North America, Latin America and Asia-Pacific, Middle East and Africa. The Group’s operations include products for consumers comprising of major appliances, e.g. refrigerators, freezers, cookers, dryers, washing machines, dishwashers, room air-conditioners and microwave ovens. Floor-care products, water heaters, heat pumps, small domestic appliances as well as consumables, accessories and service are other important areas for Electrolux. Market overview Market demand for core appliances in Europe increased by 2% in 2019. This was driven by growth of 3% in Eastern Europe and of 1% in Western Europe. In the U.S., market demand for core appli- ances declined by 2%. Market demand in Brazil is estimated to have increased in 2019, while demand in Argentina and Chile is estimated to have declined, due to an unstable political and economic environment. Overall market demand for appliances in Australia declined due to a weaker economy, slowing prop- erty market and a weak Australian dollar. The markets in South- east Asia as well as in Middle East and Africa are estimated to have shown growth. INDUSTRY SHIPMENTS FOR CORE APPLIANCES IN THE U.S. INDUSTRY SHIPMENTS FOR CORE APPLIANCES IN EUROPE MILLION UNITS MILLION UNITS 50 46 42 38 34 30 A total of approximately 48 million core appliances were sold in the U.S. in 2019, which is on par with peak lev- els in 2005 and 2006. 100 95 90 85 80 75 A total of approximately 98 million core appliances were sold in Europe in 2019. 01 03 05 07 09 11 13 15 17 19 01 03 05 07 09 11 13 15 17 19 Source: AHAM. Source: Electrolux estimates, as from 2018, market volumes in Eastern Europe have been revised, considering additional sources. For other markets there are no comprehensive market statistics. ELECTROLUX ANNUAL REPORT 2019 Board of Directors’ report and financial statements 23 Europe Market demand in Europe increased by 2% in 2019. This was driven by growth in Eastern Europe of 3% and in Western Europe of 1%. Electrolux operations reported an organic sales growth of 1.7% in 2019 driven by improvement in brand and product mix as well as price increases. The business area gained value market share in its focus area built-in kitchen, supported by the new Electrolux branded built-in kitchen range, launched in the second half of the year. Operating income and margin improved year-over-year. Strong organic contribution from price and mix more than compen- sated for higher raw material costs, increased marketing invest- ments to support important product launches as well as higher costs related to product architecture projects. Currency contrib- uted positively. Non-recurring items of SEK –752m (–747)were included in the operating income and related to restructuring charges for efficiency measures and outsourcing projects, see Note 7. KEY FIGURES sekm Net sales Organic growth, % Acquisitions, % Operating income Operating margin, % Operating margin excl. non-recurring items, %1) Net assets Return on net assets, % Capital expenditure NET SALES AND OPERATING MARGIN 2019 2018 45,420 43,321 1.7 0.1 4.7 0.7 2,493 2,128 5.5 7.1 1,429 108.4 2,399 4.9 6.6 510 177.1 1,741 SEKM 50,000 40,000 30,000 20,000 10,000 0 Net sales Operating margin Operating margin excl. non-recurring items % 10 8 6 4 2 0 15 16 17 18 19 Average number of employees 17,943 18,325 1) For information on non-recurring items, see Note 7 and page 88. North America Market demand for core appliances in the U.S. declined by 2% in 2019. Market demand for all major appliances, including micro- wave ovens and home-comfort products, declined by 5%. Electrolux operations in North America reported an organic sales decline of 8.7% due to lower volumes. Those were primar- ily impacted by lower sales under private label and capacity constraints related to the manufacturing consolidation for refrigerators and freezers. Cost-based price increases and mix improvements contributed positively to sales. The divestment of the commercial and central vacuum cleaner business had a negative impact of 1.0% on sales. Operating income and margin declined year-over-year, mainly as a result of the lower volumes but also increased costs related to the manufacturing consolidation. Price increases more than compensated for higher costs from raw material and trade tariffs. Mix improvements and currency had a favora- ble impact. Non-recurring items of SEK –1,071m (–596) were included in operating income, mainly related to the consolida- tion of the U.S. cooking production, see Note 7. KEY FIGURES sekm Net sales Organic growth, % Divestments, % Operating income Operating margin, % Operating margin excl. non-recurring items, %1) Net assets Return on net assets, % Capital expenditure NET SALES AND OPERATING MARGIN 2019 2018 38,954 39,804 –8.7 –1.0 –516 –1.3 1.4 6,496 –8.3 2,573 –6.3 –1.0 1,104 2.8 4.3 3,802 29.3 2,099 SEKM 50,000 40,000 30,000 20,000 10,000 0 Net sales Operating margin Operating margin excl. non-recurring items % 8 6 4 2 0 -2 15 16 17 18 19 Average number of employees 11,287 13,325 1) For information on non-recurring items, see Note 7 and page 88. ELECTROLUX ANNUAL REPORT 2019 24 Board of Directors’ report and financial statements Latin America Consumer demand for core appliances in Brazil is estimated to have shown growth in 2019. In Argentina and Chile the demand is estimated to have declined, due to the unstable political and economic environment. Electrolux operations in Latin America reported an organic sales growth of 10.9% in 2019, mainly driven by Brazil but also by Argentina. Both price increases and mix improvement contrib- uted, as well as higher sales volumes in Brazil. Operating income and margin increased year-over-year. This was a result of the positive mix development, higher volumes and good execution on cost-efficiency measures. Increased prices offset higher raw material costs but could not fully compensate for significant currency headwinds. Operating income included a positive impact related to operational taxes and a reversal of provision in Brazil. Last year, operating income included a positive impact of approximately SEK 170m from a reversal of a provision related to an adminis- trative case. Non-recurring items of SEK 1,101m (0) were included in oper- ating income, mainly related to the recovery of overpaid sales tax in Brazil, see Note 7. KEY FIGURES sekm Net sales Organic growth, % Operating income Operating margin, % Operating margin excl. non-recurring items, %1) Net assets Return on net assets, % Capital expenditure Average number of employees 1) For information on non-recurring items, see Note 7 and page 88. NET SALES AND OPERATING MARGIN 2019 2018 19,653 17,963 10.9 1,821 9.3 3.7 9.3 492 2.7 2.7 7,044 6,186 27.1 956 7.7 722 10,230 10,360 SEKM 25,000 20,000 15,000 10,000 5,000 0 -5,000 Net sales Operating margin Operating margin excl. non-recurring items % 10 8 6 4 2 0 -2 15 16 17 18 19 Asia-Pacific , Middle East and Africa Overall market demand for appliances in Australia declined in 2019, mainly related to a slowing property market and a weak Australian dollar. The markets in Southeast Asia as well as in Middle East and Africa are estimated to have shown growth. Electrolux reported an organic sales decline of 1.3%, mainly related to lower volumes and, in Southeast Asia, price pressure. Mix contributed positively across product categories and in most regions, notably in Australia. Operating income and margin declined year-over-year, mainly as a result of significant currency headwinds as well as the decline in organic sales. Investments in major product launches increased, while production efficiency contributed positively. Non-recurring items of SEK –398m (0) were included in operat- ing income and related to restructuring charges for efficiency measures and outsourcing projects, see Note 7. KEY FIGURES sekm Net sales Organic growth, % Acquisitions, % Operating income Operating margin, % Operating margin excl. non-recurring items, %1) Net assets Return on net assets, % Capital expenditure Average number of employees 1) For information on non-recurring items, see Note 7 and page 88. NET SALES AND OPERATING MARGIN SEKM 15,000 12,000 9,000 6,000 3,000 0 2019 2018 14,954 14,375 –1.3 0.1 446 3.0 5.6 4.2 0.9 979 6.8 6.8 6,062 5,223 7.4 456 19.2 505 7,919 7,829 Net sales Operating margin Operating margin excl. non-recurring items % 10 8 6 4 2 0 15 16 17 18 19 ELECTROLUX ANNUAL REPORT 2019 Board of Directors’ report and financial statements 25 Discontinued operations Electrolux Professional Overall market demand for professional food and beverage and professional laundry equipment is estimated to have shown growth in 2019, although at a slower pace than the previous year. Electrolux Professional reported a slight organic decline of 0.3%. Volumes decreased in the food and beverage segment, while price development contributed positively. Acquisitions had a positive impact of 4.0% on sales and refer to the acquisi- tions of SPM Drink Systems and UNIC. Operating income and margin declined year-over-year. The decrease was mainly due to lower volumes, partly relating to preparations pertaining to the separation of Electrolux Professional, but also increased investments in marketing and innovation. Operating income included initial costs for setting up a new IT infrastructure, higher ongoing costs for operating as a stand-alone company as well as a posi- tive effect from a pension plan settlement in Sweden. In 2019, an efficiency program was launched to offset the additional higher cost as a stand-alone company. Non-recurring items of SEK –122 m (0) were included in operating income related to the efficiency program. For more information on discontinued operations, see note 26. KEY FIGURES sekm Net sales Organic growth, % Acquisitions, % Operating income Operating margin, % Operating margin excl. non-recurring items, % NET SALES AND OPERATING MARGIN 2019 9,281 –0.3 4.0 991 10.7 12.0 2018 8,666 3.5 4.7 1,134 13.1 13.1 SEKM 10,000 8,000 6,000 4,000 2,000 0 Net sales Operating margin Operating margin excl. non-recurring items % 25 20 15 10 5 0 15 16 17 18 19 ELECTROLUX ANNUAL REPORT 2019 26 Board of Directors’ report and financial statements In the balance sheet as per December 31, 2019, assets and liabilities of Electrolux Professional have been reclassified as ‘Discontinued operations, assets held for distribution’ and ‘Discontinued operations, liabilities held for distribution’ respectively. The balance sheet items for 2018 are the historical financial statements as no restatement is allowed under IFRS. To facilitate comparison, working capital and net assets items below excludes assets and liabilities of Electrolux Professional for both 2018 and 2019. Financial position • Equity/assets ratio was 23.6% (25.6). • Return on equity was 11.4% (18.2). • Return on net assets was 12.0% (20.2). • Financial net debt position amounted to SEK 667m (1,989 net cash position). Working capital and net assets Working capital as of December 31, 2019 amounted to SEK –17,390m (–17,077), corresponding to –14.8% (–14.8) of annualized net sales. Operating working capital amounted to SEK 3,149m (2,279), corresponding to 2.7% (2.0) of annualized net sales. Average net assets were SEK 26,532m (20,722), corresponding to 22.3% (17.9) of annualized net sales. Return on net assets was 12.0% (20.2). Working capital and net assets sekm Inventories Trade receivables Accounts payable Operating working capital Provisions Prepaid and accrued income and expenses Taxes and other assets and liabilities Working capital Property, plant and equipment, owned Property, plant and equipment, right-of-use Goodwill Other non-current assets Deferred tax assets and deferred tax liabilities Net assets Annualized net sales4) Average net assets Annualized net sales5) Return on net assets, % 1) Annualized, see Note 30. 2) Excluding discontinued operations. 3) Including discontinued operations. 4) Calculated at end of period exchange rates. 5) Calculated at average exchange rates. Dec. 31, 2019 % of net sales1) restated2) % of net sales1) Dec. 31, 20183) % of net sales1) Dec. 31, 2018 16,194 20,847 –33,892 3,149 –8,183 –11,748 –608 –17,390 21,803 2,811 7,071 5,820 6,057 26,172 117,519 26,532 118,981 12.0 13.8 17.7 –28.8 2.7 –14.8 22.3 22.3 15,451 19,824 –32,996 2,279 –7,083 –11,205 –1,067 –17,077 20,003 — 6,800 5,102 5,478 20,306 115,733 20,722 115,463 20.2 13.4 17.1 –28.5 2.0 –14.8 17.5 17.9 16,750 21,482 –34,443 3,789 –7,565 –11,745 –1,327 –16,848 21,088 — 8,239 5,516 5,580 23,574 124,399 23,381 124,129 22.7 13.5 17.3 –27.7 3.0 –13.5 19.0 18.8 Liquid funds Liquid funds as of December 31, 2019, amounted to SEK 11,189m (12,249), excluding back-up credit facilities. Electrolux has an unused committed back-up multi- currency revolving credit facility of EUR 1,000m, approximately SEK 10,440m, expiring 2023. Liquidity profile sekm Liquid funds % of annualized net sales1) Net liquidity Fixed interest term, days Effective annual yield, % Dec. 31, 2019 Dec. 31, 2018 11,189 18.4 7,569 12 0.8 12,249 18.1 8,187 12 1.1 1) Liquid funds in relation to net sales, see note 31 for definition. For additional information on the liquidity profile, see Note 18. RETURN ON NET ASSETS CAPITAL TURNOVER-RATE, TIMES/YEAR SEKM 30,000 22,500 15,000 7,500 0 % 40 30 20 10 0 Average net assets Return on net assets Average net assets for 2019 increased to SEK 26,532m (20,722). Return on net assets was 12.0% (20.2). TIMES 8 6 4 2 0 15 16 17 18 19 15 16 17 18 19 For comparable reasons the figures in the graphs above are exclusive of the business area Professional Products. Capital turnover-rate The capital turnover-rate decreased to 4.5 (5.6) times in 2019. ELECTROLUX ANNUAL REPORT 2019 Board of Directors’ report and financial statements 27 note December 31, 2019 December 31, 2018 12 8 13 13 29 10 18 22 14 15 17, 18 18 16 18 18 26 20 20 20 20 18 8 10 22 23 18 24 18 8 18 23 26 21,803 21,088 2,811 7,071 3,817 424 6,618 93 1,043 1,486 — 8,239 3,919 397 6,448 246 532 952 45,166 41,822 16,194 20,847 913 192 4,465 190 10,807 8,034 61,642 106,808 1,545 2,905 –1,351 19,468 22,566 8 22,574 8,236 2,333 561 4,909 5,577 21,616 33,892 883 16,821 3,354 817 293 2,606 3,951 62,617 84,233 106,808 16,750 21,482 738 139 4,507 176 11,697 — 55,490 97,312 1,545 2,905 –2,394 19,683 21,738 11 21,749 6,198 — 868 4,346 5,281 16,693 34,443 984 17,105 3,952 — 102 2,284 — 58,870 75,563 97,312 Consolidated balance sheet sekm ASSETS Non-current assets Property, plant and equipment, owned Property, plant and equipment, right-of-use Goodwill Other intangible assets Investments in associates Deferred tax assets Financial assets Pension plan assets Other non-current assets Total non-current assets Current assets Inventories Trade receivables Tax assets Derivatives Other current assets Short-term investments Cash and cash equivalents Discontinued operations, assets held for distribution Total current assets Total assets EQUITY AND LIABILITIES Equity attributable to equity holders of the Parent Company Share capital Other paid-in capital Other reserves Retained earnings Non-controlling interests Total equity Non-current liabilities Long-term borrowings Long-term lease liabilities Deferred tax liabilities Provisions for post-employment benefits Other provisions Total non-current liabilities Current liabilities Accounts payable Tax liabilities Other liabilities Short-term borrowings Short-term lease liabilities Derivatives Other provisions Discontinued operations, liabilities held for distribution Total current liabilities Total liabilities Total equity and liabilities ELECTROLUX ANNUAL REPORT 2019 28 Board of Directors’ report and financial statements Net debt items as per December 31, 2019, excludes assets and liabilities of Electrolux Professional. Net debt items as per December 31, 2018, includes assets and liabilities of Electrolux Professional. Equity as per December 31, 2019, and December 31, 2018, includes Electrolux Professional. Cont. Financial position Long-term borrowings and long-term borrowings with maturi- ties within 12 months amounted to a total of SEK 9,682m as of December 31, 2019 with average maturity of 3.0 years, com- pared to SEK 8,553m and 2.6 years at the end of 2018. During 2020, long-term borrowings amounting to approximately SEK 1.4bn will mature. The Group’s target for long-term borrowings includes an average time to maturity of at least two years, an even spread of maturities and an average interest-fixing period between 0 and 3 years. A maximum of SEK 5,000m of the long-term borrowings is allowed to mature in a 12-month period. At year- end, the average interest- fixing period for long-term borrowings was 1.5 years (1.0). At year-end, the average interest rate for the Group’s total interest-bearing borrowings was 1.6% (2.5). Rating Electrolux has an investment-grade rating from Standard & Poor’s, A- with a stable outlook. Rating Standard & Poor’s Long-term debt Outlook Short- term debt Short-term debt, Nordic A- Stable A-2 K-1 Net debt/equity and equity/assets ratio The net debt/equity ratio was 0.34 (0.08). The equity/assets ratio was 23.6% (25.6). Equity and return on equity Total equity as of December 31, 2019, amounted to SEK 22,574m (21,749), which corresponds to SEK 78.55 (75.67) per share. Return on equity was 11.4% (18.2). Net debt As of December 31, 2019, Electrolux had a financial net debt position (excluding lease liabilities and post-employment provisions) of SEK 667m, compared to the financial net cash position of SEK 1,989m as of December 31, 2018. Net provisions for post-employment benefits was SEK 3,866m (3,814). Lease liabilities amounted to SEK 3,150m as of December 31, 2019 and is an effect of the application of IFRS 16 as from January 1, 2019. In total, net debt amounted to SEK 7,683m, an increase by SEK 5,858m compared to SEK 1,825m per December 31, 2018. Net debt sekm Short-term loans Short-term part of long-term loans Trade receivables with recourse Short-term borrowings Financial derivative liabilities Accrued interest expenses and pre- paid interest income Total short-term borrowings Long-term borrowings Total borrowings2) Cash and cash equivalents Short-term investments Financial derivative assets Prepaid interest expenses and accrued interest income Dec. 31, 20191) Dec. 31, 2018 1,307 1,446 602 3,354 233 33 3,620 8,236 11,856 1,429 2,355 168 3,952 81 28 4,062 6,198 10,260 10,807 11,697 190 176 16 176 132 243 Liquid funds 11,189 12,249 Financial net debt Lease liabilities Net provisions for post-employment benefits Net debt Net debt/equity ratio Total equity Equity per share, SEK Return on equity, % Equity/assets ratio, % 667 3,150 3,866 7,683 0.34 22,574 78.55 11.4 23.6 –1,989 - 3,814 1,825 0.08 21,749 75.67 18.2 25.6 1) Electrolux Professional is currently primarily financed through intra-group loans of approximately SEK 1.2bn from Electrolux, included in net debt as per December 31, 2019 shown above. These loans will be repaid in connection with the planned listing of Electrolux Professional and replaced by external financing leading to a reduction of Electrolux financial net debt. Electrolux Professional’s liquid funds as per December 31, 2019 amounted to approximately SEK 0.6bn. 2) Whereof interest-bearing liabilities amounting to SEK 10,989m as of December 31, 2019 and SEK 9,982m as of December 31, 2018. LONG-TERM BORROWINGS, BY MATURITY NET DEBT/EQUITY RATIO1) EQUITY/ASSETS RATIO1) SEKM 3,000 2,500 2,000 1,500 1,000 500 0 In 2020, long-term borrowings in the amount of approximately SEK 1,400m will mature. For information on borrowings, see Note 2 and 18. 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 -0.1 % 50 40 30 20 10 0 20 21 22 23 24 25- 10 11 12 13 14 15 16 17 18 19 10 11 12 13 14 15 16 17 18 19 1) Both ratios were significantly affected from 2012 and onwards by the changed pension accounting from the updated IAS 19 Employee Benefits. ELECTROLUX ANNUAL REPORT 2019 Board of Directors’ report and financial statements 29 Changes in consolidated equity sekm Attributable to equity holders of the parent company Share capital Other paid-in capital Other reserves Retained earnings Total Non- controlling interests Opening balance, January 1, 2018 1,545 2,905 –2,615 18,630 20,465 Effect from change in accounting principles Adjusted opening balance Income for the period Cash flow hedges Exchange differences on translation of foreign operations Remeasurement of provisions for post-employment benefits Income tax relating to other comprehensive income Other comprehensive income, net of tax Total comprehensive income for the period Share-based payments Dividend Acquisition of non-controlling interest Total transactions with equity holders Closing balance, December 31, 2018 Effect from change in accounting principles Adjusted opening balance Income for the period Cash flow hedges Exchange differences on translation of foreign operations Remeasurement of provisions for post-employment benefits Income tax relating to other comprehensive income Other comprehensive income, net of tax Total comprehensive income for the period Share-based payments Dividend Acquisition of non-controlling interest Total transactions with equity holders Closing balance, December 31, 2019 — 1,545 — –1 2,905 –2,615 — — — — — — — — — — — — — — — — — — — — — — — –2 200 — 23 221 221 — — — — 1,545 2,905 –2,394 — 1,545 — — 2,905 –2,394 — — — — — — — — — — — — — — — — — — — — — — — –10 1,029 — 24 1,044 1,044 — — — — 1,545 2,905 –1,351 –17 18,614 3,805 — 4 –448 128 –316 3,490 –35 –18 20,448 3,805 –2 204 –448 151 –95 3,710 –35 –2,385 –2,385 — –2,421 19,683 –234 19,450 2,509 — — –103 3 –100 2,409 52 — –2,421 21,738 –234 21,504 2,509 –10 1,029 –103 27 944 3,453 52 –2,443 –2,443 — –2,391 19,468 — –2,391 22,566 For more information about share capital, number of shares and earnings per share, see Note 20. 14 0 14 0 — 0 — — 0 0 — 0 –3 –3 11 — 11 — — — — — — –1 — –1 –1 –2 8 Total equity 20,480 –18 20,463 3,805 –2 203 –448 151 –95 3,710 –35 –2,385 –3 –2,424 21,749 –234 21,515 2,509 –10 1,029 –103 27 944 3,452 52 –2,443 –1 –2,393 22,574 ELECTROLUX ANNUAL REPORT 2019 30 Board of Directors’ report and financial statements The consolidated cash flow statement for 2019 and 2018 is for the total Group and includes a split of operating income into ‘Operating income, continuing operations’ and ‘Operating income, discontinued operations’. Cash flow • Operating cash flow after investments for the Group amounted to SEK 3,433m (3,649). • Capital expenditure amounted to SEK 6,931m (5,629). • R&D expenditure amounted to 3.3% (3.1) of net sales. Operating cash flow after investments Operating cash flow after investments in 2019 for the Group amounted to SEK 3,433m (3,649). The year-over-year compar- ison reflects a higher contribution from operating cash flow, partly related to timing effects, while higher investments had a negative impact. Acquisitions of operations had a negative impact of SEK 467m. For more information on acquisitions see Note 26. Operating cash flow after investments for continuing opera- tions amounted to SEK 2,280m (2,646). For more information on cash flow related to discontinued operations, see Note 26. Capital expenditure Capital expenditure in property, plant and equipment in 2019 for the Group amounted to SEK 5,562m (4,650). Including invest- ments in product development and software, capital expendi- ture amounted to SEK 6,931m (5,629). Capital expenditures for continuing operations amounted to SEK 6,674m (5,460), corresponding to 5.6% (4.7) of net sales. The investments were mainly related to new products and architec- tures, manufacturing efficiency, automation and re-engineering. Cash flow sekm Capital expenditure by business area sekm Continuing operations 2019 2018 Europe Operating income adjusted for non-cash items1) 11,006 10,547 Change in operating assets and liabilities Operating cash flow Investments in tangible and intangible assets Changes in other investments Operating cash flow after investments Acquisitions and divestments of operations Operating cash flow after structural changes Financial items paid, net2) –357 –1,000 10,649 9,547 –6,931 –5,629 –285 –269 3,433 3,649 –467 –609 2,966 3,041 –661 –361 % of net sales North America % of net sales Latin America % of net sales Asia-Pacific, Middle East and Africa % of net sales Other Total Taxes paid –1,554 –1,140 % of net sales Cash flow from operations and investments Payment of lease liabilities Dividend Share-based payments Total cash flow, excluding changes in loans and short-term investments 751 1,540 –942 — –2,443 –2,385 9 –210 –2,624 –1,056 1) Operating income adjusted for depreciation and amortization and other non-cash items. 2) For the period January 1 — December 31, 2019. Interests and similar items received SEK 78m (116), interests and similar items paid SEK –499m (–427) and other financial items paid SEK –111m (–49). Interest paid related to lease liabilities SEK –129m (–). Discontinued operations Electrolux Professional Total Group % of net sales 2019 2018 2,399 1,741 5.3 4.0 2,573 2,099 6.6 956 4.9 456 3.0 290 5.3 722 4.0 505 3.5 393 6,674 5,460 5.6 4.7 257 169 6,931 5,629 5.2 4.5 R&D expenditure The expenditure for research and development in 2019 for con- tinuing operations, including capitalization of SEK 788m (412), amounted to SEK 3,899m (3,566) corresponding to 3.3% (3.1) of net sales. OPERATING CASH FLOW AFTER INVESTMENTS1) CAPITAL EXPENDITURE1) SEKM 10,000 8,000 6,000 4,000 2,000 0 SEKM 8,000 6,000 4,000 2,000 0 Operating cash flow after invest- ments in 2019 for continuing operations amounted to SEK 2,280m (2,646). 15 16 17 18 19 15 16 17 18 19 1)The figures for 2018 and 2019 are for continuing operations, exclusive of Electrolux Professional. Capital expenditure Depreciation and amortization Capital expenditure in 2019 for continuing operations including product development and software amounted to SEK 6,674m (5,460). ELECTROLUX ANNUAL REPORT 2019 Board of Directors’ report and financial statements 31 Consolidated cash flow statement sekm Operations Operating income from continuing operations Operating income from discontinued operations Depreciation and amortization Other non-cash items Financial items paid, net1) Taxes paid Cash flow from operations, excluding change in operating assets and liabilities Change in operating assets and liabilities Change in inventories Change in trade receivables Change in accounts payable Change in other operating assets, liabilities and provisions Cash flow from change in operating assets and liabilities Cash flow from operations Investments Acquisition of operations Divestment of operations Capital expenditure in property, plant and equipment Capital expenditure in product development Capital expenditure in software and other intangibles Other Cash flow from investments Cash flow from operations and investments Financing Change in short-term investments Change in short-term borrowings2) New long-term borrowings Amortization of long-term borrowings Payment of lease liabilities Dividend Share-based payments Cash flow from financing Total cash flow Cash and cash equivalents at beginning of period Exchange-rate differences referring to cash and cash equivalents Cash and cash equivalents at end of period2) note 2019 2018 26 26 26 12 13 13 18 18 3,189 991 5,104 1,722 –661 –1,554 8,791 –298 –561 44 459 –357 8,434 –467 — –5,562 –797 –571 –285 –7,683 751 –13 828 3,810 –2,412 –942 –2,443 9 –1,162 –411 11,697 172 11,458 4,176 1,134 4,150 1,088 –361 –1,140 9,046 –1,619 –582 2,317 –1,116 –1,000 8,046 –902 293 –4,650 –416 –563 –269 –6,506 1,540 193 951 1,736 –1,531 — –2,385 –210 –1,245 295 11,289 113 11,697 1) Interests and similar items received SEK 78m (116), interests and similar items paid SEK –499m (–427) and other financial items paid SEK –111m (–49). Interest paid related to lease liabilities SEK –129 (-). 2) Whereof net cash change in short-term loans SEK 303m (397). 3) The difference between Cash and cash equivalents at the end of period for 2019 in the Consolidated cash flow statement and Consolidated balance sheet correspond to the cash and cash equivalents of Electrolux Professional amounting to approximately SEK 0.6 bn. ELECTROLUX ANNUAL REPORT 2019 32 Board of Directors’ report and financial statements External and emerging risks Active risk management is essential for Electrolux to drive successful operations. The Group’s strategic framework in com- bination with the external environment generates opportunities but also risks which in turn impact how the company manages those risks in the daily operations. Electrolux monitors and mini- mizes key risks in a structured and proactive manner. The Group has several processes to manage risks through operational activities that are managed by the business area boards. Electrolux organizational structure and system for inter- nal control and risk management are included in the Corporate Governance report. The Group has also established internal bodies that manage risk exposures. Examples of internal bodies are: Enterprise Risk Management Board, Insider Committee, Ethics & Human Rights Steering Group, Audit Board and the Tax Board. Macroeconomic trends, political uncertainties and overall changes in industry dynamics are factors that may impact the appliance industry and the markets in which Electrolux oper- ates. To manage external risks, Electrolux puts close attention to understanding the economic and political developments in its key markets and pro-actively manages and adapts its operations. External risks include: Variations in demand In times of weak markets and decline in demand for the Group’s products, decisive actions and cost saving initiatives throughout the Group have proven that Electrolux can make timely adjust- ments to its production and cost structure. In times of strong market demand, it is essential that Electrolux can benefit from its global scale by delivering new innovative products and out- standing consumer experiences with a high speed to market. Changing industry dynamics The fast pace of change in the industry has led to new trends, such as increased consumer power, digitalization, consolida- tion and sustainability. These changes place increasing demand on investments and the ability to adapt, but also open up major opportunities. Electrolux has in recent years invested in R&D and innovation and transformed its business into a consumer- Sensitivity analysis year-end 2019, continuing operations Change +/- Pre-tax earnings impact -/+, sekm Risk Raw materials1) Carbon Steel Stainless Steel Plastics Currency2) and interest rates USD to EUR USD to BRL EUR to GBP USD to CAD CNY to USD EUR to CHF THB to AUD EUR to RUB EUR to CZK USD to AUD Translation exposure to SEK3) 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 600 200 650 380 290 260 260 210 200 130 120 110 100 370 40 Interest rate 1 percentage point 1) Changes in raw materials refer to Electrolux prices and contracts, which may differ from market prices. 2) Transactional exposure. Translation effects not included. 3) Assuming the Swedish krona appreciates/depreciates against all other currencies. oriented company with strong focus on consumer benefits. Electrolux has also set ambitious targets to strengthen its sus- tainability footprint. For more information, see Sustainability reporting 2019. Price competition Electrolux markets are experiencing price competition. This is particularly evident in the low-cost segments and in product categories with significant overcapacity. In markets with high inflation combined with currency-rate fluctuations, Electrolux has a better possibility to carry out price increases to offset potential negative effects. Regulatory changes Regulatory changes (industry, environmental, social, labor and human rights) can impact reputation and the Group’s ability to successfully conduct business. There are a number of processes in place to control these risks such as internal and supplier audit- ing, 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. Purchasing and raw material impact Materials account for a large share of Electrolux costs. Electrolux purchases raw materials and components for approximately SEK 50bn, of which approximately SEK 17bn referred to raw materials in 2019. Electrolux also sources a significant number of finished products from external sup- pliers. Fluctuations in commodity prices impact the Group’s input costs and, therefore, its profitability. In order to mitigate increased input costs related to higher raw material prices, Electrolux may have to take actions to increase cost efficiency, negotiate purchasing contracts for finished products and/ or commodities such as steel and chemicals or increase the prices of its products. The purchasing of materials and finished products also involves risks for Electrolux if suppliers encoun- ter constraints to deliver according to plan, which could be caused by many reasons, such as extreme weather conditions, pandemic situations or political disruptions. Political and macro risk Political uncertainties and weak macro-economic conditions may indirectly impact demand for appliances. This has implica- tions for Electrolux business and strategy in regions, which carry a high political and macro risk. While such risks have historically been mainly associated with certain markets in Latin America, the Middle East and Africa the development around Brexit have made it more difficult to predict the political risk also in Europe RAW MATERIALS EXPOSURE 2019 Plastics, 39% Carbon steel, 38% Stainless steel, 12% Copper and aluminum, 8% Other, 3% In 2019, Electrolux, continuing operations, purchased raw materials for approximately SEK 17bn. Purchases of steel accounted for the largest cost. ELECTROLUX ANNUAL REPORT 2019 Board of Directors’ report and financial statements 33 and other regions. Consequently, Electrolux must take proactive steps to assess the risks and manage them accordingly. Business risks surrounding rising international trade tariffs also include costlier imports, less competitive exports, fluctuat- ing foreign exchange rates, shorter contracts, cancelled orders, reduced consumer demand, and slower customs procedures. Ultimately, such risks can affect Electrolux operating margins negatively. Electrolux also looks at emerging risks. They can either develop from macro-level changes such as climate change, consumer preferences or the introduction of AI – artificial intelligence, or from risks that are closer to home (resulting from industry/sector prospects and trends etc.). Emerging risks include: Cyber Security risk The digital transformation of the global economy, and of Electrolux more specifically, leads to great opportunities. As Electrolux uses digital enablers to speed up the transfer of infor- mation, it also creates potential greater risk. Electrolux continu- ously prepares against attacks by assessing its cyber risk profile, remediate where recommended and proactively manage its defense. Climate change risk Financial stakes arising from climate change can be high, both from a risk and opportunity perspective. Electrolux is closely monitoring operational, market and financial risks emerging from climate change, like the increase of natural catastrophes, which might subsequently impact property values. Protection of factories and distribution centers may have to be adapted to face extreme weather conditions. In parallel, the need to transi- tion to a low-carbon economy implies possible tax and legal consequences which Electrolux proactively analyzes, as well as the consequences of these risks for its large suppliers. Risks, risk management and risk exposure are described in more detail in Note 1 Accounting principles, Note 2 Financial risk management and in Note 18 Financial instruments. Other facts Asbestos litigation in the U.S. Litigation and claims related to asbestos are pending against the Group in the U.S. Almost all of the cases refer to externally supplied components used in industrial products manufac- tured by discontinued operations prior to the early 1970s. The cases involve plaintiffs who have made substantially identical allegations against other defendants who are not part of the Electrolux Group. As of December 31, 2019, the Group had a total of 3,897 (3,460) cases pending, representing approximately 3,933 (approximately 3,502) plaintiffs. During 2019, 1,617 new cases with approximately 1,618 plaintiffs were filed and 1,180 pending cases with approximately 1,187 plaintiffs were resolved. The Group continues to operate under a 2007 agreement with certain insurance carriers who have agreed to reimburse the Group for a portion of its costs relating to certain asbestos lawsuits. The agreement is subject to termination upon 60 days notice and if terminated, the parties would be restored to their rights and obligations under the affected insurance policies. It is expected that additional lawsuits will be filed against Electrolux. It is not possible to predict the number of future lawsuits. In addition, the outcome of asbestos lawsuits is difficult to predict and Electrolux cannot provide any assurances that the resolution of these types of lawsuits will not have a mate- rial adverse effect on its business or on results of operations in the future. For information on certain additional legal proceedings, see Note 25 Contingent liabilities. ELECTROLUX ANNUAL REPORT 2019 34 Board of Directors’ report and financial statements Share information and ownership According to Holdings and Euroclear Sweden, there were 50,544 shareholders in AB Electrolux as of December 31, 2019. Investor AB is the largest shareholder, owning 16.4% of the share capital and 28.4% of the voting rights. Informa- tion on the shareholder structure is updated quarterly at www.electroluxgroup.com Distribution of shareholdings Shareholding 1–1,000 1,001–10,000 10,001–20,000 20,001– Total Ownership, % Number of shareholders As % of shareholders 3.1 3.4 0.7 92.8 100 45,963 4,311 151 297 50,544 90.9 8.2 0.3 0.6 100 Source: Holdings and Euroclear Sweden as of December 31, 2019. Articles of Association AB Electrolux Articles of Association stipulate that the Annual General Meeting (AGM) shall always resolve on the appoint- ment of the members of the Board of Directors. Apart from that, the articles do not include any provisions for appointing or dismissing members of the Board of Directors or for changing the articles. A shareholder participating in the AGM is entitled to vote for the full number of shares which he or she owns or represents. Outstanding shares in the company may be freely transferred, without restrictions under law or the company’s Articles of Association. Electrolux is not aware of any agreements between shareholders, which limit the right to transfer shares. The full Articles of Association can be downloaded at www.electroluxgroup.com Effect of significant changes in ownership structure on long-term financing The Group’s long-term financing is subject to conditions, which stipulate that lenders may request advance repayment in the event of significant changes in the ownership of the com- pany. Such significant change could result from a public bid to acquire Electrolux shares. Share price performance The Electrolux share is listed on the exchange Nasdaq Stockholm. The Electrolux B share increased by 23% in 2019, underperforming the broader Swedish market index, OMX Stockholm, which increased by 30% during the same period. The opening price for the Electrolux B share in 2019 was SEK 187.10. The highest closing price was SEK 266.20 on October 25 while the lowest closing price was SEK 182.70 on January 3. The clos- ing price for the B share at year-end 2019 was SEK 229.90. Total shareholder return during the year was 27%. Over the past ten years, the average total return on an investment in Electrolux B shares has been 7% annually. The corresponding performance for the OMX Stockholm Return Index was 11%. Share capital and ownership structure As of December 31, 2019, the share capital of AB Electrolux amounted to approximately SEK 1,545m, corresponding to 308,920,308 shares. The share capital of Electrolux consists of Class A shares and Class B shares. An A share entitles the holder to one vote and a B share to one-tenth of a vote. All shares enti- tle the holder to the same proportion of assets and earnings and carry equal rights in terms of dividends. In accordance with the Swedish Companies Act, the Art icles of Association of Electrolux also provide for specific rights of priority for holders of different types of shares, in the event that the company issues new shares or certain other instruments. According to Electrolux Articles of Association, owners of Class A shares have the right to have such shares converted to Class B shares. The purpose of the conversion clause is to give holders of Class A shares an opportunity to achieve improved liquidity in their shareholdings. Conversion re duces the total number of votes in the company. There were no conversion of shares in 2019. The total number of registered shares in the company amounts to 308,920,308 shares, of which 8,192,539 are Class A shares and 300,727,769 are Class B shares, and the total number of votes amounts to 38,265,316. Major shareholders Investor AB Alecta Pension Insurance Swedbank Robur Funds BlackRock, Inc. Handelsbanken Funds Nordea Funds Vanguard AMF Insurance & Funds Fiduciary Management, Inc. of Milwaukee Norges Bank Investment Management Share capital, % Voting rights, % 16.4 28.4 7.2 7.0 4.7 2.7 2.6 2.3 2.3 2.1 1.5 7.0 5.7 3.8 2.2 2.1 1.8 4.2 1.7 1.2 Total, ten largest shareholders 48.8 58.1 Source: Holdings and Euroclear Sweden as of December 31, 2019. OWNERSHIP STRUCTURE Swedish institutions and mutual funds, 61% Foreign investors, 33% Swedish private investors, 6% At year-end, about 33% of the total share capital was owned by foreign investors. Source: Holdings and Euroclear Sweden as of December 31, 2019. ELECTROLUX ANNUAL REPORT 2019 Board of Directors’ report and financial statements 35 Distribution of funds to shareholders Proposed dividend The Board of Directors proposes a dividend for 2019 of SEK 8.50 (8.50) per share, for a total dividend payment of approximately SEK 2,443m (2,443). The proposed dividend corresponds to approximately 97% (64) of income for the period. The dividend is proposed to be paid in two equal install- ments, the first with record date April 2, 2020, and the second with record date October 2, 2020. The first installment is esti- mated to be paid on April 7, 2020, and the second installment on October 7, 2020. The Group’s goal is for the dividend to correspond to at least 30% of income for the period. Historically, the Electrolux divi- dend rate has been considerably higher than 30%. Electrolux has a long tradition of a high total distribution to shareholders that includes repurchases and redemptions of shares. Proposal for a renewed mandate on acquisition of own shares Electrolux has, for several years, had a mandate from the Annual General Meetings to acquire own shares. The Board of Directors proposes the Annual General Meeting 2020 to authorize the Board of Directors, for the period until the next Annual General Meeting, to resolve on acquisitions of shares in the company and that the company may acquire as a maximum so many B shares that, following each acquisition, the company holds a maximum of 10% of all shares issued by the company. The purpose of the proposal is to be able to use repurchased shares on account of potential company acquisitions and the company’s share related incentive programs, and to be able to adapt the company’s capital structure. In December 2019, the Board of Directors proposed that an As of December 31, 2019, Electrolux held 21,522,858 B shares Extraordinary General Meeting resolves that all shares in the wholly-owned subsidiary Electrolux Professional AB is distrib- uted. An Extraordinary General Meeting will be held on February 21, 2020 at Electrolux Headquarters in Stockholm, Sweden. For more information see, page 38 and www.electroluxgroup.com Number of shares in Electrolux, corresponding to approximately 7.0% of the total number of shares in the company. Number of shares as of January 1, 2019 8,192,539 300,727,769 308,920,308 21,522,858 287,397,450 Total number of shares as of December 31, 2019 8,192,539 300,727,769 308,920,308 21,522,858 287,397,450 As % of total number of shares 7.0% A shares B shares Shares, total Shares held by Electrolux Shares held by other shareholders TOTAL DISTRIBUTION TO SHAREHOLDERS SEKM 7,500 6,000 4,500 3,000 1,500 0 07 08 09 10 11 12 13 14 15 16 17 18 19 Dividend Redemption of shares ELECTROLUX ANNUAL REPORT 2019 Electrolux has a long tradition of high total distribution to share holders that includes dividends as well as repurchases and redemptions of shares. 36 Board of Directors’ report and financial statements Employees Electrolux corporate culture Teamship is the Electrolux way of working. It’s about setting aligned goals that allow clear choices and continuous improve- ment. It’s about knowing how to collaborate. It’s about transpar- ency and a learning organization. Finally, it’s about engage- ment and passion about outstanding consumer experiences. Wherever Electrolux operates in the world, the company applies the same high ethical standards and principles of conduct. Electrolux has a global ethics program, encompassing both ethics training and a whistleblowing system – the Electrolux Ethics Helpline. Through the Ethics Helpline, employees can report suspected misconduct in local languages. Reports may be submitted anonymously if legally permitted. Code of Conduct The Group has a Code of Conduct that defines high employ- ment standards for all Electrolux employees in all countries and business areas. It incorporates issues such as child and forced labor, health and safety, workers’ rights and environmental compliance. Key policies in this context include the Workplace Policy, the Anti-Corruption Policy and the Environmental Policy. Number of employees The average number of employees for Electrolux continuing operations decreased in 2019 to 48,652 (51,253), of whom 1,341 (1,504) were in Sweden. Salaries and remuneration in 2019 amounted to SEK 16,318m (15,829), of which SEK 1,339m (1,170) refers to Sweden. Proposal for remuneration guidelines for Group Management The Board of Directors will to the Annual General Meeting 2020 propose the following guidelines for remuneration and other terms of employment for the President and CEO, other members of the Group Management of Electrolux (“Group Management”) and, if applicable, remuneration to board members for work in addition to the board assignment. The Group Management cur- rently comprises of eleven executives. The principles shall be applied to employment and con- sultancy agreements entered into after the Annual General Meeting in 2020 and to changes made to existing agreements thereafter. The guidelines shall be in force until new guidelines are adopted by the General Meeting. These guidelines do not apply to any remuneration decided or approved by the General Meeting. Remuneration for the President and CEO and, if applicable, members of the Board of Directors is resolved upon by AB Electrolux Board of Directors, based on the recommendation of the Remuneration Committee. Remuneration for other members EMPLOYEES1) EMPLOYEES 65,000 55,000 45,000 35,000 25,000 15,000 SEKM 2.5 2.0 1.5 1.0 0.5 0.0 Average number of employees Net sales per employee The average number of employees decreased to 48,652 (51,253) in 2019. 15 16 17 18 19 1) The figures for 2018 and 2019 are for continuing operations, exclusive of Electrolux Professional. of Group Management is resolved upon by the Remuneration Committee and reported to the Board of Directors. The Remu- neration Committee shall also monitor and evaluate programs for variable remuneration for the Group Management, the application of the guidelines for executive remuneration as well as the current remuneration structures and compensation levels in the Company. The Board of Directors shall, based on the recommendation from the Remuneration Committee, prepare a proposal for new guidelines at least every fourth year and sub- mit it to the Annual General Meeting. The President and CEO and other members of the Group Management do not participate in the Board of Directors’ processing of and resolutions regarding remuneration-related matters in so far as they are affected by such matters. Note 27 of the Annual Report includes a detailed description of existing remuneration arrangements for Group Management, including fixed and variable compensation, long- term incentive programs and other benefits. Electrolux has a clear strategy to deliver profitable growth and create shareholder value. A prerequisite for the successful imple- mentation of the Company’s business strategy and safeguard- ing of its long-term interests, including its sustainability, is that the Company is able to recruit and retain qualified personnel. To this end, it is necessary that the Company offers competitive remu- neration in relation to the country or region of employment of each Group Management member. These guidelines enable the Company to offer the Group Management a competitive total remuneration. More information on the Company’s strategy can be found on the Company’s website and in the most recent annual report, www.electroluxgroup.com. The remuneration terms shall emphasize ‘pay for perfor- mance’, and vary with the performance of the individual and the Group. The total remuneration for the Group Management shall be in line with market practice and may comprise of the follow- ing components: fixed compensation, variable compensation, pension benefits and other benefits. Employment contracts governed by rules other than Swed- ish may be duly adjusted for compliance with mandatory rules or established local practice, taking into account, to the extent possible, the overall purpose of these guidelines. Fixed compensation The Annual Base Salary (“ABS”) shall be competitive relative to the relevant country market and reflect the scope of the job responsibilities. Salary levels shall be reviewed periodically (usually annually) to ensure continued competitiveness and to recognize individual performance. Variable compensation Variable compensation consists of both short-term and long- term incentives. Long-term incentives consist of long-term share-related incentive programs (“LTI programs”). Such programs are resolved upon by the General Meeting and are therefore excluded from these guidelines. Each year, the Board of Directors will evaluate whether or not an LTI program shall be proposed to the General Meeting. LTI programs shall be distinctly linked to the business strategy and shall always be designed with the aim to further enhance the common interest of participating employees and Electrolux shareholders of a good long-term development for Electrolux. For more informa- tion regarding these LTI programs, including the criteria which the outcome depend on, please see the corporate governance section on the Group’s website www.electroluxgroup.com. Following the ‘pay for performance’ principle, variable com- pensation shall represent a significant portion of the total com- ELECTROLUX ANNUAL REPORT 2019 Board of Directors’ report and financial statements 37 pensation opportunity for Group Management. Variable com- pensation shall always be measured against pre-defined targets and have a maximum above which no payout shall be made. Variable compensation shall mainly relate to financial perfor- mance targets. Non-financial targets may also be used in order to strengthen the focus on delivering on the Company’s business strategy and long-term interests, including its sustainability. The targets shall be specific, clear, measurable and time bound and be determined by the Board of Directors. Short Term Incentive (STI) Members of the Group Management shall participate in an STI plan under which they may receive variable compensation. The objectives in the STI plan shall mainly be financial and the mea- surement period shall be one year. The objectives shall mainly be set based on financial performance of the Group and, for the business area heads, of the business area for which the Group Management member is responsible, such as profit, financial efficiency and sales. Financial objectives will comprise at least 80% of the weighting. Non-financial objectives may be related to sustainability, customer satisfaction, quality or company culture. To which extent the criteria for awarding variable cash remuneration has been satisfied shall be determined by the Remuneration Committee when the measurement period has ended. For financial objectives, the evaluation shall be based on the annual financial performance in accordance with the most recent interim report for the fourth quarter made public by the Company. The maximum STI entitlements shall be dependent on job position and may amount to a maximum of 100% of ABS. Reflect- ing current market conditions, the STI entitlement for Group Management members employed in the U.S. may amount to a maximum of 150% of ABS. Extraordinary arrangements Additional variable compensation may be approved in extraordinary circumstances, under the conditions that such extraordinary arrangement is made for recruitment or retention purposes, is agreed on an individual basis, does not exceed three (3) times the ABS and is earned and/or paid out in instal- ments over a minimum period of two (2) years. Such additional variable remuneration may also be paid on an individual level for extraordinary performance beyond the individual’s ordinary tasks and shall in these situations not exceed 30% of the ABS and be paid in one instalment. Right to reclaim variable remuneration Terms and conditions for variable remuneration should be designed to enable the Board, under exceptional financial cir- cumstances, to limit or cancel payments of variable remunera- tion provided that such actions are deemed reasonable (malus). The Board shall also have the possibility, under applicable law or contractual provisions and subject to the restrictions that may apply under law or contract, to in whole or in part reclaim vari- able remuneration paid on incorrect grounds (claw-back). Pension and benefits Old age and survivor’s pension, disability benefits and health- care benefits shall be designed to reflect home country prac- tices and requirements. When possible, pension plans shall be based on defined contribution. In individual cases, depending on provisions in collective agreements, tax and/or social secu- rity legislation to which the individual is subject, other schemes and mechanisms for pension benefits may be approved. Defined pension contributions shall not exceed 40% of the ABS unless the entitlement is higher under applicable collective agreements. Other benefits, such as company cars and housing, may be provided on an individual level or to the entire Group Manage- ment. Costs relating to such benefits may amount to not more than 20% of the ABS. Members of the Group Management who are expatriates, may receive additional remuneration and other benefits to the extent reasonable in light of the special circumstances associated with the expat arrangement. Such benefits shall be determined in line with the Group’s Directive on International Assignments and may for example include reloca- tion costs, housing, tuition fees, home travel, tax support and tax equalization. Notice of termination and severance pay The notice period shall be twelve months if Electrolux takes the initiative to terminate the employment and six months if the Group Management member takes the initiative to terminate the employment. In individual cases, contractual severance pay may be approved in addition to the notice periods. Contractual sever- ance pay may only be payable upon Electrolux termination of the employment arrangement or where a Group Management member gives notice as the result of an important change in the working situation, because of which he or she can no longer perform to standard. This may be the case in e.g. the event of a substantial change in ownership of Electrolux in combination with a change in reporting line and/or job scope. Contractual severance pay may for the individual include the continuation of the ABS for a period of up to twelve months fol- lowing termination of the employment agreement; no other ben- efits shall be included. These payments shall be reduced with the equivalent value of any income that the individual earns during that period of up to twelve months from other sources of income, either from employment or from other business activities. In addition to the above, compensation for any non-compete undertaking may be awarded. Such compensation shall be based on the ABS at the time of notice of termination of the employment, unless otherwise stipulated by mandatory collec- tive agreement provisions, and be awarded over the period for which the non-compete clause applies, which should not exceed twelve months after termination of the employment. The com- pensation shall be reduced by an amount corresponding to any income that the person receives from other sources of income, either from employment or from other business activities. Salary and employment conditions for employees In the preparation of the Board of Directors’ proposal for these remuneration guidelines, salary and employment conditions for employees of the Company have been taken into account by including information on the employees’ total income, the com- ponents of the remuneration and increase and growth rate over time, in the Remuneration Committee’s and the Board of Direc- tors’ basis of decision when evaluating whether the guidelines and the limitations set out herein are reasonable. Consultancy fees If a member of the Board of Directors (including through a wholly-owned subsidiary) should carry out services to Electrolux in addition to the board assignment, specific fees for this can be paid out (consultancy fees), provided that such services ELECTROLUX ANNUAL REPORT 2019 38 Board of Directors’ report and financial statements Proposal for remuneration guidelines for Group Management cont. contribute to the implementation of Electrolux business strategy and the safeguarding of Electrolux long-term interests, includ- ing its sustainability. Such consultancy fee may for each member of the Board of Directors not exceed the annual remuneration for the board assignment. The fee shall be in line with market practice. Deviations from the guidelines The Board of Directors may temporarily resolve to deviate from the guidelines, in whole or in part, if in a specific case there is special cause for the deviation and a deviation is necessary to serve the Company’s long-term interests, including its sus- tainability, or to ensure the Company’s financial viability. The Remuneration Committee’s tasks include preparing the Board of Directors’ resolutions in remuneration-related matters. This includes any resolutions to deviate from the guidelines. Deviations from the guidelines adopted by the Annual General Meeting 2019 Compensation related to extraordinary work efforts in connection with the separation and distribution of Electrolux Professional is planned to be paid out in April 2020. The com- pensation deviates from the provision in the remuneration guidelines for 2019 stating that such compensation shall be earned and/or paid out in installments over a minimum period of two (2) years. Sustainability and environmental facts Electrolux a leader in the Household Durables Industry The Group’s sustainability performance strengthens relations with investors and Electrolux is recognized as a leader in the household durables industry. In 2019, Electrolux was included in the Dow Jones Sustainability Index (DJSI) World and Europe indexes and thereby ranks among the top 10% of the world’s 2,500 largest companies for social and environmental perfor- mance. Additionally, Electrolux has received recognition from other indexes and organizations, including including SAM, OEKOM, CDP and UN Global Compact Top 100. Sustainability reporting 2019 The Group’s sustainability framework – For the Better – comprises of three areas: Better Solutions, Better Operations and Better Society. For more information on the Group’s sustainability work and progress during 2019, read Electrolux sustainability reporting section on pages 90–98. Mandatory permits and notification in Sweden and elsewhere Electrolux operates one plant in Sweden, which accounts for approximately 0.1% of the total value of the Group’s production. Manufacturing units in other countries adjust their opera- tions, apply for necessary permits and report to the authori- ties in accordance with local legislation. The Group follows a precautionary principle with reference to both acquisitions of new plants and continuous operations. No significant non- compliance with applicable environmental legislation was reported in 2019. Electrolux products are affected by legislation in various markets, principally involving energy consumption, producer responsibility for recycling, and the restriction and manage- ment of hazardous substances. Electrolux continuously moni- tors changes in legislation, and both product development and manufacturing are adjusted to reflect these changes. Events after year-end 2020 January 20. Notice convening the EGM of AB Electrolux An Extraordinary General Meeting will be held on Friday, February 21, 2020 at AB Electrolux Headquarters, S:t Göransgatan 143, Stockholm, Sweden. The Board of Directors proposes that the Extraordinary General Meeting resolves that all shares in the wholly-owned subsidiary Electrolux Professional be distributed, whereby one (1) share of series A in Electrolux entitles to one (1) share of series A in Electrolux Professional and one (1) share of series B in Electrolux entitles to one (1) share of series B in Electrolux Professional. The Board of Directors further proposes that the Extraordinary General Meeting authorizes the Board of Directors to determine the record date for the right to receive shares in Electrolux Professional. Listing of the shares in Electrolux Professional is planned to take place on March 23, 2020, and the record date is expected to occur in close relation to the listing. February 7. New board members of AB Electrolux proposed In preparation for the Electrolux Annual General Meeting on March 31, 2020, the Electrolux Nomination Committee proposed the elec- tion of Henrik Henriksson and Karin Overbeck as new members of the Board of Directors of AB Electrolux. Henrik Henriksson is President and CEO of Scania AB and Board Member of Scania AB and Hexagon AB. Karin Overbeck is CEO of Freudenberg Home and Cleaning Solutions GmbH. The committee also proposes re-election of Staffan Bohman (chairman), Petra Hedengran, Ulla Litzén, Fredrik Persson, David Porter, Jonas Samuelson and Kai Wärn as Board Members. Hasse Johansson and Ulrika Saxon have declined re-election. For more information, visit www.electroluxgroup.com ELECTROLUX ANNUAL REPORT 2019 Board of Directors’ report and financial statements 39 Parent Company income statement Income statement sekm Net sales Cost of goods sold Gross operating income Selling expenses Administrative expenses Other operating income Other operating expenses Operating income Financial income Financial expenses Financial items, net Income after financial items Appropriations Income before taxes Taxes Income for the period Total comprehensive income for the period sekm Income for the period Other comprehensive income Exchange rate differences Cash flow hedges Income tax relating to other comprehensive income Other comprehensive income, net of tax Total comprehensive income for the period note 6 6 9 9 21 10 2019 40,594 –35,020 5,574 –3,314 –2,276 0 –487 –503 5,424 –888 4,536 4,033 –682 3,351 6 3,357 2019 3,357 11 0 0 11 2018 38,911 –33,560 5,351 –3,247 –1,410 0 –804 –110 7,967 –695 7,272 7,162 –1,743 5,419 69 5,488 2018 5,488 57 –5 0 52 3,368 5,540 The Parent Company comprises of the functions of the Group’s head office, as well as five companies operating on a commis- sion basis for AB Electrolux. Net sales for the Parent Company, AB Electrolux, during 2019 amounted to SEK 40,594m (38,911) of which SEK 33,113m (31,806) referred to sales to Group companies and SEK 7,481m (7,105) to external customers. Income after financial items was SEK 4,033m (7,162), including dividends from subsidiar- ies amounting to SEK 4,396m (7,179). Income for the period amounted to SEK 3,357m (5,488). Income tax related to group contributions is reported in the income statement. Income tax related to cash flow hedges is reported in other comprehensive income. Capital expenditures in tangible and intangible assets amounted to SEK 658m (594). Liquid funds at the end of the period amounted to SEK 6,084m, as against SEK 7,244m at the start of the year. Undistributed earnings in the Parent Company at the end of the period amounted to SEK 22,894m, compared with SEK 22,078m at the start of the year. Dividend payments to shareholders for 2018 amounted to SEK 2,443m. For information on the number of employees, salaries and remuneration, see Note 27. For information on shareholdings and participations, see Note 29. ELECTROLUX ANNUAL REPORT 2019 40 Board of Directors’ report and financial statements Parent Company balance sheet sekm ASSETS Non–current assets Intangible assets Property, plant and equipment Deferred tax assets Financial assets Total non–current assets Current assets Inventories Receivables from subsidiaries Trade receivables Derivatives with subsidiaries Derivatives Other receivables Prepaid expenses and accrued income Short-term investments Cash and bank Total current assets Total assets EQUITY AND LIABILITIES Equity Restricted equity Share capital Statutory reserve Development reserve Non–restricted equity Retained earnings Income for the period Total equity Untaxed reserves Provisions Provisions for pensions and similar commitments Other provisions Total provisions Non–current liabilities Payable to subsidiaries Bond loans Other non–current loans Total non–current liabilities Current liabilities Payable to subsidiaries Accounts payable Other liabilities Short–term borrowings Derivatives with subsidiaries Derivatives Accrued expenses and prepaid income Total current liabilities Total liabilities and provisions Total liabilities, provisions and equity note December 31, 2019 December 31, 2018 13 12 14 15 20 21 22 23 24 1,772 141 579 39,268 41,760 3,038 22,546 552 54 180 310 336 0 6,084 33,100 74,860 1,545 3,017 1,035 5,597 19,537 3,357 22,894 28,491 430 437 1,024 1,461 69 5,803 2,328 8,200 31,005 1,842 453 1,461 27 242 1,248 36,278 45,939 74,860 1,714 144 453 35,943 38,254 2,813 21,110 1,172 43 127 256 392 — 7,244 33,157 71,411 1,545 3,017 875 5,437 16,590 5,488 22,078 27,515 442 442 691 1,133 68 3,011 2,656 5,735 30,519 1,720 416 2,334 45 73 1,479 36,586 43,454 71,411 ELECTROLUX ANNUAL REPORT 2019 Board of Directors’ report and financial statements 41 Parent Company change in equity Restricted equity Non-restricted equity Statutory reserve Development reserve Fair value reserve Retained earnings Total equity Share capital 1,545 — 1,545 — — — — — — — — — — 3,017 — 3,017 — — — — — — — — — — 1,545 3,017 — — — — — — — — — — — — — — — — — — — — 506 — 506 — — — — — — — 369 — 369 875 — — — — — — — 160 — 160 1,545 3,017 1,035 45 –37 8 — 57 –5 0 52 52 — — — — 60 — 11 0 0 11 11 — — — — 71 19,319 24,432 — 19,319 5,488 –37 24,395 5,488 — — — — 5,488 –35 –369 –2,385 –2,789 22,018 3,357 — — — — 3,357 51 –160 –2,443 –2,552 22,823 57 –5 0 52 5,540 –35 0 –2,385 –2,420 27,515 3,357 11 0 0 11 3,368 51 0 –2,443 –2,392 28,491 sekm Opening balance, January 1, 2018 Effect of change in accounting principles Adjusted opening balance Income for the period Exchange rate differences Cash flow hedges Income tax relating to other comprehensive income Other comprehensive income, net of tax Total comprehensive income for the period Share-based payment Development reserve Dividend Total transactions with equity holders Closing balance, December 31, 2018 Income for the period Exchange rate differences Cash flow hedges Income tax relating to other comprehensive income Other comprehensive income, net of tax Total comprehensive income for the period Share-based payment Development reserve Dividend Total transactions with equity holders Closing balance, December 31, 2019 ELECTROLUX ANNUAL REPORT 2019 42 Board of Directors’ report and financial statements Parent Company cash flow statement sekm Operations Income after financial items Depreciation and amortization Capital gain/loss included in operating income Share-based compensation Group contributions Taxes paid Cash flow from operations, excluding change in operating assets and liabilities Change in operating assets and liabilities Change in inventories Change in trade receivables Change in current intra-group balances Change in other current assets Change in other current liabilities and provisions Cash flow from operating assets and liabilities Cash flow from operations Investments Change in shares and participations Capital expenditure in intangible assets Capital expenditure in property, plant and equipment Other Cash flow from investments Total cash flow from operations and investments Financing Change in short-term investments Change in short-term borrowings Change in intra-group borrowings New long-term borrowings Amortization of long-term borrowings Dividend Cash flow from financing Total cash flow Cash and cash equivalents at beginning of period Exchange-rate differences referring to cash and cash equivalents Cash and cash equivalents at end of period 2019 2018 4,033 302 739 51 –694 –121 4,310 –225 620 –1,261 –51 425 –492 3,818 –5,730 –618 –40 1,969 –4,419 –601 0 34 283 3,767 –2,211 –2,443 –570 –1,171 7,244 11 6,084 7,162 412 332 –35 –1,746 –92 6,033 –173 –93 –2,358 –109 –236 –2,969 3,064 –2,726 –549 –45 89 –3,231 –167 0 231 3,282 1,661 –1,501 –2,385 1,288 1,121 6,066 57 7,244 ELECTROLUX ANNUAL REPORT 2019 Notes 44 Notes All amounts in SEKm unless otherwise stated Notes Contents Note 1 Accounting principles Note 2 Financial risk management Note 3 Segment information Note 4 Revenue recognition Note 5 Operating expenses Note 6 Other operating income and expenses Note 7 Material profit or loss items in operating income Note 8 Leasing Note 9 Financial income and financial expenses Note 10 Taxes Note 11 Other comprehensive income Note 12 Property, plant and equipment Note 13 Goodwill and other intangible assets Note 14 Other non-current assets Note 15 Inventories Note 16 Other current assets Note 17 Trade receivables 45 48 50 51 53 53 53 54 55 55 56 57 58 60 60 60 60 Note 18 Financial instruments Note 19 Assets pledged for liabilities to credit institutions Note 20 Share capital, number of shares and earnings per share Note 21 Untaxed reserves, Parent Company Note 22 Post-employment benefits Note 23 Other provisions Note 24 Other liabilities Note 25 Contingent assets and liabilities Note 26 Acquired, divested and discontinued operations Note 27 Employees and remuneration Note 28 Fees to auditors Note 29 Shares and participations Note 30 Transactions with related parties Note 31 Definitions Note 32 Proposed distribution of earnings Auditor's report 61 65 66 66 67 71 71 72 73 75 78 78 79 80 81 82 AB Electrolux (publ), 556009-4178 ELECTROLUX ANNUAL REPORT 2019 Notes 45 All amounts in SEKm unless otherwise stated Note 1 Accounting principles This section describes the comprehensive basis of preparation which has been applied in preparing the financial statements. Accounting principles for specific accounting areas and individual line items are described in the related notes. For additional information on accounting principles, please contact Electrolux Investor Relations. The following apply to acquisitions and divestments: • Companies acquired are included in the consolidated income statement as of the date when Electrolux gains control. • Companies divested are included in the consolidated income statement up to and including the date when Electrolux loses control. Basis of preparation The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU). The consolidated financial statements have been prepared under the historical cost convention, except for financial instru- ments at fair value (including derivative financial instruments). Some addi- tional information is disclosed based on the standard RFR 1 issued by the Swedish Financial Reporting Board and the Swedish Annual Accounts Act. As required by IAS 1, Electrolux companies apply uniform accounting rules, irrespective of national legislation, as defined in the Electrolux Accounting Manual which is fully compliant with IFRS. The policies set out below have been consistently applied to all years presented with the exception of new accounting standards where the application follows the rules in each par- ticular standard. For information on new standards, see the section on new or amended accounting standards below. The effects from applying IFRS 5 Non-current Assets Held for Sale and Discontinued Operations for the accounting of the Electrolux Professional operations are described in Note 26. Enumerated amounts presented in tables and statements may not always agree with the calculated sum of the related line items due to round- ing differences. The aim is for each line item to agree with its source and therefore there may be rounding differences affecting the total when add- ing up the presented line items. The Parent Company applies the same accounting principles as the Group, except in the cases specified in the section entitled ‘Parent Company accounting principles’. The financial statements were authorized for issue by the Board of Direc- tors on February 13, 2020. The balance sheets and income statements are subject to approval by the Annual General Meeting of shareholders on March 31, 2020. Principles applied for consolidation The consolidated financial statements have been prepared by use of the acquisition method of accounting, whereby the assets and liabilities and contingent liabilities assumed in a subsidiary on the date of acquisition are recognized and measured to determine the acquisition value to the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrange- ment. Costs directly attributable to the acquisition effort are expensed as incurred. On an acquisition-by-acquisition basis, the Group recognizes any non- controlling interest in the acquiree either at fair value or at the non- controlling interest’s proportionate share of the acquiree’s net assets. The excess of the consideration transferred, the amount of any non- controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the fair value of the acquired net assets exceeds the cost of the business combination, the identification and measurement of the acquired assets must be reassessed. Any excess remaining after that reassessment represents a ‘bargain purchase’ and is recognized immediately in the statement of comprehensive income. The consolidated financial statements for the Group include the financial statements of the Parent Company and its directly and indirectly owned subsidiaries after: • elimination of intra-group transactions, balances and unrealized intra- group profits, and • carrying values, depreciation and amortization of acquired surplus values. Definition of Group companies The consolidated financial statements include AB Electrolux and all compa- nies over which the Parent Company has control, i.e., the power to direct the activities; exposure to variable return and the ability to use its power. When the Group ceases to have control or significant influence, any retained inter- est in the entity is remeasured at its fair value, with the change in carrying amount recognized in profit or loss. At year-end 2019, the Group consisted of 187 (164) companies with 264 (246) operating units. ELECTROLUX ANNUAL REPORT 2019 Associated companies Associates are all companies over which the Group has significant influ- ence but not control, generally accompanying a shareholding of between 20 and 50% of the voting rights. Investments in associated companies are accounted for in accordance with the equity method. Foreign currency translation Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of each transaction. Monetary assets and liabilities denominated in foreign currencies are valued at year-end exchange rates and any exchange-rate differences are included in income for the period, except when deferred in other compre- hensive income for the effective part of qualifying net investment hedges. The consolidated financial statements are presented in Swedish krona (SEK), which is the Parent Company’s functional currency and the Group’s presentation currency according to IAS 21. The balance sheets of foreign subsidiaries are translated into SEK at year-end closing rates. The income statements are translated at the aver- age rates for the year. Translation differences thus arising are included in other comprehensive income. Exchange rates SEK Exchange rate ARS AUD BRL CAD CHF CLP CNY EUR GBP HUF MXN RUB THB USD 2019 2018 Average 0.2010 6.57 2.40 7.10 9.50 End of period 0.1558 6.53 2.31 7.14 9.60 Average 0.3087 6.50 2.39 6.71 8.91 End of period 0.2373 6.34 2.32 6.59 9.15 0.0133 0.0125 0.0136 0.0129 1.37 10.56 12.03 0.0324 0.4878 0.1455 0.3039 9.43 1.34 10.44 12.25 0.0315 0.4951 0.1507 0.3119 9.33 1.31 10.26 11.57 0.0321 0.4517 0.1392 0.2691 8.70 1.30 10.28 11.38 0.0320 0.4556 0.1292 0.2754 8.97 New or amended accounting standards applied in 2019 The following new, amended or improved accounting standards were applicable from January 1, 2019: IFRS 9 Financial Instruments; IFRS 16 Leases; IAS 19 Employee Benefits; IAS 28 Investments in Associates and Joint Ventures; and Annual Improvements 2015–2017. In addition, the Group has early adopted the amendments to IFRS 9, IAS 39 and IFRS 7 under the Interest Rate Benchmark Reform, endorsed by the EU on January 15, 2020. The general effects from the application of IFRS 16 are described in sec- tion ‘New or amended accounting standards to be applied after 2018’ on pages 45–46 in the Annual Report 2018. A summary of the opening bal- ance adjustment to the balance sheet is presented in the table below and a reconciliation between IAS 17 operating lease commitments and IFRS 16 lease liabilities is presented on the next page. The other new, amended or improved standards mentioned above did not have any material impact on Electrolux financial statements. Assets Equity and Liabilities Right-of-use assets 3,172 Lease liabilities Deferred tax assets Prepaid lease fees 90 –34 Retained earnings Accrued lease fees Total 3,228 Total 3,465 –234 –4 3,228 46 Notes All amounts in SEKm unless otherwise stated Cont. Note 1 Reconciliation of IAS 17 operating lease commitments and IFRS 16 lease liabilities Operating lease commitments disclosed per 31 Dec. 2018 Short-term leases recognized on a straight-line basis as expense Low-value leases recognized on a straight-line basis as expense Effect from the application of the short-term practical expedi- ent at transition to IFRS 16 Adjustments as a result of a different treatment of extension and termination options Commitments for standard lease agreements Discounted using the group’s incremental borrowing rate of 3.8% Finance lease liabilities recognized per 31 Dec. 2018 Other Lease liability recognized as at January 1, 2019 2019 4,995 –47 –181 –513 –417 3,837 –384 6 6 3,465 New interpretations of accounting standards Interpretation 23 Uncertainty over Income Tax Treatments, issued by the International Financial Reporting Interpretation Committee (IFRIC), was applicable from January 1, 2019 and has had no material impact on the financial statements of Electrolux. New or amended accounting standards to be applied after 2019 The following new, amended or improved accounting standards have been published but are not mandatory for 2019 and have not been early adopted by Electrolux: IFRS 3 Business Combinations; IFRS 17 Insurance Contracts; IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current ; amendments to IAS 1 and IAS 8: Defi- nition of material (endorsed by the EU on November 29, 2019). These new, amended or improved standards have not yet been endorsed by the EU unless specifically stated above and they are not expected to have any material impact on Electrolux financial statements. New interpretations of accounting standards No new interpretations, with effective date after 2019, have been issued by The International Financial Reporting Interpretation Committee (IFRIC). Critical accounting policies and key sources of estimation uncertainty Use of estimates Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare the financial statements in conformity with IFRS. Actual results may differ from these estimates under different assumptions or conditions. Below, Electrolux has summarized the accounting policies that require more subjective judgement by management in making assumptions or estimates regarding the effects of matters that are inherently uncertain. Asset impairment and useful lives Non-current assets, including goodwill, are evaluated for impairment yearly or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impaired asset is written down to its recoverable amount based on the best information available. Different methods have been used for this evaluation, depending on the availability of information. When available, market value has been used and impairment charges have been recorded when the information indicated that the carrying amount of an asset was not recoverable. In the majority of cases, however, market value has not been available, and the fair value has been estimated by using the discounted cash flow method based on expected future results. Differences in the estimation of expected future results and the discount rates used could have resulted in different asset valuations. The yearly impairment testing of goodwill and other intangible assets with indefinite useful lives, including sensitivity analyses performed, has not indicated any impairment. See Note 13 for more information. Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. Useful lives for property, plant and equip- ment are estimated between 10 and 40 years for buildings and between 0 and 15 years for land and land improvements and between 3 and 15 years for machinery, technical installations and other equipment. Management regularly reassesses the useful lives of all significant assets. The carrying amount of property, plant and equipment at year-end 2019 amounted to SEK 21,803m. The carrying amount for goodwill at year-end 2019 amounted to SEK 7,071m. Leases Accounting for leases require the use of judgement from different aspects of which determining the discount rate and determining the lease term have been assessed as the most critical ones. Discount rates used are centrally established as the Group’s calculated incremental borrowing rate for each entity determined by country, currency and contract duration (>12–36 months, >37–72 months and >72 months). The model for determining incremental borrowing rate is revised at least annually or when objective evidence indicates a need for revision in order to maintain the validity of the model. The lease term is determined based on the information avail- able in the lease agreement and other relevant facts and circumstances as per management’s judgement. The lease term includes extension or termination options should such options meet the threshold for reasonably certain. There may not be specific clauses on e.g. termination, cancella- tion or renewal of a lease. In such cases, assessments are made based on the information available in the contract together with management’s judgement of any relevant circumstances. As per December 31, 2019, the carrying amount of right-of-use assets was SEK 2,811m and total lease liabilities amounted to SEK 3,150m. Of the carrying amount of right-of-use assets, SEK 2,289m is related to lease contracts for buildings, where many of the contracts have different types of extension and termination options. Changes in determination whether any such option is reasonably certain to exercise or not may have significant effect on the reported amounts on right-of-use assets and lease liabilities recognized under IFRS 16. Deferred taxes In the preparation of the financial statements, Electrolux estimates the income taxes in each of the tax jurisdictions in which the Group operates as well as any deferred taxes based on temporary differences. Deferred tax assets relating mainly to tax loss carry-forwards, energy-tax credits and temporary differences are recognized in those cases when future taxable income is expected to permit the recovery of those tax assets. Changes in assumptions in the projection of future taxable income as well as changes in tax rates could result in significant differences in the valuation of deferred taxes. As of December 31, 2019, Electrolux had a net amount of SEK 6,057m recognized as deferred tax assets in excess of deferred tax liabilities. As of December 31, 2019, the Group had tax loss carry-forwards and other deductible temporary differences of SEK 4,971m, which have not been included in the computation of deferred tax assets. Current taxes Electrolux provisions for uncertain outcome of tax audits and tax litigations are based on management’s best estimates and recorded in the balance sheet. These estimates might differ from the actual outcome and the timing of the potential effect on Electrolux cash flow is normally not possible to predict. In recent years, tax authorities have been focusing on transfer pricing. Transfer-pricing matters are normally very complex, include high amounts and it might take several years to reach a conclusion. Trade receivables and calculation of loss allowance Receivables are reported net of provision for expected credit losses. The net value reflects the amounts that are expected to be collected, based on circumstances known at the balance sheet date. Changes in circumstances such as higher than expected defaults or changes in the financial situation of a significant customer could lead to significantly different valuations. When measuring expected credit loss the Group uses reasonable and supportable forward looking information, which is based on assumptions regarding the future movement of different economic drivers and how these drivers will affect each other. If the expected credit loss rates on trade receivables between 16 and 60 days past due had been 10% higher/lower as of December 2019, the loss allowance on trade receivables would have increased/decreased SEK 0.9m (0.7). If the expected credit loss rates on trade receivables between 61 and 180 days past due had been 10% higher/lower as of December 2019, the loss allowance on trade receivables would have increased/decreased SEK 3.9m (4.6). At year-end 2019, trade receivables, net of provisions for expected credit losses, amounted to SEK 20,847m. The total provision for expected credit losses at year-end 2019 was SEK –882m. ELECTROLUX ANNUAL REPORT 2019 Cont. Note 1 Post-employment benefits Electrolux sponsors a number of defined contribution and defined ben- efit pension plans for its employees. The pension calculations, referring to defined benefit plans, are based on actuarial assumptions regarding, e.g., mortality rates, future salary and pension increases. The calculation of the pension obligation also depends on the discount rate. Changes in assump- tions directly affect the defined benefit obligation, service cost, interest income and expense. The discount rate used for the calculation of expenses during 2019 was 2.63% in average, which was the same rate used to esti- mate liabilities at the end of 2018. Sensitivities for the main assumptions are presented in Note 22. Restructuring Restructuring charges include required write-downs of assets and other non-cash items, as well as estimated costs for personnel reductions and other direct costs related to the termination of the activity. The charges are calculated based on detailed plans for activities that are expected to improve the Group’s cost structure and productivity. In general, the out- come of similar historical events in previous plans are used as a guideline to minimize these uncertainties. The total provision for restructuring at year- end 2019 was SEK 1,729m. Warranties As is customary in the industry in which Electrolux operates, many of the products sold are covered by an original warranty, which is included in the price and which extends for a predetermined period of time. Provisions for this original warranty are estimated based on historical data regarding service rates, cost of repairs, etc. As of December 31, 2019, Electrolux had a provision for warranty commitments amounting to SEK 2,086m. Disputes Electrolux is involved in disputes in the ordinary course of business. The disputes concern, among other things, product liability, alleged defects in delivery of goods and services, patent rights and other rights and other issues on rights and obligations in connection with Electrolux operations. Such disputes may prove costly and time consuming and may disrupt normal operations. In addition, the outcome of complicated disputes is difficult to foresee. It cannot be ruled out that a disadvantageous outcome of a dispute may prove to have a material adverse effect on the Group’s earnings and financial position. Parent Company accounting principles The Parent Company has prepared its Annual Report in compliance with Swedish Annual Accounts Act (1995:1554) and recommendation RFR 2, Accounting for Legal Entities of the Swedish Financial Reporting Board. RFR 2 prescribes that the Parent Company in the Annual Report of a legal entity shall apply all International Financial Reporting Standards and inter- pretations approved by the EU as far as this is possible within the framework of the Annual Accounts Act, taking into account the connection between accounting and taxation. The recommendation states which exceptions from IFRS and additions shall be made. Shares in subsidiaries Holdings in subsidiaries are recognized in the Parent Company financial statements according to the cost method of accounting. The value of sub- sidiaries are tested for impairment when there is an indication of a decline in the value. Notes 47 All amounts in SEKm unless otherwise stated Accounts Act. One of the companies operating on a commission basis for AB Electrolux changed its functional currency to euro as from January 1, 2015. Translating differences thus arise as from 2015. The balance sheet of the commissioner company has been translated into SEK at year-end rate. The income statement has been translated at the average rate for the year. Translation differences thus arising have been included in Other compre- hensive income. Anticipated dividends Dividends from subsidiaries are recognized in the income statement after decision by the annual general meeting in the respective subsidiary. Anti- cipated dividends from subsidiaries are recognized in cases where the Parent Company has exclusive rights to decide on the size of the dividend and the Parent Company has made a decision on the size of the dividend before the Parent Company has published its financial reports. Taxes The Parent Company’s financial statements recognize untaxed reserves including deferred tax. The consolidated financial statements, however, reclassify untaxed reserves to deferred tax liability and equity. Tax on group contribution is reported in the income statement. Group contributions Group contributions provided or received by the Parent Company are recognized as appropriations in the income statement. Shareholder con- tributions provided by the Parent Company are recognized in shares and participations which are subject to impairment tests as indicated above. Pensions The Parent Company reports pensions in the financial statements in accor- dance with RFR 2. According to RFR 2, IAS 19 shall be adopted regarding supplementary disclosures when applicable. Intangible assets The Parent Company amortizes trademarks in accordance with RFR 2. The Electrolux trademark in North America is amortized over 40 years using the straight-line method. All other trademarks are amortized over their useful lives, estimated to 10 years, using the straight-line method. Development reserve The Parent Company’s financial statement recognize a development reserve in compliance with Swedish Annual Accounts Act. An amount equal to the period’s total expenditure of own developed intangible assets has been transferred from unrestricted equity to the development reserve within restricted equity. Appropriations and untaxed reserves The Parent Company reports additional fiscal depreciation, required by Swedish tax law, as appropriations in the income statement. In the balance sheet, these are included in untaxed reserves. Leases All lease agreements where the Parent Company is a lessee are reported as operating leases, regardless of whether the agreements are finance or operating leases. The leasing fee is recognized as an expense on a straight- line basis over the lease period. Foreign currency translations The Annual Report is presented in Swedish krona (SEK), which is the Parent Company’s accounting currency according to the Swedish Annual Financial statements presentation The Parent Company presents the income statement and the balance sheet in compliance with the Swedish Annual Accounts Act (1995:1554) and recommendation RFR 2. ELECTROLUX ANNUAL REPORT 2019 48 Notes All amounts in SEKm unless otherwise stated Note 2 Financial risk management Financial risk management The Group is exposed to a number of risks from liquid funds, trade receiv- ables, customer-financing receivables, payables, borrowings, commodities and foreign exchange. The risks include: • Interest-rate risk on liquid funds and borrowings • Financing risk in relation to the Group’s capital requirements • Foreign-exchange risk on commercial flows and net investments in foreign subsidiaries • Commodity-price risk affecting the expenditure on raw materials and components; and • Credit risk relating to financial and commercial activities Risks described and quantified in this note are for total Group, including Electrolux Professional, unless otherwise stated. The Board of Directors of Electrolux has established several policies for the Group (hereinafter all policies are referred to as the Financial Policy) to monitor and manage the financial risks relating to the operations of the Group. Group Treasury in Stockholm, supported by three regional treasury centers located in Asia, North America, and Latin America, provide services to the business, co-ordinate access to financial markets, monitor and manage the financial risks through internal risk reports, which analyze exposures by degree and magnitude of the risk. The Group seeks to minimize the effects of these risks by using derivatives to hedge these risks exposures. The Group’s Financial Policy governs the use of financial derivatives, which provide principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non- derivative financial instruments, and the investment of excess liquidity. The internal auditors review on a continuous basis compliance with policies and exposure limits. Interest-rate risk on liquid funds and borrowings 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. Liquid funds Liquid funds as defined by the Group consist of cash and cash equiva- lents, short-term investments, financial derivative assets, prepaid interest expenses and accrued interest income. Electrolux target is that the level of liquid funds including unutilized committed credit facilities shall correspond to at least 2.5% of annualized net sales. In addition, net liquid funds defined as liquid funds less short-term borrowings shall exceed zero, taking into account fluctuations arising from acquisitions, divestments, and seasonal variations. The main criteria for the investments are that the instruments are highly liquid and have creditworthy issuers. See Credit risk in financial activities on page 49. Interest-rate risk in liquid funds All liquidity is invested in interest bearing instruments, normally with maturities between 0 and 3 months. A downward shift in the yield curves of one percentage point would reduce the Group’s interest income by approximately SEK 113m (115). For more information, see Note 18. Borrowings The debt financing of the Group is managed by Group Treasury in order to ensure efficiency and risk control. Debt is primarily raised at parent company level and transferred to subsidiaries through internal loans or capital injections. In this process, swap instruments are used to convert the funds to the required currency. Short-term financing is also undertaken locally in subsidiaries where there are capital restrictions. The Group’s borrowings contain no financial covenants that can trigger premature cancellation of the loans. For more information, see Note 18. Interest-rate risk in borrowings Group Treasury manages the long-term loan portfolio to keep the average interest-fixing period between 0 and 3 years. Derivatives, such as interest- rate swap agreements, are used to manage the interest-rate risk by chang- ing the interest from fixed to floating or vice versa. For those derivatives Electrolux practice hedge accounting, which have affected Other compre- hensive income by SEK –0m (–5) during 2019. On the basis of 2019 long-term interest-bearing borrowings with an average interest fixing period of 1.5 years (1.0), a one percentage point shift in interest rates would impact the Group’s interest expenses by approximately SEK +/–69m (61). This calcula- tion is based on a parallel shift of all yield curves simultaneously by one percentage point, excluding immaterial revaluation effects. Electrolux acknowledges that the calculation is an approximation and does not take into consideration the fact that the interest rates on different maturities and different currencies might change differently. Capital structure and credit rating The Group defines its capital as equity stated in the balance sheet includ- ing non-controlling interests. On December 31, 2019, the Group’s capital amounted to SEK 22,574m (21,749). The Group’s objective is to have a capital structure resulting in an efficient weighted cost of capital and suf- ficient credit worthiness where operating needs and the needs for potential acquisitions are considered. To achieve and keep an efficient capital structure, the Financial Policy states that the Group’s long-term ambition is to maintain a long-term rat- ing within a safe margin from a non-investment grade. In December 2019, Standard & Poor’s confirmed Electrolux A- rating with stable outlook. The A-2 short-term corporate credit rating and the short-term Nordic regional scale rating of K-1 were also affirmed. Rating Long-term debt Outlook Short- term debt Short-term debt, Nordic Standard & Poor’s A- Stable A-2 K-1 When monitoring the capital structure, the Group uses different figures, which are consistent with methodologies used by rating agencies and banks. The Group manages the capital structure and makes adjustments to it in light of changes in economic conditions. In order to maintain or adjust the capital structure, the Electrolux Board of Directors may propose to adjust the amount of dividends paid to shareholders, return capital to shareholders, buy back own shares or issue new shares, or sell assets to reduce debt. Financing risk Financing risk refers to the risk that financing of the Group’s capital require- ments and refinancing of existing borrowings could become more difficult or more costly. This risk can be decreased by ensuring that maturity dates are evenly distributed over time, and that total short-term borrowings do not exceed liquidity levels. The financial net debt, total borrowings less liquid funds, excluding seasonal variances, shall be long-term according to the Financial Policy. The Group’s goals for long-term borrowings include an average time to maturity of at least 2 years, and an even spread of maturi- ties. A maximum of SEK 5,000m of the long-term borrowings is allowed to mature in a 12-month period. For more information, see Note 18. Foreign exchange risk Foreign exchange risk refers to the adverse effects of changes in foreign exchange-rates on the Group’s income and equity. In order to manage such effects, the Group covers these risks within the framework of the Financial Policy. The Group’s overall currency exposure is managed centrally. Transaction exposure from commercial flows The Financial Policy stipulates to what extent commercial flows are to be hedged. Hedging with currency derivatives in most cases only are applied on invoiced flows. This means that currency exposures from forecasted flows should normally be managed by natural hedges, price adjustments and cost reductions. However, in cases when both price and volume is com- mitted, Electrolux may hedge also forecasted flows. For those derivatives Electrolux practice hedge accounting, which has affected Other compre- hensive income by SEK –9m (–2) during 2019. Group subsidiaries cover their risks in commercial currency flows mainly through the Group’s treasury centers. Group Treasury thus assumes the currency risks and covers such risks externally by the use of currency derivatives. The Group’s geographically widespread production reduces the effects of changes in exchange-rates. The remaining transaction exposure is either related to internal sales from producing entities to sales companies or external exposures from purchasing of components and input material for the production paid in foreign currency. These external imports are often priced in U.S. dollar (USD). The global presence of the Group, however, leads to a significant netting of the transaction exposures. For additional informa- tion on exposures and hedging, see Note 18. ELECTROLUX ANNUAL REPORT 2019 Cont. Note 2 Notes 49 All amounts in SEKm unless otherwise stated Translation exposure from consolidation of entities outside Sweden Changes in exchange-rates also affect the Group’s income in connection with translation of income statements of foreign subsidiaries into SEK. Electrolux does not hedge such exposure. The translation exposures arising from income statements of foreign subsidiaries are included in the sensitivity analysis mentioned below. Foreign-exchange sensitivity from transaction and translation exposure The major net export currencies that Electrolux is exposed to are the U.S. dollar, the Chinese renminbi and the euro. The major import currencies that Electrolux is exposed to are the British pound, the Australian dollar, the Canadian dollar and the Brazilian real. These currencies represent the majority of the exposures of the Group, but are largely offsetting each other as different currencies represent net inflows and outflows. A change up or down by 10% in the value of each currency against the Swedish krona would affect the Group’s profit and loss for one year by approximately SEK +/– 420m (530), as a static calculation. The model assumes the distribution of earnings and costs effective at year-end 2019 and does not include any dynamic effects, such as changes in competitiveness or consumer behavior arising from such changes in exchange rates. Sensitivity analysis of major currencies Risk Currency BRL/SEK AUD/SEK GBP/SEK CAD/SEK CHF/SEK RUB/SEK THB/SEK CNY/SEK EUR/SEK USD/SEK Change Profit or loss impact 2019 Profit or loss impact 2018 –10% –10% –10% –10% –10% –10% –10% –10% –10% –10% –582 –309 –285 –272 –206 –164 178 261 410 1,248 –345 –295 –286 –261 –184 –116 128 129 383 984 Exposure from net investments (balance sheet exposure) The net of assets and liabilities in foreign subsidiaries constitute a net investment in foreign currency, which generates a translation difference in the consolidation of the Group. This exposure can have an impact on the Group’s total comprehensive income, and on the capital structure. The exposure is normally handled by natural hedges including matching assets with debts in the same currency. In exceptional cases the exposure can be managed by currency derivatives implemented on Group level and carried out by the Parent Company. For those derivatives Electrolux practice hedge accounting, which has affected Other comprehensive income by SEK –1m (–65) during 2019. A change up or down by 10% in the value of each currency against the Swedish krona would affect the net investment of the Group by approxi- mately SEK +/– 3,719m (3,230), as a static calculation at year-end 2019. A similar valuation of outstanding hedges, would have an effect on the Group’s equity of approximately SEK +/–261m (154). Commodity-price risks Commodity-price risk is the risk that the cost of direct and indirect materials could increase as underlying commodity prices rise in global markets. The Group is exposed to fluctuations in commodity prices through agreements with suppliers, whereby the price is linked to the raw-material price on the world market. This exposure can be divided into direct commodity expo- sure, which refers to pure commodity exposures, and indirect commodity exposure, which is defined as exposure arising from only part of a com- ponent. Commodity-price risk is mainly managed through contracts with the suppliers. A change in price up or down by 10% in steel would affect the Group’s profit or loss with approximately SEK +/– 850m (800) and in plastics with approximately SEK +/– 650m (600), based on volumes in 2019. Credit risk Credit risk in financial activities Exposure to credit risks arises from the investment of liquid funds, and derivatives. In order to limit exposure to credit risk, the Group has adopted a policy of only dealing with creditworthy counterparties. A counterpart list has been established, which specifies the maximum permissible exposure in relation to each counterpart. The Group only transacts investments of liquid funds and derivatives with issuers and counterparts holding a long-term rating of at least A- credit rating, as these are considered to have low credit risk for the purpose of impairment assessment. Standard & Poor’s or similar independent rating agencies supply the credit rating information. Group Treasury can allow exceptions from this rule, e.g., to enable money deposits within countries rated below A-, but this represents only a minor part of the total liquidity in the Group. The Group strives for master netting agreements (ISDA) with all coun- terparts for derivative transactions. Assets and liabilities will only be netted from a credit risk perspective for counterparts with valid ISDA-agreements. As a result of these policies and limitations, the expected credit loss from external financial activities is not material. However, since Group Treasury manage a majority of the subsidiary financing through internal loans from the parent, there is a material credit risk originating from internal loans. The opening expected credit loss provision in the parent company for 2019 amounted to SEK 72m primarily originate from internal loans to Latin America. The closing expected credit loss reservation in the parent com- pany amounted to SEK 86m, mainly due to higher country risk for Argentina. To reduce the settlement risk in foreign exchange transactions done with banks, Group Treasury uses Continuous Linked Settlement. Continuous Linked Settlement eliminates temporal settlement risk since both legs of a transaction are settled simultaneously. Credit risk in trade receivables Electrolux sells to a substantial number of customers in the form of large retailers, buying groups, independent stores, and professional users. Sales are made on the basis of normal delivery and payment terms. The Electrolux Group Credit Policy Directive defines how credit management is to be per- formed in the Electrolux Group to achieve competitive and professionally performed credit sales, limited bad debts, and improved cash flow and optimized profit. On a more detailed level, it also provides a minimum level for customer and credit- risk assessment, clarification of responsibilities and the framework for credit decisions. The credit-decision process combines the parameters risk/reward, payment terms and credit protection in order to obtain as much paid sales as possible. In some markets, Electrolux uses credit insurance as a mean of protection. For many years, Electrolux has used the Electrolux Rating Model (ERM) to have a common and objective approach to credit-risk assessment that enables more standardized and systematic credit evaluations to minimize inconsistencies in decisions. The ERM is based on a risk/reward approach and is the basis for the customer assessment. The Electrolux Rating Model consists of three different parts: Customer and Market Information; Warning Signals; and a Credit Risk Rating (CR2). Through CR2 the customers are classified in risk categories. Credit approvals and other monitoring procedures are also in place to ensure that follow-up action is taken to recover overdue debts. Further- more, the Group reviews the recoverable amount of each trade debt and debt investment on an individual basis at the end of the reporting period to ensure that adequate loss allowance is made for irrecoverable amounts. In this regard, management considers that the Group’s credit risk is signifi- cantly reduced. Trade receivables relate to a large number of customers, spread across diverse industries and geographical areas. However, there is a concen- tration of large credit exposures on a number of customers in, primarily, the U.S., Latin America and Europe. Concentration of credit risk related to a single counterparty did not exceed 6.4 % (11.7) total trade receivables at any time during the year. For more information, see Note 17. The Group defines default as customers where significant financial dif- ficulties have been identified. A receivable is written off when there are indications of no realistic prospect of recovery or at a 360 days overdue whichever is the earliest. There is a limited use of enforcement activities. ELECTROLUX ANNUAL REPORT 2019 50 Notes All amounts in SEKm unless otherwise stated Note 3 Segment information Reportable segments – Business areas Electrolux has revised the business area structure to create four consumer- focused regional business areas, this means the Home Care & SDA business area has been combined with the four major appliances business areas. The Professional Products business area has been classified as discontin- ued operations as of December 5, 2019 and is presented in Note 26. The Group’s operations are after the structure changes divided into four reportable segments: Europe; North America; Latin America; Asia-Pacific, Middle East and Africa. All the segments are producing appliances for the consumer market, and products comprise mainly of refrigerators, freezers, cookers, dryers, wash- ing machines, dishwashers, microwave ovens, vacuum cleaner and other small appliances. The segments are regularly reviewed by the President and CEO, the Group’s chief operating decision maker. The segments are responsible for the operating results and the net assets used in their businesses, whereas financial items and taxes, as well as net debt and equity, are not reported per segment. The operating results and net assets of the segments are consolidated using the same principles as for the total Group. Operating costs not included in the segments are shown under Group Common costs, which mainly are costs related to group man- agement activities typically required to run the Electrolux Group. Sales between segments are made on market conditions with arm’s- length principles. Net sales Operating income Europe North America Latin America Asia-Pacific, Middle East and Africa 2019 2018 45,420 43,321 38,954 39,804 19,653 17,963 14,954 14,375 118,981 115,463 2019 2,493 –516 1,821 446 4,244 Common Group costs — — –1,055 Total Financial items, net Income after financial items 118,981 115,463 — — — — 3,189 –733 2,456 2018 2,128 1,104 492 979 4,703 –527 4,176 –422 3,754 Inter-segment sales exist with the following split: Europe North America Latin America Asia-Pacific, Middle East and Africa Eliminations 2019 2018 1,270 1,105 627 640 1 1 818 318 2,716 2,064 The segments are responsible for the management of the operational assets and their performance is measured at the same level, while financing is managed by Group Treasury at group or country level. Consequently, liquid funds, interest-bearing receivables, interest-bearing liabilities and equity are not allocated to the business segments. Assets December 31 Equity and liabilities December 31 Net assets December 31 Europe North America Latin America Asia-Pacific, Middle East and Africa Professional Products Other1) Continuing operations Discontinued operations Liquid funds Total borrowings Lease liabilities Pension assets and liabilities Equity Total 1) Includes common functions, tax items. Europe North America Latin America Asia-Pacific, Middle East and Africa Other3) Continuing operations Discontinued operations Acquisitions/Divestments Financial items paid Taxes paid Total 1) Depreciation related to right-of-use assets: SEK 953m. 2) Cash flow from operations and investments. 3) Includes Group functions. 2019 28,032 22,917 14,064 12,351 — 9,175 86,540 8,034 11,189 — — 1,043 — 2018 26,276 19,124 13,092 10,826 6,101 9,112 84,531 — 12,249 — — 532 — 106,808 97,312 Depreciation and amortization1) 2019 1,693 1,391 694 751 291 4,821 283 — — — 2018 1,402 1,165 651 515 249 3,981 168 — — — 2019 26,604 16,421 7,020 6,289 — 4,033 60,368 3,951 — 11,856 3,150 4,909 22,574 106,808 2018 25,766 15,322 6,906 5,603 3,144 4,217 60,958 — — 10,260 — 4,346 21,749 97,312 2019 1,429 6,496 7,044 6,062 — 5,142 26,172 — — — — — — — Capital expenditure Cash flow2) 2019 2,399 2,573 956 456 290 6,674 257 — — — 2018 1,741 2,099 722 505 393 5,460 169 — — — 2019 2,716 –1,795 961 1,035 –638 2,279 1,153 –467 –661 –1,554 751 2018 510 3,802 6,186 5,223 2,957 4,895 23,574 — — — — — — — 2018 1,984 343 –25 586 –243 2,645 1,004 –609 –361 –1,140 1,540 5,104 4,150 6,931 5,629 ELECTROLUX ANNUAL REPORT 2019 Notes 51 All amounts in SEKm unless otherwise stated Tangible and intangible fixed assets located in the Group’s country of domi- cile, Sweden, amounted to SEK 2,277m (2,040). Tangible and non-tangible fixed assets located in all other countries amounted to SEK 33,224m (28,289). Individually, material countries in this aspect are Italy with SEK 4,104m (3,427), USA with SEK 10,749m (9,016) and Poland with SEK 2,717m (2,462), respectively. No single customer of the Group represents 10% or more of the external revenue. Sale of services in a separate contract Electrolux recognizes revenue from services related to installation of products, repairs or maintenance service when control is transferred being over the time the service is provided. For service contracts covering a longer period revenue is recognized on a linear basis over the contract period. Sale of licenses in a separate contract Electrolux is licensing trade names to other companies. The license provides the licensee a right to access intellectual property throughout the license period and revenue is recognized over time. The most common license type for Electrolux is sales based royalty where the revenue is recognized when the sales occur. Payments to customers Agreements can be made with customers to compensate for various services or actions the customer takes. This relates to e.g. agreements under which Electrolux agrees to compensate the customer for e.g. marketing activities undertaken by the customer. The main rule is that if the payment is related to a distinct service or product it shall be accounted for as a purchase of that service or product. If not it shall be deducted from the related revenue stream. In practice, if the contract doesn’t include any requirement of follow up from Electrolux side and/or reporting back from the customer that the service is performed, the payment shall be accounted for as a reduction of revenue. Customer incentives Customer incentives include promotional activities as e.g. coupons, gift cards, free products and loyalty/cash points. Customer incentives are additional performance obligations providing the customer with a mate- rial right, i.e. the customer is purchasing a product or service in the original purchase and the right to a free or discounted product or service in the future. The customer is effectively paying in advance for future products or services. Revenue is therefore allocated to two performance obligations, the originally purchased product and the product bought in the future (pay- ment in advance). A liability is recognized for the rebate until it’s used or expires unused. Within Electrolux a common promotional activity is to offer free products in combination with other sales. When the free products are related to the Electrolux product range, revenue is allocated to both the ordinary products sold and the free products. When the free products are unrelated to the Electrolux product range, the free products are recognized as marketing/sales cost. Warranties The most common warranty for Electrolux is to replace a faulty product under legal and common practice warranty terms. In those cases warranty is recognized as a provision. Electrolux also sells extended warranty where the revenue is recognized during the warranty period, which usually starts Cont. Note 3 Geographical information USA Brazil Germany Australia France Sweden (country of domicile) United Kingdom Italy Canada Switzerland Other Total Net sales1) 2019 2018 35,920 37,083 14,154 11,990 6,056 4,785 3,995 3,968 3,928 3,702 3,227 2,869 5,915 4,729 3,747 5,014 3,712 3,595 3,006 3,204 36,377 33,468 118,981 115,463 1) Revenues attributable to countries on the basis of customer location. Note 4 Revenue recognition Revenue recognition Electrolux manufactures and sells appliances mainly in the wholesale market to customers being retailers. Electrolux products include refrigerators, dish- washers, washing machines, cookers, vacuum cleaners, air conditioners and small domestic appliances. Electrolux offer complete solutions for both consumers and professionals. Sales are recorded net of value-added tax, specific sales taxes, returns, and trade discounts. Revenues arise from sales of finished products and services. Sale of finished products including spare parts and accessories Sales of products are revenue recognized at a point in time i.e when control of the products has transferred, being when the products are delivered to the customer. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been trans- ferred to the customer, and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or there is objective evidence that all criteria for acceptance have been satisfied. In practice, transfer of control and thus revenue recognition normally depends on the contractual incoterm. Transaction price — Volume discounts The products are often sold with volume discounts based on aggregate sales over a specific time period, normally 3–12 months. Revenue from these sales is recognized based on the price specified in the contract, net of the estimated volume discounts. Accumulated experience is used to estimate and provide for the discounts using either the expected value method or an assessment of the most likely amount. Revenue is only recognized to the extent that it is highly probable that a significant reversal will not occur. A contract liability is recognized for expected volume discounts payable to customers in relation to sales made until the end of the reporting period. The estimated volume discount is revised at each reporting date. Receivables, contract assets and contract liabilities A receivable is recognized when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. If the consideration is conditional to additional performance, a contract asset is recorded. If Electrolux receive prepayments from customer a contract liability is recorded. Sale of goods and services combined When contracts include both goods and services the sales value is split into the separate performance obligations as applicable and revenue is recognized when each of the separate performance obligations is satis- fied. In general, types of performance obligations that may occur are prod- ucts, spare parts, installation, service and support and education. ELECTROLUX ANNUAL REPORT 2019 52 Notes All amounts in SEKm unless otherwise stated Cont. Note 4 after the legal warranty period. Sometimes warranty offered is including a service part and if it is difficult to separate the warranty from the service the two are bundled together and revenue is recognized over the warranty period. Sales with a right of return A right of return is not a separate performance obligation, but it affects the transaction price for the transferred goods. Returns rights are commonly granted in the retail and consumer industry. Regarding a right of return which follows from legislation, statutory requirements, business practice or is stipulated in the contract with the customer, revenue is not recognized for goods expected to be returned. Instead, a liability is recognized for expected refunds to customers. An asset is also recorded for the expected returned item. The estimated amount of returned goods in each sale with a right of return, is based on a probability- weighted approach or most likely outcome, whichever is most predictive. The estimate is revised on each reporting date. Principal versus agent In some countries Electrolux acts as an agent, i.e. Electrolux arranges for goods or services to be provided by an external supplier to the customer. Electrolux records as revenue the commission fee earned for facilitating the transfer of goods or service or the net amount of consideration that the company retains after paying the other party the consideration received in exchange for the goods or services to be provided by that party. Freight charges In most cases freight is included in the price of the product sold and revenue is recognized at the same time as for the product. Consignment stock or sell-through arrangement For some customers Electrolux keeps the inventory of products in the ware- house of the customer or in the customer’s outlet. Transfer of control of the products are done when the customer lifts the product from the warehouse or when the product is sold to the end consumer. Electrolux recognizes revenue when the control has been transferred or when there is a legal right of forcing a sales transaction. Revenue types and flows The vast majority of the Group’s revenues of SEK 118,981m (115,463) dur- ing the year consisted of product sales. Revenue from service activities amounted to SEK 1,954m (1,410). The Group’s net sales in Sweden amounted to SEK 3,968m (5,014). Exports from Sweden during the year amounted to SEK 35,419m (33,390), of which SEK 32,488m (30,695) were to Group subsid- iaries. The major part of the Swedish export comes from one of the Swedish entities acting as a buying/selling hub for the European business meaning that most of the European product flows are routed via this entity. Disaggregation of revenue Electrolux manufactures and sells appliances mainly in the wholesale mar- ket to customers being retailers. Electrolux products include refrigerators, dishwashers, washing machines, cookers, vacuum cleaners, air condition- ers and small domestic appliances. The four regional Consumer Products business areas focus on the consumer market. The business area Profes- sional Products , which focuses on professional users, has been classified as discontinued operations in December, 2019. Sales of services are not material in relation to Electrolux total net sales. Product and geography are considered important attributes when disag- gregating Electrolux revenue. Therefore, the table below presents net sales related to Consumer Products and discontinued operations per geographi- cal region based on the location of each selling company. Disaggregation of revenue Geographical region Europe North America Latin America Asia-Pacific, Middle East and Africa Total 2019 Consumer Products Discontinued operations 45,420 38,954 19,653 14,954 7,474 949 — 858 Total 52,894 39,903 19,653 15,812 2018 Consumer Products Discontinued operations 43,321 39,804 17,963 14,375 6,951 849 — 866 Total 50,272 40,654 17,963 15,241 118,981 9,281 128,262 115,463 8,666 124,129 The table below presents the opening and closing balances of contract liabilities as well as movements during the year. Contract liabilities Opening balance, January 1, 2018 Gross increase during the period Paid to/settled with customer Revenue recognized during the year Contracts cancelled during the year Other changes to contract balances Exchange-rate differences Closing balance, December 31, 2018 Advances from Cus- tomers Customer bonuses/ incentives Short-term Long-term Contract liabilities, total Prepaid income – service & warranty 118 1,098 — –1,105 — — 3 114 4,222 13,305 –12,721 — –301 –14 165 4,656 92 175 — –193 –14 114 10 184 74 52 — –11 –11 28 7 139 4,506 14,630 –12,721 –1,309 –326 128 185 5,093 The table below presents the opening and closing balances of contract liabilities as well as movements during the year. Contract liabilities Opening balance, January 1, 2019 Gross increase during the period Paid to/settled with customer Revenue recognized during the year Contracts cancelled during the year Acquisition/divestment of operations Other changes to contract balances Exchange-rate differences DIscontinued operations Closing balance, December 31, 2019 Advances from Customers Customer bonuses/ incentives Short-term Long-term Contract liabilities, total Prepaid income – service & warranty 114 1,274 — –1,213 –5 — — 4 –109 65 4,656 23,907 –22,747 — –463 — –26 152 –54 5,425 184 289 — –227 –4 3 — 7 –35 217 139 273 — –7 –3 — — 3 –107 298 5,093 25,743 –22,747 –1,447 –475 3 –26 166 –305 6,005 ELECTROLUX ANNUAL REPORT 2019 Notes 53 All amounts in SEKm unless otherwise stated Other operating expenses 2019 2018 2019 2018 Group Parent Company Loss on sale of property, plant and equipment Asbestos litigation Electrolux Professional separation project & listing costs Loss on sale of operations and shares Legal settlement U.S. Fine to competition authority Provision for reorganization procedure Other Other operating expenses, total –68 –142 –190 — –197 — — — –371 –968 –38 — 0 — — — –493 –254 –78 –863 — — — –37 — –450 — — — — — — — — –310 –493 — –1 –487 –804 Other operating income and expenses, net 1,057 185 –487 –804 Note 7 Material profit or loss items in operating income This note summarizes events and transactions with significant effects, which are relevant for understanding the financial performance when comparing income for the current period with previous periods, including items such as: • Capital gains and losses from divestments of product groups or major units • Close-down or significant down-sizing of major units or activities • Restructuring initiatives with a set of activities aimed at reshaping a major structure or process • Significant impairment • Other major non-recurring costs or income Material items in 2019 amount to SEK –1,344m and contain restructuring measures related to the consolidation of the U.S. cooking production, closure of a refrigeration production line in Latin America and efficiency measures and outsourcing projects across business areas and Group com- mon cost, a legal settlement in the U.S. and recovery of overpaid sales tax in Brazil. Material items in 2018 amount to SEK –1,343 and relate to a restructuring charge in connection with the consolidation of freezer production in North America, a fine paid to the competition authority in France and a provision for reorganization procedure as a consequence of the unfavorable court ruling in France, extending a reorganization procedure of a former subsid- iary to include Electrolux Home Products France SAS. Material profit or loss items Restructuring charge Recovery of overpaid sales tax Legal settlement U.S. Fine to competition authority Provision for reorganization procedure Total Effect from material profit or loss items by function Cost of goods sold Selling expenses Administration expenses Other operating income and expenses Total 2019 –2,550 1,403 –197 2018 –596 — — — — –493 –254 –1,344 –1,343 2019 –1,938 –69 –543 1,206 2018 –596 — — –747 –1,344 –1,343 Note 5 Operating expenses Cost of goods sold and additional information on costs by nature Cost of goods sold includes expenses for the following items: • Finished goods i.e. cost for production and sourced products • Warranty • Environmental fees • Warehousing and transportation • Exchange-rate changes on payables and receivables and the effects from currency hedging Operating expenses Direct material and components Sourced products Depreciation and amortization Salaries, other renumeration and employer contribution Other operating expenses Operating expenses, total 2019 2018 Impairment 50,092 14,615 4,821 47,417 13,831 3,981 20,500 25,764 19,998 26,060 115,792 111,287 Operating expenses for continuing operations Cost of goods sold includes direct material and components amounting to SEK 50,092m (47,417) and sourced products amounting to SEK 14,615m (13,831). The depreciation and amortization charge for the year amounted to SEK 4,821m (3,981). Costs for research and development amounted to SEK 3,462m (3,459). Government grants relating to expenses have been deducted in the related expenses by SEK 82m (74). Government grants related to assets have been recognized as deferred income in the balance sheet and will be recognized as income over the useful life of the assets. The remaining value of these grants, at the end of 2019, amounted to SEK 828m (882). The Group’s operating income includes net exchange-rate differences in the amount of SEK –12m (–162). The Group’s Swedish factories accounted for 0.1% (0.1) of the total value of production. Selling and administration expenses Selling expenses include expenses for brand communication, sales driving communication and costs for sales and marketing staff. Selling expenses also include the cost for impairment of trade receivables. Administration expenses include expenses for general management, controlling, human resources, shared service and IT expenses related to the named functions. Administration costs related to manufacturing are included in cost of goods sold. Note 6 Other operating income and expenses Other operating income 2019 2018 2019 2018 Group Parent Company Gain on sale of property, plant and equipment Gain on sale of operations and shares Pension plan amendment Recovery of overpaid sales tax Reversal of restructuring provision Bargain purchase (neg. goodwill) Earn-out adjustment Other 98 — 98 1,403 150 — — 275 18 205 — 130 140 150 194 211 Other operating income, total 2,024 1,048 — — — — — — — 0 0 — — — — — — — 0 0 ELECTROLUX ANNUAL REPORT 2019 54 Notes All amounts in SEKm unless otherwise stated Note 8 Leases The major part of the group’s lease arrangements are those under which the group is a lessee. This applies to a large number of assets such as ware- houses, office premises, vehicles, and certain office equipment. The group’s activities as a lessor are limited. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Such an assessment is performed at inception of a contract. An identified lease agreement is further categorized by the group as either a short-term lease, a lease of a low-value asset or a standard lease. Short- term leases are defined as leases with a lease term of 12 months or less. The group’s definition of low-value assets comprises all personal computers and laptops, phones, office equipment and furniture and all other assets, independent of asset class, of a value less than SEK 100k when new. Lease payments related to short-term leases and leases of low value assets are recognized as operating expenses on a straight-line basis over the term of the lease. The group applies the term ‘standard lease’ to all identified leases which are categorized as neither short-term leases nor leases of a low-value asset. Thus, a standard lease is a lease agreement for which a right-of-use asset and a corresponding lease liability are recognized at commencement of the lease, i.e. when the asset is available for use. The group’s right-of-use assets and its long-term and short-term lease liabili- ties are presented as separate line items in the consolidated statement of financial position. Assets and liabilities arising from a lease are initially measured on a pres- ent value basis. The lease liability is determined as the present value of all future lease payments at the commencement date, discounted using the Group’s calculated incremental borrowing rate determined by country and contract duration (>12–36 months, >37–72 months and >72 months). The following lease payments are included in the measurement of a lease liability: • fixed payments, less any lease incentives, • variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date, • amounts expected to be payable under residual value guarantees, • the exercise price of a purchase option if reasonably certain to exercise that option, and • payments of penalties for terminating the lease, if the lease term reflects the exercise of that option. Variable lease fees that do not depend on an index or rate (including prop- erty tax related to leased buildings) are not included in the measure ment of the lease liability. The related variable payments are charged to the state- ment of comprehensive income as incurred. The lease liability is subsequently measured by reducing the carrying amount to reflect the lease payments made and by increasing the carrying amount to reflect interest on the lease liability, using the effective interest method. A right-of-use asset is measured at cost comprising the amount of the initial measurement of the lease liability, any lease payments made at or before the commencement day, less any lease incentives received, and any initial direct costs, and restoration costs (unless incurred to produce inven- tories) with the corresponding obligation recognized and measured as a provision under IAS 37. The right-of-use asset is subsequently measured at cost less accumulated depreciation, any impairment losses as well as any remeasurement of the lease liability. Impairment of right-of-use assets is determined and accounted for in accordance with IAS 36. A remeasurement of the lease liability, and a corresponding applicable adjustment to the related right-of-use asset, is performed when: • the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remea- sured by discounting the revised lease payments using a revised discount rate, • the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used), or • a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. A right-of-use asset is normally depreciated on a straight-line basis over the shorter of the asset’s useful life and the lease term. However, if ownership of the asset is reasonably certain to be transferred at the end of the lease, the right-of-use asset is depreciated over its useful life. Depreciation of a right- of-use asset starts at the commencement date of the lease. A lease payment related to a standard lease is accounted for partly as amortization of the lease liability and partly as interest expense in the state- ment of comprehensive income. Lease components are separated from non-lease components for leases regarding buildings (offices, warehouses etc.). For leases regarding other asset classes (machinery, vehicles etc.) the lease components and any associated non-lease components are accounted for as a single arrangement. In determining the lease term, extension options are only included if it is determined as reasonably certain to extend. Periods after termination options are only included in the lease term if the lease is reasonably certain not to be terminated. A lease term is reviewed if a significant event or a significant change in circumstances occurs which affects the assessment. Lease income and expenses Income from subleasing Lease expenses: Short-term leases Leases of low-value assets Variable lease payments Depreciation of right-of-use assets Total lease expenses in operating income Whereof continuing operations Whereof discontinued operations Lease liability interest expense Group 2019 5 –60 –56 –196 –953 –1,265 –1,159 –106 –129 Total cash outflow for lease contracts amount to SEK 1,187m for the year. The total lease expense related to short-term leases will be lower in 2020 than in 2019 and is expected at SEK 1m. This is due to standard lease con- tracts being classified as short-term at the adoption of IFRS 16. The calculated average lease interest rate for 2019 was 3.8%. Lease commitments related to leases not yet commenced as per December 31, 2019, amount to SEK 111m. Maturity profile of lease liabilities is presented in Note 18. Property, plant and equipment, right-of-use Group Carrying amount Opening balance, January 1, 2019 Acquisition of operations Additions Cancellations Depreciation Exchange rate differences Discontinued operations Closing balance, December 31, 2019 Land Buildings Machinery Other equipment 6 — 0 0 –1 0 –0 5 2,571 29 589 –126 –678 86 –182 2,289 41 — 42 –7 –22 1 –12 42 511 2 254 –11 –253 15 –43 476 Total 3,128 30 885 –144 –953 102 –238 2,811 ELECTROLUX ANNUAL REPORT 2019 Notes 55 All amounts in SEKm unless otherwise stated Non-recognized deductible temporary differences As of December 31, 2019, the Group had tax loss carry-forwards and other deductible temporary differences of SEK 4,971m (6,008), which have not been included in computation of deferred tax assets. The decision not to recognize certain temporary differences is based on an assessment where the likelihood of future utilization is evaluated for each of the temporary items. The Group typically does not recognize temporary differences in situations where it is considered the ability to utilize these to be limited. The non-recognized deductible temporary differences will expire as follows: 2020 2021 2022 2023 2024 And thereafter Without time limit Total December 31, 2019 56 61 31 12 120 254 4,438 4,971 The tables below show deferred tax assets and liabilities at the end of each reporting period and the change in net deferred tax assets and liabilities. Deferred tax assets and deferred tax liabilities Deferred tax assets: Property, plant and equipment Provision for Pension obligations Provision for restructuring Other provisions Inventories Accrued expenses and prepaid income Unused tax losses carried forward Other deferred tax assets Deferred tax assets before netting of deferred tax assets and liabilities Netting of deferred tax assets and liabilities Deferred tax assets net Deferred tax liabilities: Property, plant and equipment Other provisions Inventories Other taxable temporary differences Deferred tax liabilities before netting of deferred tax assets and liabilities Netting of deferred tax assets and liabilities Deferred tax liabilities net 2019 2018 340 861 308 734 94 587 1,148 4,068 322 945 170 998 145 467 674 3,768 8,140 7,489 –1,522 –1,041 6,448 6,618 890 78 327 676 738 159 315 697 1,971 1,909 –1,410 –1,041 868 561 Deferred tax assets and liabilities net 6,057 5,580 Deferred tax assets and liabilities, net opening balance before restatement due to change in accounting principles Restatement of opening balance due to change in accounting principles Deferred tax assets and liabilities, net opening balance Recognized in income statement, continuing operations Recognized in income statement, discontinued opera- tions Recognized in other comprehensive income Acquisitions of operations Exchange rate differences Discontinued operations 2019 2018 5,580 4,981 90 5,670 382 1 4,982 61 100 3 –14 122 –206 67 142 110 218 — Deferred tax assets and liabilities, net closing balance 6,057 5,580 Other deferred tax assets include tax credits related to the production of energy-efficient appliances amounting to SEK 1,706m (1,665). Cont. Note 10 Note 9 Financial income and financial expenses Financial income Interest income from subsidiaries from others Dividends from subsidiaries Other financial income Total financial income Financial expenses Interest expenses to subsidiaries to others Lease liability interest expenses Pension interest expenses, net Exchange-rate differences, net Other financial expenses Total financial expenses Financial items, net Group Parent Company 2019 2018 2019 2018 — 69 — — 69 — 103 — — 1,013 0 782 0 4,396 7,179 15 6 103 5,424 7,967 — –367 –124 –41 –72 –198 –802 –733 — –234 — –45 22 –268 –525 –422 –307 –251 — — –151 –179 –888 –229 –84 — — –122 –260 –695 4,536 7,272 Interest expenses to others, for the Group and Parent Company, include gains and losses on derivatives used for managing the Group’s interest fix- ing. For information on financial instruments, see Note 18. Note 10 Taxes Current taxes Deferred taxes Taxes in income for the period, continuing operations Taxes in income for the period, discontinued operations Taxes related to OCI Taxes included in total comprehensive income Group Parent Company 2019 –1,017 382 2018 –960 61 2019 –121 127 2018 –92 161 –636 –900 –314 27 –182 151 –923 –930 6 — — 6 69 — — 69 Deferred taxes 2019 include an effect of SEK –11m (–41) due to changes in tax rates. The consolidated accounts include deferred tax liabilities of SEK 89m (91) related to untaxed reserves in the Parent Company. Theoretical and actual tax rates % Theoretical tax rate Non-taxable/non-deductible income statement items, net Non-recognized tax losses carried forward Utilized non-recognized tax losses carried forward Other changes in recognition of deferred tax Withholding tax Other Actual tax rate 2019 31.1 2018 23.6 2.2 0.9 –0.9 –7.0 5.3 –5.7 25.9 0.2 8.5 0.0 –5.8 2.3 –4.8 24.0 The theoretical tax rate for the Group is calculated on the basis of the weighted total income after financial items per country, multiplied by the local statutory tax rates. ELECTROLUX ANNUAL REPORT 2019 56 Notes All amounts in SEKm unless otherwise stated Note 11 Other comprehensive income Items that will not be reclassified to income for the period: Remeasurement of provisions for post-employment benefits Opening balance, January 1 Gain/loss taken to other comprehensive income Income tax relating to items that will not be reclassified Closing balance, December 31 Items that may be reclassified subsequently to income for the period: Available-for-sale instruments Opening balance, January 1 Change in accounting principle1) Gain/loss taken to other comprehensive income Transferred to profit and loss Closing balance, December 31 Cash flow hedges Opening balance, January 1 Gain/loss taken to other comprehensive income Transferred to profit and loss on sale Closing balance, December 31 Exchange differences on translation of foreign operations Opening balance, January 1 Net investment hedge Translation differences Closing balance, December 31 Income tax Opening balance, January 1 Income tax relating to items that may be reclassified Closing balance, December 31 Non-controlling interests, translation differences Other comprehensive income, net of tax Group 2019 2018 129 –103 3 29 449 –448 128 129 — — — — — –8 –14 4 –18 1 –1 — — — –6 –4 2 –8 –2,291 –2,495 –65 269 –1,261 –2,291 –1 1,030 –91 24 –68 0 944 –114 23 –91 0 –95 1) At transition to IFRS 9 a financial instrument classified as Available for sale was reclassified to Financial asset at fair value through profit and loss. Income taxes related to items of other comprehensive income were SEK 3m (128) for remeasurement of provisions for post-employment benefits and SEK 24m (23) for financial instruments for hedging. – ELECTROLUX ANNUAL REPORT 2019 Notes 57 All amounts in SEKm unless otherwise stated Note 12 Property, plant and equipment, owned Property, plant, and equipment are stated at historical cost less straight-line accumulated depreciation, adjusted for any impairment charges. Land is not depreciated as it is considered to have an unlimited useful life. All other depreciation is calculated using the straight-line method and is based on the following estimated useful lives: • Land and land improvements • Buildings • Machinery and technical installations • Other equipment 0–15 years 10–40 years 3–15 years 3–10 years Group Acquisition costs Opening balance, January 1, 2018 Acquired during the year Acquisition of operations Transfer of work in progress and advances Sales, scrapping, etc. Exchange–rate differences Closing balance, December 31, 2018 Acquired during the year Acquisition of operations Transfer of work in progress and advances Sales, scrapping, etc. Exchange-rate differences Discontinued operations Closing balance, December 31, 2019 Accumulated depreciation Opening balance, January 1, 2018 Depreciation for the year Transfer of work in progress and advances Sales, scrapping, etc. Impairment Exchange-rate differences Closing balance, December 31, 2018 Depreciation for the year Transfer of work in progress and advances Sales, scrapping, etc. Impairment Exchange-rate differences Discontinued operations Closing balance, December 31, 2019 Net carrying amount, December 31, 2018 Net carrying amount, December 31, 2019 Land and land improvements Buildings Machinery and technical installations Other equipment Plants under construction and advances Total 1,368 13 2 91 –8 66 1,532 59 3 37 –40 58 –142 1,506 223 19 49 –4 2 14 303 29 11 –39 4 10 –11 307 1,229 1,200 10,353 201 10 167 –78 461 11,114 208 3 136 –318 385 –844 10,683 4,779 363 –31 –54 33 235 5,325 366 –11 –285 278 168 –337 5,504 5,789 5,179 39,703 1,178 20 807 –2,225 1,673 41,156 1,250 6 2,331 –2,143 1,076 –1,903 41,774 30,232 2,530 –92 –2,130 146 1,346 32,032 2,579 –24 –2,019 557 799 –1,516 32,409 9,124 9,365 2,789 221 20 180 –118 69 3,161 255 2 99 –432 78 –235 2,927 2,245 265 74 –110 0 62 2,536 297 18 –242 –152 58 –179 2,336 625 591 2,844 3,036 0 –1,245 –39 156 4,752 3,789 0 –2,605 –82 127 –134 5,847 386 0 0 1 14 30 431 0 4 0 –74 19 –1 379 4,321 5,468 57,057 4,649 52 0 –2,468 2,425 61,715 5,562 13 –3 –3,016 1,724 –3,258 62,737 37,865 3,177 0 –2,297 195 1,687 40,627 3,271 –2 –2,585 613 1,054 –2,044 40,935 21,088 21,803 Total net impairment in 2019 was SEK 282m (35) on buildings and land, and SEK 405m (146) on machinery and other equipment and SEK –74m (14) on plants under construction. The majority of the impairment relates to the business areas North America and Latin America. Parent Company Acquisition costs Opening balance, January 1, 2018 Acquired during the year Transfer of work in progress and advances Sales, scrapping, discontinued operations etc. Exchange-rate differences Closing balance, December 31, 2018 Acquired during the year Transfer of work in progress and advances Sales, scrapping, etc. Exchange-rate differences Closing balance, December 31, 2019 Accumulated depreciation Opening balance, January 1, 2018 Depreciation for the year Sales, scrapping, discontinued operations etc. Exchange-rate differences Closing balance, December 31, 2018 Depreciation for the year Sales, scrapping, etc. Exchange-rate differences Closing balance, December 31, 2019 Net carrying amount, December 31, 2018 Net carrying amount, December 31, 2019 ELECTROLUX ANNUAL REPORT 2019 Land and land improvements Buildings Machinery and technical installations Other equipment Plants under construction and advances Total 1 — — 0 — 1 — — — — 1 1 — 0 — 1 — — — 1 0 0 1 — — 0 — 1 — — — — 1 1 — 0 — 1 — — — 1 0 0 60 — 5 0 3 68 0 9 — 1 78 54 6 0 3 63 5 — 1 69 5 9 452 16 21 –30 3 462 5 14 –43 1 439 350 28 –26 2 354 27 –37 1 345 108 94 60 29 –26 –34 2 31 35 –23 –5 0 38 0 — — — 0 — — — 0 31 38 574 45 0 –64 8 563 40 0 –48 2 557 406 34 –26 5 419 32 –37 2 416 144 141 58 Notes All amounts in SEKm unless otherwise stated Note 13 Goodwill and other intangible assets Goodwill Goodwill is reported as an indefinite life intangible asset at cost less accu- mulated impairment losses. Product development Electrolux capitalizes expenses for certain own development of new products provided that the level of certainty of their future economic benefits and useful life is high. The intangible asset is only recognized if the product is sellable on existing markets and that resources exist to complete the development. Only expenditures which are directly attributable to the new product’s development are recognized. Capitalized development costs are amortized over their useful lives, between 3 and 5 years, using the straight-line method. Software Acquired software licenses and development expenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific soft- ware. These costs are amortized over useful lives, between 3 and 5 years, using the straight-line method. Trademarks Trademarks are reported at historical cost less amortization and impair- ment. The Electrolux trademark in North America, acquired in 2000, is regarded as an indefinite life intangible asset and is not amortized in the group accounts. One of the Group’s key strategies is to develop Electrolux into the leading global brand within the Group’s product categories. This acquisition gave Electrolux the right to use the Electrolux brand worldwide, whereas it previously could be used only outside of North America. The total carrying amount for the Electrolux brand is SEK 410m, included in the item Other in the table on the next page. All other trademarks are amortized over their useful lives, estimated to 5 to 10 years, using the straight-line method. Customer relationships Customer relationships are recognized at fair value in connection with acquisitions. The values of these relationships are amortized over their esti- mated useful lives, between 5 and 15 years, using the straight-line method. Intangible assets with indefinite useful lives Goodwill as at December 31, 2019, had a total carrying value of SEK 7,071m. The allocation, for impairment-testing purposes, on cash-generating units is shown in the table below. All intangible assets with indefinite useful lives are tested for impairment at least once every year. Single assets are tested more often in case there are indications of impairment. The recoverable amounts of the cash- generating units have been determined based on value in use calcula- tions. The cash-generating units equal the business areas. Costs related Goodwill, value of trademark and discount rate to group services and global leverage activities are carried by the cash- generating units and therefore included in the impairment testing of each cash-generating unit. Common group costs that cannot be allocated on a reasonable and consistent basis to any the individual cash generating units are included in impairment testing in the total carrying amount of all cash generating units combined. Value in use is calculated using the discounted cash flow model based on by Group management approved forecasts for the coming four years. The forecasts are built up from the estimate of the units within each business area. The preparation of the forecast requires a number of key assumptions such as volume, price, product mix, prices for raw material and compo- nents, which will create a basis for future growth and gross margin. These figures are set in relation to historic figures and external reports on market growth. The cash flow for the last year of the four-year period is used as the base for the perpetuity calculation. The discount rates are based on the pre-tax Electrolux Group WACC (Weighted Average Cost of Capital) with adjustments for country specific risk premiums and inflation rates for each individual country. The individual country discount rates are used to calculate a weighted average discount rate for each cash-generating unit. The pre-tax discount rates used in 2019 were within a range of 8.9% (9.3) to 14.0% (12.0). For the calculation of the in-perpetuity value, Gordon’s growth model is used. According to Gordon’s model, the terminal value of a growing cash flow is calculated as the starting cash flow divided by cost of capital less the growth rate. Cost of capital less growth of 2% (2%) is within the range of 6.9 to 12.0%. Sensitivity analyses have been carried out based on a reduction of the operating margin by 0.5 percentage points and by an increase in the cost of capital by one percentage point respectively. None of the sensitivity analyses led to a reduction of the recoverable amount below the carrying amount for any of the cash-generating units, i.e. the hypothetical changes in key assumptions would not lead to any impairment. The calculations are based on management’s assessment of reasonably possible adverse changes in operating margin and cost of capital, yet they are hypothetical and should not be viewed as an indication that these factors are likely to change. The sensitivity analyses should therefore be interpreted with caution. As from 2019, right-of-use assets are included in the carrying amount of each cash-generating unit. Accordingly, lease payments, representing lease liability amortization and interest expense, are not considered in the fore- casted cash flows. However, the forecasted cash flows have been charged with a ‘replacement capital expenditure’ for right-of-use assets, calculated based on an assumed normalized level of depreciation per cash-generating unit and a calculated average remaining lease period of contracts existing at December 31. Europe North America Latin America Asia-Pacific, Middle East and Africa Professional Products Total 2019 2018 Goodwill Electrolux trademark Discount rate, % Goodwill Electrolux trademark Discount rate, % 449 1,662 1,093 3,867 — 7,071 — 410 — — — 410 9.1 8.9 14.0 10.8 — 442 1,598 1,176 3,584 1,439 8,239 — 410 — — — 410 9.9 9.3 12.0 9.6 10.1 ELECTROLUX ANNUAL REPORT 2019 Cont. Note 13 Goodwill and other intangible assets Acquisition costs Opening balance, January 1, 2018 Acquired during the year Acquisition of operations Internally developed Reclassification Fully amortized Sales, scrapping etc. Exchange-rate differences Closing balance, December 31, 2018 Acquired during the year Acquisition of operations Internally developed Reclassification Fully amortized Sales, scrapping etc. Exchange-rate differences DIscontinued operations Closing balance, December 31, 2019 Accumulated amortization Opening balance, January 1, 2018 Amortization for the year Reclassification Fully amortized Impairment Sales, scrapping etc. Exchange-rate differences Closing balance, December 31, 2018 Amortization for the year Reclassification Fully amortized Impairment Sales, scrapping etc. Exchange-rate differences Discontinued operations Closing balance, December 31, 2019 Carrying amount, December 31, 2018 Carrying amount, December 31, 2019 Notes 59 All amounts in SEKm unless otherwise stated Group Other intangible assets Parent Company Product develop- ment Goodwill Software Other Total other intangible assets Trademarks, software, etc. 7,628 3,430 3,688 2,647 9,765 3,752 — 6171) — — — –4 –2 8,239 — 3841) — — — — 269 –1,821 7,071 — — — — — — — — — — — — — — — — 8,239 7,071 — 1 415 –51 –268 –44 91 3,574 — — 797 –2 –103 –138 75 –107 4,096 2,444 344 — –268 –9 –25 62 2,548 392 — –103 56 –61 46 –60 2,818 1,026 1,278 121 1 441 52 –870 –106 91 3,418 363 — 208 5 –308 –248 47 –10 3,475 2,608 377 — –870 — –60 63 2,118 248 2 –308 1 –69 25 –5 2,012 1,300 1,463 1 214 — –1 –52 –45 –30 2,734 — 35 — — — — 37 –454 2,352 972 251 — –52 — — –30 1,141 240 — — 13 — — –118 1,276 1,593 1,076 122 216 856 — –1,190 –195 152 9,726 363 35 1,005 3 –411 –386 159 –571 9,923 6,024 972 — –1,190 –9 –85 95 5,807 880 2 –411 70 –130 71 –183 6,106 3,919 3,817 102 — 447 — –512 –13 34 3,810 140 — 538 — –216 –545 19 — 3,746 2,222 378 — –512 — –5 13 2,096 270 — –216 — –182 6 — 1,974 1,714 1,772 1) Including adjustments of provisional values within the measurement period related to acquisitions with a value of SEK 10m for 2018 and with a value of SEK 8m for 2019. Included in the item Other are trademarks of SEK 690m (813) and customer relationships etc. amounting to SEK 386m (780). For continuing operations amortization of intangible assets is included within Cost of goods sold with SEK 454m (409), Administrative expenses with SEK 123m (320) and Selling expenses with SEK 237m (243) in the income statement. For discontinued operations amortization of intangible assets is included within Cost of goods sold with SEK 26m (18), Administrative expenses with SEK 6m (0) and Selling expenses with SEK 34m (27) in the income statement. Electrolux did not capitalize any borrowing costs during 2019 or 2018. ELECTROLUX ANNUAL REPORT 2019 60 Notes All amounts in SEKm unless otherwise stated Note 14 Other non-current assets Note 17 Trade receivables Shares in subsidiaries Participations in other companies Long-term receivables in subsidiaries Other receivables Total Group December 31, Parent Company December 31, 2019 2018 2019 2018 — — — 1,486 1,486 — — — 952 952 37,515 32,245 241 219 1,480 3,459 32 20 39,268 35,943 For the Group ‘Other receivables’ include mainly recoverable import duties and long-term operational tax credits. Note 15 Inventories Raw materials Products in progress Finished products Advances to suppliers Total Group December 31, Parent Company December 31, 2019 2018 2019 2018 3,032 3,590 289 346 — — — — 12,854 12,790 3,038 2,813 19 24 — — 16,194 16,750 3,038 2,813 Trade receivables Provisions for impairment of receivables Trade receivables, net Provisions in relation to trade receivables, % 2019 2018 21,729 22,417 –882 –935 20,847 21,482 4.1 4.2 Trade receivables are recognized initially at fair value and subse- quently measured at amortized cost using the effective interest method, less provision for expected credit losses. The Group applies the simpli- fied approach for trade receivables and uses a matrix to estimate the expected credit losses. The change in amount of the provision is recog- nized in the income statement within selling expenses. The expected loss calculation is based on historical data and is adjusted with a forward looking analysis, including macroeconomic factors impacting the differ- ent customer segments and more specific factors such as signs of bank- ruptcy, officially known insolvency etc. Electrolux uses credit insurance as a mean of protection. The Group’s internal guidelines to the companies is to at least reserve 0.01 % for current trade receivables and for receivables maximum 15 days past due. For trade receivables past due between 16 to 60 days Electrolux reserves 1% and increase to 5% for receivables past due between 61 to 180 days. Trade receivables that are 6 months past due but less than 12 months is reserved at 45% and receivables that are 12 months past due and more are reserved at 100%. There is no signifi- cant impact on provisions from changes in the forward looking factors. Provisions for impairment of receivables Inventories and work in progress are valued at the lower of cost, at normal capacity utilization, and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale at market value. The cost of finished goods and work in progress comprises development costs, raw materials, direct labor, tooling costs, other direct costs and related production overheads. The cost of invento- ries is assigned by using the weighted average cost formula. Provisions for obsolescence are included in the value for inventory. Provisions, January 1 Effect of change in accounting principles Acquisition of operations New provisions Actual credit losses Exchange-rate differences and other changes Discontinued operations 2019 –935 — –1 –50 65 –27 66 2018 –801 –18 –4 –212 135 –35 — The cost of inventories recognized as expense and included in Cost of Provisions, December 31 –882 –935 goods sold amounted to SEK 87,649m (83,035) for the Group. Write-downs due to obsolescence amounted to SEK 303m (272) and reversals of previous write-downs, due to inventories either scrapped or sold, amounted to SEK 200m (364) for the Group. The amounts have been included in the item Cost of goods sold in the income statement. Note 16 Other current assets VAT receivable Other tax recoverable Miscellaneous short-term receivables Provisions for doubtful accounts Prepaid expenses and accrued income Prepaid interest expenses and accrued interest income Total The fair value of trade receivables equals their carrying amount as the impact of discounting is not significant. Electrolux has a significant credit exposure on a number of major customers, primarily in the U.S., Latin America and Europe. Receivables concentrated to customers with credit limits amounting to SEK 300m or more represent 33.5% (33) of the total trade receivables. The creation and usage of provisions for impaired receivables have been included in selling expenses in the income statement. Group December 31, Timing analysis of trade receivables past due 2019 2018 Trade receivables not overdue 1,012 1,031 Past due 1 - 15 days 946 319 Past due 16 - 60 days 1,530 1,585 2 – 6 months overdue –97 –138 6 –12 months overdue 1,057 1,467 More than 1 year overdue 17 243 Total trade receivables past due but not impaired 4,465 4,507 Impaired trade receivables Total trade receivables Past due, including impaired, in relation to trade receivables, % 2019 2018 20,222 20,571 253 258 114 0 0 625 882 481 239 191 0 0 911 935 21,729 22,417 6.9 8.2 ELECTROLUX ANNUAL REPORT 2019 Notes 61 All amounts in SEKm unless otherwise stated loss. To measure the expected credit losses, trade receivables are grouped into six categories based on shared credit risk characteristics and days past due. If the provision is considered insufficient due to individual consider- ations, the provision is extended to cover the extra anticipated losses. De-recognition Financial assets, or a portion thereof, are derecognized when the contrac- tual rights to receive the cash flows from the assets have expired, or when they have been transferred and either (i) the Group transfers substantially all the risks and rewards of ownership, or (ii) the Group neither transfers nor retains substantially all the risks and rewards of ownership and the Group has not retained control of the asset. Financial liabilities Classification and subsequent measurement All of the Groups financial liabilities, excluding derivatives, are classified as subsequently measured at amortized cost. De-recognition Financial liabilities are derecognized when they are extinguished, i.e. when the obligation specified in the contract is discharged, cancelled or expires. Derivatives and hedging activities Derivatives are initially recognized at fair value on the date on which the derivative contract is entered into and are subsequently re-measured at fair value. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Fair value gain or loss related to derivatives not designated or not qualifying as hedging instruments is recognized in profit or loss. The Group applies the hedge accounting requirements of IFRS 9. For derivatives designated and qualifying as hedging instruments, the method of recognizing the fair value gain or loss depends on the nature of the item being hedged. Derivatives are designated as either: • Hedges of the fair value of recognized assets or liabilities or firm commitments (fair value hedges); • Hedges of highly probable future cash flows attributable to a recognized asset or liability (cash flow hedges); or • Hedges of a net investment in a foreign operation (net investment hedges). The Group documents, at the inception of the hedge, the relationship between hedged items and hedging instruments, as well as its risk manage- ment objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at the hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging trans- actions are highly effective in offsetting changes in fair values or cash flows of hedged items based on the following hedge effectiveness requirements: • There is an economic relationship between the hedged item and the hedging instrument; • The effect of credit risk does not dominate the value changes that result from that economic relationship; and • The hedge ratio of the hedging relationship is the same as that result- ing from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item. Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the statement of comprehensive income, together with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in equity via other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the statement of comprehensive income. Amounts accumulated in equity are recycled to the statement of profit or loss in the periods when the hedged item affects profit or loss. They are recorded in the income or expense lines in which the revenue or expense associated with the related hedged item is reported. Net investment hedge Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to Note 18 Financial instruments Additional and complementary information is presented in the following notes to the Annual Report: Note 2, Financial risk management, describes the Group’s risk policies in general and regarding the principal financial instruments of Electrolux in more detail. Note 17, Trade receivables, describes the trade receivables and related credit risks. The information in this note highlights and describes the principal finan- cial instruments of the Group regarding specific major terms and conditions when applicable, and the exposure to risk and the fair values at year end. Financial instruments Initial recognition and measurement Financial assets and financial liabilities are recognized when the entity becomes party to the contractual provisions of the instrument. Regular way purchases and sales of financial assets are recognized on trade-date, the date on which the Group commits to purchase or sell the asset. At initial recognition, the Group measures a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are incremental and directly attributable to the acquisition or issue of the financial asset or financial liability, such as fees and commissions. Trans- action costs of financial assets and financial liabilities carried at fair value through profit or loss are expensed in profit or loss. Financial assets Classification and subsequent measurement The Group classifies its financial assets in the following measurement categories: • Fair value through profit or loss (FVPL); • Fair value through other comprehensive income (FVOCI); or • Amortized cost. The classification requirements for debt and equity instruments are described below. Debt instruments are those instruments that meet the definition of a financial liability from the issuer’s perspective, such as trade receivables, loan receivables as well as government bonds. The Group classifies its debt instruments into one of the following two measurement categories: Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest (SPPI), and are not designated as FVPL, are measured at amor- tized cost. The carrying amount of these assets is adjusted by any expected credit loss allowance recognized (see impairment below). Interest income from these financial assets is included in the financial net using the effective interest rate method. Fair value through profit or loss (FVPL): Assets that do not meet the criteria for amortized cost are measured at fair value through profit and loss. A gain or loss on a financial debt investment that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is rec- ognized in the financial net in the period in which it arises. Interest income from these financial assets is included in the financial net using the effective interest rate method. Trade receivables sold on non-recourse terms are categorized as ‘Hold to Sell’ with gain or loss reported in operating income. The Group reclassifies debt investments when and only when its business model for managing those assets changes. Equity instruments are instruments that meet the definition of equity from the issuer’s perspective; that is, instruments that do not contain a contractual obligation to pay and that evidence a residual interest in the issuer’s net assets. Gains and losses on equity investments at FVPL are included in the financial net in the statement of comprehensive income. The Group does not have any material investments in equity instruments. Impairment and expected credit loss The Group assesses on a forward-looking basis the expected credit losses (ECL) associated with its debt instrument assets not carried at fair value. The Group recognizes a provision for such losses at each reporting date. The measurement of ECL reflects an unbiased and probability-weighted amount based on reasonable and supportable information available such as past events, current condition and forecasts of future economic condi- tions. For trade receivables, the group applies the ‘simplified approach’, which means that the provision for bad debts will equal the lifetime expected ELECTROLUX ANNUAL REPORT 2019 62 Notes All amounts in SEKm unless otherwise stated Cont. Note 18 the effective portion of the hedge is recognized directly in equity via other comprehensive income; the gain or loss relating to the ineffective portion is recognized immediately in the statement of comprehensive income. Gains and losses accumulated in equity are included in the statement of compre- hensive income when the foreign operation is disposed of as part of the gain or loss on the disposal. Net debt At year-end 2019, the Group’s financial net debt amounted to SEK 667m (–1,989). The table below presents how the Group calculates net debt and what it consists of. Net debt Short-term loans Short-term part of long-term loans Trade receivables with recourse Short-term borrowings Financial derivative liabilities Accrued interest expenses and prepaid interest income Total short-term borrowings Long-term borrowings Total borrowings Cash and cash equivalents Short-term investments Financial derivative assets Prepaid interest expenses and accrued interest income Liquid funds Financial net debt Lease liabilities Net provision for post-employment benefits Net debt Revolving credit facility (EUR 1,000m)1) December 31 2019 1,307 1,446 602 2018 1,429 2,355 168 3,354 3,952 233 33 3,620 8,236 81 28 4,062 6,198 11,856 10,260 10,807 11,697 190 176 176 132 16 243 11,189 12,249 667 –1,989 3,150 3,866 7,683 — 3,814 1,825 10,440 10,277 1) The facilities are not included in net borrowings, but can be used for short-term and long- term funding. Liquid funds Liquid funds as defined by the Group consist of cash and cash equivalents, short-term investments, financial derivative assets and prepaid interest expenses and accrued interest income. Cash and cash equivalents consist of cash on hand, bank deposits and other short-term highly liquid invest- ments with a maturity of 3 months or less. The table to the right presents the key data of liquid funds for continuing operations in 2019 and for total Group, including discontinued operations in 2018. The carrying amount of liquid funds is approximately equal to fair value. Changes in liabilities arising from financing Liquidity profile Cash and cash equivalents Short-term investments Financial derivative assets Prepaid interest expenses and accrued interest income Liquid funds % of annualized net sales1) Net liquidity Fixed interest term, days Effective yield, % (average per annum) 1) Liquid funds in relation to net sales, see Note 30 for definition. December 31 2019 2018 10,807 11,697 190 176 176 132 16 243 11,189 12,249 18.4 18.1 7,569 8,187 12 0.8 12 1.1 For 2019, liquid funds, including unused revolving credit facilities of EUR 1000m, amounted to 18.4% (18.1) of annualized net sales. Net liquidity is calculated by deducting short-term borrowings from liquid funds. Interest-bearing liabilities Borrowings are initially recognized at fair value net of transaction costs incurred. After initial recognition, borrowings are valued at amortized cost using the effective interest method. In 2019, SEK 2,412m of long-term borrowings matured or were amor- tized. These maturities were partly refinanced to the amount of SEK 3,810m. At year-end 2019, the Group’s total interest-bearing liabilities amounted to SEK 10,989m (9,982), of which SEK 9,682m (8,553) referred to long-term borrowings including maturities within 12 months. Long-term borrowings with maturities within 12 months amounted to SEK 1,446m (2,355). The outstanding long-term borrowings have mainly been made under the European Medium-Term Note Program and via bilateral loans. The major- ity of total long-term borrowings, SEK 9,546m (8,001), is raised at parent company level. Electrolux also has an unused committed multicurrency revolving credit facility of EUR 1,000m maturing 2023. However, Electrolux expects to meet any future requirements for short-term borrowings through bilateral bank facilities and capital-market programs such as commercial paper programs. At year-end 2019, the average interest-fixing period for long-term bor- rowings was 1.5 years (1.0). The calculation of the average interest-fixing period includes the effect of interest-rate swaps used to manage the inter- est-rate risk of the debt portfolio. The average interest rate for the total bor- rowings was 1.6% (2.5) at year end. The fair value of the interest-bearing borrowings was SEK 9,575m. The fair value including swap transactions used to manage the interest fixing was approximately SEK 9,577m. Cash Flow Non Cash flow Opening Balance Amorti- zation New debt Net cash change Acquisi- tions Reclassi- fications Addi- tions/ Cancel- lations Exchange rate differences Discon- tinued operations Closing Balance 8,553 –2,412 3,810 — 33 –411 — 111 –3 9,682 2019 Long-term borrowings (including short-term part of long-term) Short-term borrowings (excluding short-term part of long-term) Lease liabilities Total 2018 Long-term borrowings (including short-term part of long-term) Short-term borrowings (excluding short-term part of long-term) Total 1) Opening balance adjustment as of January 1, 2019. 1,597 3,4651) 13,615 — –942 — — –3,354 3,810 303 — 303 5 31 69 — — –411 — 729 729 8,088 –1,531 1,737 — 1,194 9,282 — — –1,531 1,737 397 397 13 134 147 — — — — — — 8 110 229 246 –128 118 –4 –243 –250 1,909 3,150 14,740 — — — 8,553 1,597 10,150 ELECTROLUX ANNUAL REPORT 2019 Cont. Note 18 The table below sets out the carrying amount of the Group’s borrowings. Notes 63 All amounts in SEKm unless otherwise stated Borrowings Issue/maturity date Bond loans1) 2013–2020 2013–2020 2017–2024 2018–2023 2018–2023 2018–2025 2019–2024 2019–2022 2019–2024 2019–2024 Total bond loans Other long-term loans1) 1996–2019 2013–2021 2015–2021 2017–2026 Total other long-term loans Long-term borrowings Short-term part of long-term loans2) 2014–2019 2014–2019 2014–2019 2013–2020 2013–2020 2013–2021 2017–2026 Total short-term part of long-term loans Other short-term loans Total other short-term loans Trade receivables with recourse Short-term borrowings Long-term and short-term borrowings Fair value of financial derivative liabilities Accrued interest expenses and prepaid interest income Total borrowings Description of loan Interest rate, % Currency Carrying amount, December 31 Nominal value (in currency) 2019 2018 Euro MTN Program Euro MTN Program Euro MTN Program Euro MTN Program Euro MTN Program Euro MTN Program Euro MTN Program Euro MTN Program Euro MTN Program Euro MTN Program 3.440 Floating Floating 1.125 Floating 3.724 1.103 Floating 0.885 Floating Fixed rate loans in Germany Amortizing long term bank loan in Sweden, long part Long-term bank loans in Sweden Amortizing long term bank loan in Sweden Other long-term loans 7.870 Floating Floating Floating SEK SEK SEK SEK SEK USD SEK SEK SEK SEK EUR SEK USD USD Euro MTN Program Euro MTN Program Euro MTN Program Euro MTN Program Euro MTN Program Amortizing long term bank loan in Sweden, short part Amortizing long term bank loan in Sweden Other short-term part of long-term loans Floating 2.340 1.000 3.440 Floating Floating Floating SEK SEK EUR SEK SEK SEK USD 170 830 350 200 800 73 1,000 1,250 750 750 39 154 170 63 750 250 100 170 830 308 12 Short-term bank loans in Egypt Short-term bank loans in Brazil Short-term bank loans in Thailand Short-term bank loans in Chile Other bank borrowings and commercial papers Floating Floating Floating Floating EGP BRR THB CLP 217 161 432 13,712 — — 350 200 804 681 1,000 1,260 750 757 5,802 170 830 350 200 806 655 — — — — 3,011 — 400 154 1,582 592 106 2,434 8,236 — — — 170 830 308 108 30 1,446 126 372 135 171 461 1,522 673 131 3,187 6,198 750 250 1,026 — — 308 — 21 2,355 182 675 259 — 503 1,307 601 3,354 313 1,429 168 3,952 11,590 10,150 233 33 81 28 11,856 10,260 1) The interest-rate fixing profile of the borrowings has been adjusted with interest-rate swaps. 2) Long-term borrowings with maturities within 12 months are classified as short-term borrowings in the Group’s balance sheet. Short-term borrowings pertain mainly to countries with capital restrictions. The average maturity of the Group’s long-term borrowings including long- term borrowings with maturities within 12 months was 3.0 years (2.6), at the end of 2019. The table below presents the repayment schedule of long-term borrowings for continuing operations. Repayment schedule of long-term borrowings, December 31 Debenture and bond loans Bank and other loans Short-term part of long-term loans Total ELECTROLUX ANNUAL REPORT 2019 2020 — — 1,446 1,446 2021 — 1,950 — 1,950 2022 1,260 108 — 1,368 2023 1,004 108 — 1,112 2024 2,857 108 — 2,965 2025— 681 160 — 841 Total 5,802 2,434 1,446 9,682 64 Notes All amounts in SEKm unless otherwise stated Cont. Note 18 Commercial flows The table below shows the forecasted transaction flows, imports and exports, for the 12-month period of 2020 and hedges at year-end 2019. The hedged amounts are dependent on the hedging policy for each flow considering the existing risk exposure. The effect of hedging on operating income during 2019 amounted to SEK –111m (26). At year-end 2019, the unrealized fair value of forward contracts for hedging of forecasted trans- action flows amounted to SEK –9m (–2). Forecasted transaction flows and hedges Inflow of currency, long position Outflow of currency, short position Gross transaction flow Hedges Net transaction flow AUD 3,168 –168 3,000 –643 2,357 BRL 3,815 –242 3,573 –793 2,780 CAD 2,604 0 2,604 –141 2,463 CHF 2,222 –210 2,012 –122 1,890 CLP 1,448 CNY 161 EUR GBP THB USD Other Total 2,906 3,390 2,110 4,325 12,456 38,605 –222 –2,770 –8,124 –810 –3,952 –16,091 –6,016 –38,605 1,226 –2,609 –5,218 2,580 –1,842 –11,766 6,440 –311 800 –935 –205 109 1,952 289 915 –1,809 –6,153 2,375 –1,733 –9,814 6,729 0 0 0 Maturity profile of financial liabilities and derivatives The table below presents the undiscounted cash flows of the Group’s contractual liabilities related to financial instruments based on the remaining period at the balance sheet date to the contractual maturity date. Floating interest cash flows with future fixing dates are estimated using the forward-forward interest rates at year-end. Any cash flow in foreign currency is converted to Swedish krona using the FX spot rates at year-end. The short-term liabilities from account payables are matched by positive cash flow from trade receivables. The loan maturities can be offset by the available liquidity and/or a combination by new issued bonds, commercial papers or bank loans. On top of the other sources, Electrolux has an unused committed credit facility of EUR 1,000m. Maturity profile of financial liabilities and derivatives – undiscounted cash flows Loans Net settled derivatives Lease liabilities Gross settled derivatives whereof outflow whereof inflow Accounts payable Financial guarantees Total ≤ 0.5 year > 0.5 year < 1 year > 1 year < 2 years > 2 years < 5 years > 5 years Total – 2,629 0 –524 –29 –29,279 29,250 –33,892 –939 –38,013 –277 0 –482 5 –690 695 — — –2,059 –5,637 –860 –11,462 –1 –835 –1 –1,210 0 –534 — — — — — — — — — — — — — — — –2 –3,584 –24 –29,969 29,945 –33,892 –939 –754 –2,895 –6,848 –1,394 –49,903 Net gain/loss, fair value and carrying amount on financial instruments The tables below present net gain/loss on financial instruments, the effect in the income statement and equity, and the fair value and carrying amount of financial assets and liabilities. Net gain/loss can include both exchange-rate differences and gain/loss due to changes in interest-rate levels. Net gain/loss, income and expense on financial instruments Recognized in operating income Financial assets and liabilities at fair value through profit and loss Financial assets and liabilities at amortized cost Total net gain/loss, income and expense Recognized in financial items Financial assets and liabilities at fair value through profit and loss Financial assets at amortized cost Other financial liabilities at amortized cost Total net gain/loss, income and expense 2019 2018 Gain/loss in profit and loss Gain/loss in OCI Income Expense Gain/loss in profit and loss Gain/loss in OCI Income Expense –115 99 –16 84 — –155 –71 –9 — –9 –1 — –100 –101 — — — — 69 — 69 — — — –141 — –424 –565 26 –193 –167 260 — –248 12 –2 — –2 –65 — –46 –111 — — — — 103 — 103 — — — –183 — –309 –492 ELECTROLUX ANNUAL REPORT 2019 Cont. Note 18 Fair value and carrying amount on financial assets and liabilities Financial assets Financial assets Financial assets at fair value through profit and loss Trade receivables Financial assets at amortized cost Derivatives Financial assets at fair value through profit and loss Derivatives in hedge accounting Short-term investments Financial assets at fair value through profit and loss Financial assets at amortized cost Cash and cash equivalents Financial assets at fair value through profit and loss Financial assets at amortized cost Total financial assets Financial liabilities Long-term borrowings Financial liabilities measured at amortized cost Accounts payable Financial liabilities at amortized cost Short-term borrowings Financial liabilities measured at amortized cost Derivatives Financial liabilities at fair value through profit and loss Derivatives in hedge accounting Total financial liabilities Notes 65 All amounts in SEKm unless otherwise stated 20191) 20181) Hierarchy level Carrying amount Hierarchy level Carrying amount 3 2 2 1 2 2 93 93 20,847 20,847 192 117 75 190 176 14 10,807 5,421 5,386 32,129 8,236 8,236 33,892 33,892 3,354 3,354 293 291 2 45,775 3 2 2 1 1 2 2 246 246 21,482 21,482 139 120 19 176 175 1 11,697 5,847 5,850 33,740 6,198 6,198 34,443 34,443 3,952 3,952 102 100 2 44,695 1) Carrying amount equals fair value except for long and short-term borrowings where the fair value is SEK 26m (45), respectively SEK 7m (12) higher than the carrying amount. The calculation of fair value on the Group’s borrowings is level 2 in the fair value hierarchy. Fair value estimation Valuation of financial instruments at fair value is done at the most accurate market prices available. Instruments which are quoted on the market, e.g., the major bond and interest-rate future markets, are all marked-to-market with the current price. The foreign-exchange spot rate is used to convert the value into SEK. For instruments where no reliable price is available on the market, cash flows are discounted using the deposit/swap curve of the cash flow currency. If no proper cash flow schedule is available, e.g., as in the case with forward-rate agreements, the underlying schedule is used for valuation purposes. To the extent option instruments are used, the valuation is based on the Black & Scholes formula. flows at the current market-interest rate that is available to the Group for similar financial instruments. The Group’s financial assets and liabilities at fair value are measured according to the following hierarchy: Level 1: Quoted prices in active markets for identical assets or liabilities. At year-end, the fair value for level 1 financial assets was SEK 176m (175) and for financial liabilities SEK 0m (0). Level 2: Inputs other than quoted prices included in level 1 that are observable for assets or liabilities either directly or indirectly. At year-end, the fair value for level 2 financial assets was SEK 192m (139) and for financial liabilities SEK 293m (102). The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities is estimated by discounting the future contractual cash Level 3: Inputs for the assets or liabilities that are not entirely based on observable market data. At year-end, the fair value for level 3 financial assets was SEK 93m (246) and for financial liabilities 0m (0). Note 19 Assets pledged for liabilities to credit institutions Group December 31 Parent Company December 31 2019 2018 2019 2018 — 6 6 — 6 6 — — — — — — Real-estate mortgages Other Total ELECTROLUX ANNUAL REPORT 2019 66 Notes All amounts in SEKm unless otherwise stated Note 20 Share capital, number of shares and earnings per share The equity attributable to equity holders of the Parent Company consists of the following items: Other paid-in capital Other paid-in capital relates to payments made by owners and includes share premiums paid. Number of shares Shares, December 31, 2018 Class A shares Class B shares Total Owned by Electrolux Owned by other shareholders Earnings per share, SEK Total Basic, continuing operations Basic, discontinued operations — 8,192,539 8,192,539 Basic, total Group 21,522,858 279,204,911 300,727,769 21,522,858 287,397,450 308,920,308 Share capital As per December 31, 2019, the share capital of AB Electrolux consisted of 8,192,539 Class A shares and 300,727,769 Class B shares with a quota value of SEK 5 per share. All shares are fully paid. One A share entitles the holder to one vote and one B share to one-tenth of a vote. All shares entitle the holder to the same proportion of assets and earnings, and carry equal rights in terms of dividends. Share capital Share capital, December 31, 2018 8,192,539 Class A shares, quota value SEK 5 300,727,769 Class B shares, quota value SEK 5 Total Share capital, December 31, 2019 8,192,539 Class A shares, quota value SEK 5 300,727,769 Class B shares, quota value SEK 5 Total 41 1,504 1,545 41 1,504 1,545 Conversion of Class A shares into Class B shares Class A shares Class B shares Sold shares Class A shares Class B shares Shares, December 31, 2019 Class A shares Class B shares Total — — — — — — — — — — — — — 8,192,539 8,192,539 21,522,858 279,204,911 300,727,769 21,522,858 287,397,450 308,920,308 Note 21 Untaxed reserves, Parent Company Accumulated depreciation in excess of plan Brands Licenses Machinery and equipment Buildings Other Total Group contributions Total appropriations Other reserves Other reserves include the following items: Cashflow hedges which refer to changes in valuation of currency contracts used for hedging future for- eign currency transactions; and exchange-rate differences on translation of foreign operations which refer to changes in exchange rates when net investments in foreign subsidiaries are translated to SEK. The amount of exchange-rate changes includes the value of hedging contracts for net investments. Finally, other reserves include tax relating to the mentioned items. Retained earnings Retained earnings, including income for the period, include the income of the Parent Company and its share of income in subsidiaries and associated companies. Retained earnings also include remeasurement of provision for post-employment benefits, reversal of the cost for share-based payments recognized in income, income from sales of own shares and the amount recognized for the common dividend. Earnings per share Income for the period attributable to equity holders of the Parent Company Diluted, continuing operations Diluted, discontinued operations Diluted, total Group Average number of shares, million Basic Diluted 2019 2018 2,509 3,805 6.33 2.40 8.73 6.30 2.38 8.69 9.93 3.31 13.24 9.86 3.29 13.14 287.4 288.8 287.4 289.5 Basic earnings per share is calculated by dividing the income for the period attributable to the equity holders of the Parent Company with the average number of shares. The average number of shares is the weighted average number of shares outstanding during the year, after repurchase of own shares. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding with the estimated num- ber of shares from the share programs. Share programs are included in the dilutive potential ordinary shares as from the start of each program. The dilution in the Group is a consequence of the Electrolux long-term incentive programs. The average number of shares during the year has been 287,397,450 (287,397,450) and the average number of diluted shares has been 288,824,237 (289,503,125). December 31, 2019 Appropriations December 31, 2018 364 0 32 0 34 430 –18 — 9 — –3 –12 694 682 382 0 23 0 37 442 ELECTROLUX ANNUAL REPORT 2019 Notes 67 All amounts in SEKm unless otherwise stated Sweden The main defined benefit plan in Sweden is the collectively agreed pension plan for white collar employees, the ITP 2 plan, and it is based on final salary. Benefits in payment are indexed according to the decisions of the Alecta insurance company, typically those follow inflation. The plan is semi-closed, meaning that only new employees born before 1979 are covered by the ITP 2 solution. A defined contribution solution (ITP 1) is offered to employees born after 1978. Electrolux has chosen to fund the pension obligation (ITP 2) by a pension foundation. The foundation’s Board consists of equal numbers of representatives from the employer and employees. There is no funding requirement for an ITP pension foundation. Benefits are paid directly by the company and, in case of surplus, the company can reimburse itself for the current and the previous year’s pension cost and/or take a contribution holiday. Germany There are several defined benefit plans based on final salary in Germany. Benefits in payment are indexed every three years according to inflation levels. All plans are closed for new participants. Electrolux has arranged a Contractual Trust Arrangement (CTA) and the funds are held by a local bank who acts as the trustee for the scheme. The assets are managed by a fund management company, Electrolux performs an oversight on the strategy via an investment committee with members both from Group staff functions and the local German company. No minimum funding require- ments or regular funding obligations apply to CTAs. If there is a surplus under both German GAAP and IFRS rules, Electrolux can take a refund up to the German GAAP surplus. Benefits are paid directly by the company and Electrolux can refund itself for pension pay-outs. Over time, Electrolux will have access to any residual funds after the last beneficiary has left the plan. Switzerland In Switzerland benefits are career average in nature, with indexation of benefits following decisions of the foundation board, subject to legal minima. Contributions are paid to the pension foundation and a recovery plan has to be set up if the plans are underfunded on the local funding basis. Swiss laws do not state any specific way of calculating an employer‘s additional contribution and because of that there is normally no mini- mum funding requirement. The assets in the foundation is to a large extent handled by local banks and they are working with both asset allocation and selection within a framework decided by the Swiss foundation board. Benefits are paid from the plan assets. Other countries There is a variety of smaller plans in other countries and the most impor- tant of those are in France, Italy, Canada and Norway. The pension plans in France and Italy are mainly unfunded. The Norwegian pension plans are funded and in Canada there are both funded and unfunded pension plans. A mix of final salary and career average exists in these countries. Some plans are open for new entrants. Note 22 Post-employment benefits Post-employment benefits The Group sponsors pension plans in many of the countries in which it has significant activities. Pension plans can be defined contribution or defined benefit plans or a combination of both. Under defined benefit pension plans, the company enters into a commitment to provide post-employment benefits based upon one or several parameters for which the outcome is not known at present. For example, benefits can be based on final salary, on career average salary, or on a fixed amount of money per year of employ- ment. Under defined contribution plans, the company’s commitment is to make periodic payments to independent authorities or investment plans, and the level of benefits depends on the actual return on those investments. Some plans combine the promise to make periodic payments with a prom- ise of a guaranteed minimum return on the investments. These plans are also defined benefit plans. In some countries, Electrolux makes provisions for compulsory severance payments. These provisions cover the Group’s commitment to pay employees a lump sum upon reaching retirement age, or upon the employees’ dismissal or resignation. In addition to providing pension benefits and compulsory severance payments, the Group provides healthcare benefits for some of its employees in certain countries, mainly in the U.S. The cost for pension is disaggregated into three components; service cost, financing cost or income and remeasurement effects. Service cost is reported within Operating income and classified as Cost of goods sold, Selling expenses or Administrative expenses depending on the function of the employee. Financing cost or income is recognized in the Financial items and the remeasurement effects in Other comprehensive income. The Projected Unit Credit Method is used to measure the present value of the obligations and costs. Net provisions for post-employment benefits in the balance sheet repre- sent the present value of the Group’s obligations less market value of plan assets. The remeasurements of the obligations are made using actuarial assumptions determined at the balance sheet date. Changes in the present value of the obligations due to revised actuarial assumptions and experi- ence adjustments on the obligation are recorded in Other comprehensive income as remeasurements. The actual return less calculated interest income on plan assets is also recorded in other comprehensive income as remeasurements. Past-service costs are recognized immediately in income for the period. Some features of the defined benefit plans in the main countries are described below. USA The number of pension plans in the U.S. has been significantly reduced over the years through plan consolidation. The defined benefit plans are closed for future accruals and employees are offered defined contribution plans. Pensions in payment are not generally subject to indexation. Funding posi- tion is reassessed every year with a target to restore the funding level over seven years. Surplus in the fund can be used to take a contribution holiday and refunds are taxed at 50%. Benefits are mainly paid from the plan assets. United Kingdom The defined benefit plan is closed for future accruals and employees are offered defined contribution. The funding position is reassessed every three years and a schedule of contributions is agreed between the Trustee and the company. The Trustee decides the investment strategy and consults with the company. Benefits are paid from the plan assets. ELECTROLUX ANNUAL REPORT 2019 68 Notes All amounts in SEKm unless otherwise stated Cont. Note 22 Explanation of amounts in the financial statements relating to defined benefit obligations. Information by country December, 31, 2019 Amounts included in the balance sheet Present value of funded and unfunded obligations 8,823 2,232 7,526 4,305 4,184 3,753 1,008 31,831 Fair value of plan assets (after change in asset ceiling) –9,198 –2,067 –7,479 –2,519 –2,768 –3,522 –218 –27,771 USA Medical USA UK Sweden Germany Switzer– land Other Total –375 165 1,786 1,416 231 790 4,060 Total (surplus)/deficit Whereof reported as: Pension plan assets Provisions for post-employment benefit plans Total funding level for all pension plans, % Average duration of the obligation, years Amounts included in total comprehensive income Service cost3) Net interest cost Remeasurements (gain)/loss Total expense (gain) for defined benefit plans Expenses for defined contribution plans Amounts included in the cash flow statement Contributions by the employer Reimbursement Benefits paid by the employer Major assumptions for the valuation of the liability Longevity, years4) Male Female Inflation, %5) Discount rate, % Information by country December, 31, 2018 Amounts included in the balance sheet 47 — — 99 — — 93 — — 59 — — 66 — — 94 10.4 15.7 18.5 14.5 13.5 367 — –277 90 27 — 20 20.7 22.7 6.25 3.00 11 –15 172 168 78 23 421 522 20 19 49 88 — — — — –103 119 — –334 166 21.0 23.9 3.00 1.80 23.0 24.8 1.75 1.40 20.2 23.7 1.70 0.90 53 1 –85 –31 43 — — 22.6 24.7 1.25 0.10 — — 104 10.3 –349 6 –287 –630 — — — 20.7 22.7 3.00 3.00 — — 22 — –87 10 110 33 23 — 56 — — — — 1,0561) 5,1162) 87 13.6 93 44 103 240 636 93 –437 361 21.2 23.7 2.36 1.82 USA Medical USA UK Sweden Germany Switzer– land Other Total Present value of funded and unfunded obligations 8,221 1,790 6,257 4,052 3,779 3,396 1,151 28,646 Fair value of plan assets (after change in asset ceiling) –7,814 –1,837 –6,354 –2,772 –2,631 –3,100 –324 –24,832 Total (surplus)/deficit Whereof reported as: Pension plan assets Provisions for post-employment benefit plans Total funding level for all pension plans, % Average duration of the obligation, years Amounts included in total comprehensive income Service cost6) Net interest cost Remeasurements (gain)/loss Total expense (gain) for defined benefit plans Expenses for defined contribution plans Amounts included in the cash flow statement Contributions by the employer Reimbursement Benefits paid by the employer Major assumptions for the valuation of the liability Longevity, years4) Male Female Inflation, %5) Discount rate, % 407 –47 –97 1,280 1,148 296 827 3,814 — — 97 9.4 17 8 49 74 — — –21 20.8 22.7 3.00 4.15 — — 103 9.9 — 1 81 82 –22 — — 20.8 22.7 6.50 4.15 — — 102 14.7 60 6 –373 –307 –58 — — 20.9 23.8 3.25 2.65 — — 68 — — 70 — — 91 17.4 14.3 12.6 158 18 279 455 22 6 206 234 — 91 –125 — 626 –161 23.0 24.8 1.75 2.25 20.0 23.6 1.70 1.70 54 — 197 251 –40 — — 22.5 24.5 1.25 0.74 — — 16 — 9 9 9 27 –11 — –55 — — — — 532 4,346 87 12.7 320 48 448 816 640 –131 717 –362 21.2 23.6 2.40 2.63 1) Whereof pension plan assets amount to SEK 1,043m for continuing operations and SEK 13m for discontinued operations. 2) Whereof provisions for post-employment benefit plans amount to SEK 4,909m for continuing operations and SEK 208m for discontinued operations. 3) Includes a gain of SEK 200m due to plan amendment in France and settlement in Sweden and Norway. 4) Expressed as the average life expectancy of a 65 years old person in number of years. 5) General inflation impacting salary and pensions increase. For USA Medical, the number refers to the inflation of healthcare benefits. 6) Includes a loss of SEK 51m in UK due to gender equalization of Guaranteed Minimum Pension. ELECTROLUX ANNUAL REPORT 2019 Notes 69 All amounts in SEKm unless otherwise stated Risks There are mainly three categories of risks related to defined benefit obliga- tions and pension plans. The first category relates to risks affecting the actual pension payments. Increased longevity and inflation of salary and pensions are the principle risks that may increase the future pension payments and, hence, increase the pension obligation. The second category relates to investment return. Pension plan assets are invested in a variety of financial instruments and are exposed to market fluctuations. Poor investment return may reduce the value of investments and render them insufficient to cover future pension payments. The final category relates to measurement and affects the accounting for pensions. The discount rate used for measuring the present value of the obligation may fluctuate which impacts the valua- tion of the Defined Benefit Obligation (DBO). The discount rate also impacts the size of the interest income and expense that is reported in the Financial items and the service cost. When determining the discount rate, the Group uses AA rated corporate bond indexes which match the duration of the pension obligations. In Sweden and Norway, mortgage-backed bonds are used for determining the discount rate. Expected inflation and mortality assumptions are based on local conditions in each country and changes in those assumptions may also affect the measured obligation and, therefore, the accounting entries. Investment strategy and risk management The Group manages the allocation and investment of pension plan assets with the aim of decreasing the total pension cost over time. This means that certain risks are accepted in order to increase the return. The investment horizon is long-term and the allocation ensures that the investment port- folios are well diversified. In some countries, a so called trigger-points scheme is in place, whereby the investment in fixed income assets increases as the funding level improves. The Board of Electrolux annually approves the limits for asset allocation. The final investment decision often resides with the local trustee that consults with Electrolux. The risks related to pension obligations, e.g., mortality exposure and inflation, are monitored on an ongoing basis. Buy-out premiums are also monitored and other potential liability management actions are also considered to limit the exposure to the Group. Cont. Note 22 Reconciliation of change in present value of funded and unfunded obligations Opening balance, January 1 Current service cost Special events Interest expense Remeasurement arising from changes in financial assumptions Remeasurement from changes in demographic assumptions Remeasurement from experience Contributions by plan participants Benefits paid Exchange differences Settlements and other Total Discontinued operations, obligations Closing balance, December 31 Reconciliation of change in the fair value of plan assets Opening balance, January 1 Interest income1) Return on plan assets, excluding amounts included in interest1) Effect of asset ceiling Net contribution by employer Contribution by plan participants Benefits paid Exchange differences Settlements and other Total Discontinued operations, plan assets Closing balance, December 31 1) The actual return on plan assets amounts to SEK 4,174m (–553). 2019 2018 28,646 28,378 246 –96 808 237 50 720 3,379 –717 –63 206 50 –132 72 45 –1,808 –1,514 1,106 1,539 –643 –32 31,831 28,646 –208 — 31,623 28,646 2019 2018 24,832 25,744 764 672 3,410 –1,225 14 –344 50 –52 –224 45 –1,447 –1,514 1,096 1,453 –604 –67 27,771 24,832 –13 — 27,758 24,832 Below is the sensitivity analysis for the main financial assumptions and the potential impact on the present value of the defined pension obligation. Note that the sensitivities are not meant to express any view by Electrolux on the probability of a change. Sensitivity analysis on defined benefit obligation Longevity +1 year Inflation +0.5%1) Discount rate +1% Discount rate –1% USA 297 28 –807 938 USA Medical UK Sweden Germany 127 118 –213 247 351 374 –1,072 1,331 158 405 –670 876 100 289 –558 710 Switzer- land 126 39 –472 632 Other 7 22 –82 97 Total 1,166 1,275 –3,874 4,831 1) The inflation change feeds through to other inflation-dependent assumptions, i.e., pension increases and salary growth. In the coming year, the Group expects to pay a total of SEK 329m in contributions to the pension funds and as payments of benefits directly to the employees. MARKET VALUE OF PLAN ASSETS BY CATEGORY 2019 2018 Fixed income, SEK 13,059m Equity, SEK 8,437m Hedge funds, SEK 2,140m Real estate, SEK 2,631m Infrastructure, SEK 500m Private equity, SEK 136m Cash, SEK 868m Fixed income, SEK 12,103m Equity, SEK 7,669m Hedge funds, SEK 1,673m Real estate, SEK 2,304m Infrastructure, SEK 307m Private equity, SEK 142m Cash, SEK 634m ELECTROLUX ANNUAL REPORT 2019 70 Notes All amounts in SEKm unless otherwise stated Cont. Note 22 Market value of plan assets without quoted prices Fixed income Real estate Infrastructure Private equity December 31 2019 915 2018 61 2,631 2,302 500 136 307 142 The Swedish pension foundation carries plan assets at an amount of SEK 200m related to property used by Electrolux. Governance Defined benefit pensions and pension plan assets are governed by the Electrolux Pension Board, which resumes 3 to 4 times per year and has the following responsibilities: • Implementation of pension directives of the AB Electrolux Board of Directors. • Evaluation and approval of new plans, changes to plans or termination of plans. • Approval of the Group’s and local pension funds’ investment strategies. • Approval of the Group’s global and local benchmarks for follow up of pension plan assets. • Approval of the election of company representatives in the Boards of Trustees. • Approval of the financial and actuarial assumptions to be used in the measurement of the defined benefit obligations. Parent Company According to Swedish accounting principles adopted by the Parent Company, defined benefit liabilities are calculated based upon officially provided assumptions, which differ from the assumptions used in the Group under IFRS. The pension benefits are secured by contributions to a separate fund or recorded as a liability in the balance sheet. The accounting prin- ciples used in the Parent Company’s separate financial statements differ from the IFRS principles, mainly in the following: • The pension liability calculated according to Swedish accounting principles does not take into account future salary increases. • The discount rate used in the Swedish calculations is set by the Swedish Pension Foundation (PRI) and was for 2019 4.0% (4.0). The rate is the same for all companies in Sweden. • Changes in the discount rate and other actuarial assumptions are Change in fair value of plan assets Opening balance, January 1, 2018 Actual return on plan assets Contributions and compensation to/from the fund Closing balance, December 31, 2018 Actual return on plan assets Contributions and compensation to/from the fund Closing balance, December 31, 2019 Amounts recognized in the balance sheet Present value of pension obligations Fair value of plan assets Surplus/deficit Limitation on assets in accordance with Swedish accounting principles Net provisions for pension obligations Whereof reported as provisions for pensions Amounts recognized in the income statement Current service cost Interest cost recognized immediately in the profit or loss and the balance sheet. • Deficit must be either immediately settled in cash or recognized as a liability in the balance sheet. • Surplus cannot be recognized as an asset, but may in some cases be refunded to the company to offset pension costs. Total expenses for defined benefit pension plans Insurance premiums Total expenses for defined contribution plans Special employer’s contribution tax Change in the present value of defined benefit pension obligation for funded and unfunded obligations Opening balance, January 1, 2018 1,651 438 2,089 Funded Unfunded Total Current service cost Interest cost Benefits paid 82 67 –78 Closing balance, December 31, 2018 1,722 Current service cost Interest cost Benefits paid 48 70 –81 Closing balance, December 31, 2019 1,759 16 18 –30 442 7 18 –30 437 98 85 –108 2,164 55 88 –111 2,196 Funded 2,397 29 –75 2,351 320 –133 2,538 December 31 2019 2018 –2,196 –2,164 2,538 2,351 342 187 –779 –437 –437 –628 –442 –442 2019 2018 55 88 143 157 157 31 2 333 –133 200 98 85 183 107 107 33 2 325 –75 250 Cost for credit insurance FPG Total pension expenses Compensation from the pension fund Total recognized pension expenses The Swedish Pension Foundation The pension liabilities of the Group’s Swedish defined benefit pension plan (PRI pensions) are funded through a pension foundation established in 1998. The market value of the assets of the foundation amounted at December 31, 2019, to SEK 2,551m (2,772m) and the pension commitments to SEK 1,759m (2,013). The Swedish Group companies recorded a liability to the pension fund as per December 31, 2019, in the amount of SEK 0m (0). Contributions to the pension foundation during 2019 amounted to SEK 0m (0). Contributions from the pension foundation during 2019 amounted to SEK 585m (91). ELECTROLUX ANNUAL REPORT 2019 Provisions for restructuring Warranty commitments Claims 1,915 1,362 Notes 71 All amounts in SEKm unless otherwise stated Group Parent Company Other 3,256 19 871 –867 –512 96 — 391 –464 — 108 1,397 2,863 269 533 1,128 2,330 Total 7,823 29 3,773 –3,759 –631 330 7,565 2,284 5,281 10 1,793 –1,679 –11 67 2,095 1,071 1,024 2,095 1,397 2,863 7,565 5 2,178 –1,984 –31 68 –245 2,086 1,015 1,071 — 421 — 5 1,733 5,658 –491 –1,258 –4,297 — 50 — 1,377 280 –56 70 –361 2,991 556 1,097 2,436 –266 210 –692 8,183 2,606 5,577 Provisions for restructuring Warranty commitments Other 322 — 3 –122 –74 45 174 125 49 174 — 471 –87 –23 –1 0 534 187 347 421 — 86 –44 0 10 473 92 381 473 — 370 –396 — 5 — 452 120 332 48 — 3 –7 0 0 44 — 44 44 — 8 –14 — — 0 38 — 38 Total 791 — 92 –173 –74 55 691 217 474 691 — 849 –497 –23 4 0 1,024 307 717 1,290 — 718 –749 –108 59 1,210 411 799 1,210 — 1,326 –564 –179 22 –86 1,729 755 973 Note 23 Other provisions Opening balance, January 1, 2018 Acquisitions of operations Provisions made Provisions used Unused amounts reversed Exchange-rate differences Closing balance, December 31, 2018 Of which current provisions Of which non-current provisions Opening balance, January 1, 2019 Acquisitions of operations Provisions made Provisions used Unused amounts reversed Exchange-rate differences Discontinued operations Closing balance, December 31, 2019 Of which current provisions Of which non-current provisions Provisions are recognized when the Group has a present obligation as a result of a past event, and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the balance sheet date. Where the effect of time value of money is material, the amount recognized is the present value of the estimated expenditures. Provisions for warranty are recognized at the date of sale of the products covered by the warranty and are calculated based on historical data for similar products. Provisions for warranty commitments are recognized as a consequence of the Group’s policy to cover the cost of repair of defective products. Warranty is normally granted for one to two years after the sale. Restructuring provisions are recognized when the Group has both adopted a detailed formal plan for the restructuring and either started the plan implementation or communicated its main features to those affected by the restructuring. Provisions for restructuring represent the expected costs to be incurred as a consequence of the Group’s decision to close some factories, rationalize production and reduce personnel, both for newly acquired and previously owned companies. The amounts are based on management’s best estimates and are adjusted when changes to these estimates are known. The larger part of the restructuring provisions as per December 31, 2019, will be consumed in 2020 and 2021. Provisions for claims refer to the Group’s captive insurance companies. Other provisions include mainly provisions for direct and indirect tax, envi- ronmental liabilities, asbestos claims or other liabilities. The timing of any resulting outflows for provisions for claims and other provisions is uncertain. Note 24 Other liabilities Group December 31 Parent Company December 31 Accrued holiday pay Other accrued payroll costs Accrued interest expenses Contract liabilities1) Other accrued expenses Prepaid income grants Other prepaid income VAT liabilities Personnel related liabilities 2019 928 1,597 33 6,005 3,387 828 124 957 836 2018 1,043 1,297 28 5,093 4,710 882 302 1,286 797 Other operating liabilities 2,126 1,667 2019 223 261 29 — 2018 137 64 25 — 525 1,210 — 210 — — — — 43 — — — Total 16,821 17,105 1,248 1,479 1) Movement in contract liabilities is presented in Note 4. Other accrued expenses include for example accruals for fees, advertising and sales promotion. Other operating liabilities include for example opera- tional taxes. ELECTROLUX ANNUAL REPORT 2019 72 Notes All amounts in SEKm unless otherwise stated Note 25 Contingent assets and liabilities Guarantees and other commitments On behalf of subsidiaries On behalf of external counterparties Employee benefits in excess of reported liabilities Total Group December 31 Parent Company December 31 2019 2018 2019 2018 — — 0 1,044 939 992 1,015 490 — 23 — — 939 1,015 1,015 1,534 A large part of the guarantees and other commitments on behalf of external counterparties, is related to U.S. sales to dealers financed through external finance companies with a regulated buy-back obligation of the products in case of dealer’s bankruptcy. In addition to the above contingent liabilities, guarantees for fulfillment of contractual undertakings are given as part of the Group’s normal course of business. There was no indication at year-end that payment will be required in connection with any contractual guarantees. Legal proceedings Litigation and claims related to asbestos are pending against the Group in the U.S. Almost all of the cases refer to externally supplied components used in industrial products manufactured by discontinued operations prior to the early 1970s. The cases involve plaintiffs who have made substan- tially identical allegations against other defendants who are not part of the Electrolux Group. As of December 31, 2019, the Group had a total of 3,897 (3,460) cases pending, representing approximately 3,933 (approximately 3,502) plain- tiffs. During 2019, 1,617 new cases with 1,618 plaintiffs were filed and 1,180 pending cases with approximately 1,187 plaintiffs were resolved. The Group continues to operate under a 2007 agreement with certain insurance carriers who have agreed to reimburse the Group for a portion of its costs relating to certain asbestos lawsuits. The agreement is subject to termination upon 60 days notice and if terminated, the parties would be restored to their rights and obligations under the affected insurance policies. It is expected that additional lawsuits will be filed against Electrolux. It is not possible to predict the number of future lawsuits. In addition, the outcome of asbestos lawsuits is difficult to predict and Electrolux cannot provide any assurances that the resolution of these types of lawsuits will not have a material adverse effect on its business or on results of operations in the future. The Group is involved in a legal proceeding in Egypt relating to the priva- tization of an Egyptian subsidiary. The proceeding is currently on-going in the court of first instance in Cairo, Egypt. Electrolux believes that the lawsuit is without legal merit. In October 2013, Electrolux became subject of an investigation by the French Competition Authority regarding a possible violation of antitrust rules. The Authority has thereafter decided to conduct two separate investigations whereof one was completed in December 2018. The other investigation is still ongoing, and the Authority has so far not communicated any conclusions. Given the nature of the investigation, it cannot be ruled out that the outcome could have a material impact on Electrolux financial result and cash flow. At this stage it is however not possible to evaluate the extent of such an impact. In November 2017, the U.S. Department of Commerce (DOC) informed the Group that it had set a preliminary and significantly increased tariff rate of 72.41% on washing machines manufactured in Mexico by Electrolux and imported into the U.S. between February 2016 and January 2017. In March 2018, Electrolux was informed by DOC that this preliminary tariff rate was determined as final. Electrolux has appealed DOC’s decision. If the tariff rate is not significantly reduced as a result of the appeal process, it could lead to a one-time cost of up to USD 70m. The one time cost, if any, is subject to a current interest rate of 5%.However, Electrolux believes that the com- pany has a very strong legal case and has not made any provision related to this potential cost at this stage. In the fourth quarter of 2019 an order was issued by the Italian Environ- mental Authorities for certain remediation actions connected to contami- nation at Electrolux subsidiary INFA s.p.a. (“INFA”) former manufacturing site in Aviato (Italy), a site (land and factory) that INFA divested to the current operator of the site, Sarinox s.p.a (“Sarinox”), in 2001. Pursuant to the order, addressed against Sarinox, Sarinox shall, inter alia, make a contribution of 42m EUR to projects improving the groundwater quality in the Friuli region, Italy, and take certain other measures to clean 42m cubic meters of con- taminated groundwater in the region. Sarinox has objected to the order by appealing to the administrative court of Trieste. As it is possible that the situation can result in a liability for INFA in its capacity as former owner and operator or seller of the site, INFA has filed a motion to join the proceedings to protect its interests. At this stage it is too early to predict the outcome of this matter and to assess and quantify INFA’s liability, if any. No provision has been set at this stage. Contingent assets In December 2018, Electrolux obtained a judicial court certification attest- ing a final and non-appealable decision in Brazil that Electrolux has the right to recover overpaid sales tax for 2002–2014. In December 2018, Electrolux filed a claim with the Brazilian tax authorities for the recovery of the overpaid sales tax and a minor part was recognized as an asset per December 31, 2018. The remaining amount was recognized as an asset as per September 30, 2019. There is accordingly no longer a contingent asset related to this case. ELECTROLUX ANNUAL REPORT 2019 Note 26 Acquired, divested and discontinued operations Acquired operations Consideration: Cash paid for acquisitions made during the year Deferred consideration Total consideration Recognized amounts of assets acquired and liabilities assumed: Total net assets acquired Assumed net debt Goodwill Total Payments for acquisitions: Cash paid for acquisitions made during the year Cash and cash equivalents in acquired operations Cash paid related to deferred consideration from acquisitions made in earlier years Payments for acquisition of non-controlling interest in CTI SA and Somela SA, Chile Total paid Notes 73 All amounts in SEKm unless otherwise stated 2019 2018 Sydney Appliance Installa- tions UNIC Total Schnei- dereit SPM Other Total 26 13 39 0 0 39 39 410 0 410 143 –69 336 410 436 13 449 143 –69 375 449 331 37 368 168 –93 293 368 470 — 470 189 –10 291 470 3 20 23 11 –10 22 23 2019 436 –4 35 0 467 804 57 861 368 –113 606 861 2018 804 –49 144 3 902 Acquisitions in 2019 Sydney Appliance Installations On February 1, 2019, the acquisition of the Australian appliance installa- tion and repair service operation, Sydney Appliance Installations (SAI), was completed through an asset deal. The acquisition fits well into the existing business model increasing Electrolux in-house after sales capacity in the region. The purchase price for the operation contains an upfront payment of AUD 3.9m, approximately SEK 26m and a deferred consideration of up to AUD 2m, approximately SEK 13m, of which AUD 1.7m is dependent on future financial performance. The SAI operation’s net sales and operating income in 2019 amounted to AUD 3.1m and AUD 0.5m respectively, approxi- mately SEK 21m and SEK 3.3m respectively. The acquired business contrib- uted to Electrolux consolidated accounts in 2019 by AUD 2.9m in net sales and AUD 0.4m in operating income, approximately SEK 19m and SEK 2.9m respectively. Goodwill to be recognized in the transaction mainly relates to the value of the assembled workforce and synergies with Electrolux appli- ance business. Goodwill is not expected to be deductible for income tax. The operations are included in business area Asia-Pacific, Middle East and Africa. Unic SAS On April 24, 2019, the acquisition of the French producer of professional espresso coffee machines, Unic S.A.S, was completed by acquiring 100% of the shares in a cash deal. The purchase price for the shares amounts to EUR 39m with a net debt assumed, estimated at EUR 6.6m. The company’s head- quarters and main manufacturing facility are located in southern France, with subsidiaries in the U.S. and Japan. The acquisition is part of Electrolux Professional Products’ strategy to grow with a complete offering of food ser- vice, beverage and laundry solutions. Together with previous acquisitions (Grindmaster-Cecilware in North America 2017 and SPM Drink Systems in Italy 2018), UNIC complements the Electrolux portfolio of products for hot, cold and frozen beverages. The Unic group’s net sales and operating income in 2019 amounted to EUR 16.7m and EUR –1.6m respectively, approximately SEK 176m and SEK –17m respectively. The acquired business contributes to Electrolux con- solidated accounts, within the business Electrolux reports as discontinued operations and held for distribution, in 2019 by EUR 10.7m in net sales and EUR –1.6m in operating income, approximately SEK 113m and SEK –17m respectively. Goodwill recognized in the transaction mainly relates to syn- ergies with Electrolux operations in this business segment. Goodwill is not expected to be deductible for income tax. The operations are included in discontinued operations, Electrolux Professional. Transaction costs Transaction costs related to the acquisitions in 2019 amount to SEK 4.2m and have been expensed as incurred during the acquisition process in 2019 (SEK 3.5m) and 2018 (SEK 0.7m). The costs have been reported in the busi- ness area’s operating income. Acquisitions in 2018 Schneidereit GmbH On February 22, 2018, Electrolux completed the acquisition of Schneidereit GmbH, a supplier of laundry rental solutions for professional customers in Germany and Austria. The agreement to acquire the company was announced on January 22, 2018. The acquisition enables Electrolux to develop its offering within the professional laundry business and supports the long-term profitable growth in Europe. Schneidereit adds a comple- mentary business model, enabling Electrolux to help provide great expe- riences to an even wider customer base while exploring functional sales which is an interesting growth area in the industry for professional products. The consideration consisted of a cash payment of EUR 32.8m and a deferred part (hold-back) of EUR 3.6m. The cash payment was equivalent to SEK 331m and the deferred part was equivalent to SEK 37m. The cash flow effect was SEK –303m excluding acquired cash and cash equivalents. In 2019 the hold-back was released with an additional payout of EUR 3.3m, equivalent to SEK 35m. The acquired business was included in Electrolux consolidated accounts per December 31, 2018, with financial statements for the period January– December 2018, contributing to net sales and operating income ( including amortization of surplus values) by EUR 18.7m and EUR 0k respectively, approximately SEK 192m and SEK 0m respectively. Goodwill recognized for the acquisition include the value of the added business model with its growth potential and synergies identified. Goodwill is not expected to be deductible for income tax purposes. The operations were included in business area Professional Products, thus included in discontinued operations as per December 2019. SPM Drink Systems On October 2, 2018, Electrolux completed the acquisition of SPM Drink Systems, an Italian leading manufacturer of professional dispensers of frozen and hot beverages and soft ice-cream, as part of the strategy to increase its presence in the hospitality industry. The acquisition supports Electrolux strategy for profitable growth and strengthens Electrolux pres- ence in the fast-growing beverage segment. The consideration consisted of a cash payment of EUR 45.6m, equivalent to SEK 470m. The cash flow effect was SEK –449m excluding acquired cash and cash equivalents. ELECTROLUX ANNUAL REPORT 2019 74 Notes All amounts in SEKm unless otherwise stated Cont. Note 26 The acquired business was included in Electrolux consolidated accounts from October 1, 2018, contributing to net sales and operating income (including amortization of surplus values) by EUR 3.7m and EUR –0.7m respectively, approximately SEK 38m and SEK –7m respectively. For the full year 2018, the acquired business accounted for net sales and operating income of EUR 31m and EUR 0.6m respectively, approximately SEK 314m and SEK 6m respectively. Goodwill from the transaction mainly relates to the value of the additional presence in the fast-growing beverage segment both from a product range and geographical perspective. The goodwill is not expected to be deduct- ible for income tax purposes. The operations were included in business area Professional Products, thus included in discontinued operations as per December 2019. Other Other acquisitions of operations refer to the acquisition of a nationwide provider of repair service and distribution of spare parts in Germany. The operations are included in business area Europe. Transaction costs Transaction costs related to the acquisitions in 2018 amounted to SEK 12m and were expensed as incurred during the acquisition process in 2017 (SEK 4m) and 2018 (SEK 8m). The costs were reported in the business area’s operating income. Divested operations No divestments were made in 2019. In August 2018 the US-based North American commercial and central vacuum cleaner business, including the brands Beam and Sanitaire was divested. The total gross consideration was USD 37m (SEK 320m) resulting in a capital gain of USD 24m (SEK 205m) and a cash flow effect in 2018 of USD 34m (SEK 293m) after reducing the gross consideration with an agreed hold-back and the transaction cost. Transaction costs incurred amount to SEK 17m. The divestment triggered rationalization activities and additional asset write-downs with a negative impact in the Operating Income of USD 14m (SEK 115m). The divested operations had combined revenues in 2017 of around USD 70m. The divestment and related effects are included in business area North America. Divested operations North American commercial and central vacuum cleaner business, USA Total cash received for divestments 2019 2018 — — 293 293 Discontinued operations In January 2019, Electrolux announced that the company was preparing for the separation and distribution of its Professional Products business area (‘Electrolux Professional’). On December 5, 2019 the Electrolux Board of Directors decided to propose to the Electrolux shareholders to distribute the shares in the wholly-owned subsidiary Electrolux Professional AB to the shareholders of Electrolux. The intention is to list Electrolux Professional AB on Nasdaq Stockholm on March 23, 2020. Electrolux Professional has been classified as held for distribution to owners as per December 2019 and is accounted for under the applicable principles for assets held for sale and discontinued operations. All related effects are referred to as ‘Discontinued operations’. Electrolux Professional is reported as discontinued operations in the con- solidated statement of comprehensive income for 2019. The consolidated statement of comprehensive income for 2018 has been restated accord- ingly. The Electrolux Professional results are excluded from the individual lines of the consolidated income statement with the total net reported as ‘Income for the period from discontinued operations’. All income from dis- continued operations is attributable to owners of the parent. The consolidated cash flow statement includes a split of operating income into ‘Operating income, continuing operations’ and ‘Operating income, discontinued operations’. In the balance sheet as per 31 December 2019, assets and liabilities of Electrolux Professional have been reclassified as ‘Discontinued operations, assets held for distribution’ and ‘Discontinued operations, liabilities held for distribution’ respectively and measured at the lower of its carrying amount and fair value less costs to distribute. The balance sheet items for the pre- vious year(s) are the historical financial statements as no balance sheet restatement is allowed under IFRS. Details on income statement, balance sheet and cash flow for discontin- ued operations are presented below. Income statement discontinued operations Net sales Cost of sales Gross operating income Selling expenses Administrative expenses Other operating income and expenses Operating income Financial items, net Income after financial items Taxes Income for the period, discontinued operations Balance sheet discontinued operations Property, plant and equipment, owned Property, plant and equipment, right-of-use Goodwill Other intangible assets Other non-current assets Total non-current assets Inventories Trade receivables Other current assets Total current assets Total assets Long-term borrowings Long-term lease liabilities Other provisions Total non-current liabilities Accounts payable Short-term borrowings Short-term lease liabilities Other current liabilities Total current liabilities Total liabilities Cash flow discontinued operations Cash flow from operations Cash flow from investments Cash flow from financing Total cash flow 2019 2018 9,281 8,666 –6,040 –5,447 3,241 3,219 –1,699 –1,642 –584 –434 32 991 12 –9 1,134 –2 1,003 1,133 –314 688 –182 951 2019 2018 1,214 1,085 238 — 1,821 1,438 388 397 4,057 1,265 1,687 1,025 3,977 8,034 3 172 846 1,021 1,485 4 72 1,370 2,930 3,951 2019 1,120 –689 –134 297 394 268 3,185 1,299 1,658 474 3,431 6,615 25 — 726 751 1,446 32 — 1,165 2,644 3,394 2018 784 –834 –94 –144 ELECTROLUX ANNUAL REPORT 2019 Note 27 Employees and remuneration Employees and employee benefits In 2019, the average number of employees was 48,652 (51,253), of which 29,747 (32,176) were men and 18,905 (19,076) were women. A detailed specification of the average number of employees by coun- try has been submitted to the Swedish Companies Registration Office and is available upon request from AB Electrolux, Investor Relations. See also Electrolux website www.electroluxgroup.com. Notes 75 All amounts in SEKm unless otherwise stated Average number of employees, by geographical area Europe North America Latin America Asia/Pacific Rest of world Total continuing operations Discontinued operations Total Group including discontinued operations Group 2019 2018 18,908 19,278 6,640 8,200 14,843 15,631 4,987 3,274 4,627 3,517 48,652 51,253 3,469 3,166 52,121 54,419 Salaries, other remuneration and employer contributions 2019 Salaries and remuneration Employer contributions 2018 Salaries and remuneration Employer contributions Parent Company whereof pension costs1) Subsidiaries whereof pension costs Total continuing operations whereof pension costs Discontinued operations Total Group including discontinued operations 1,063 — 15,255 — 16,318 — 1,666 17,984 577 243 3,605 493 4,182 736 437 Total 1,640 243 18,860 493 20,500 736 2,103 587 224 3,582 647 4,169 871 482 Total 1,742 224 18,256 647 19,998 871 2,016 1,155 — 14,674 — 15,829 — 1,534 17,363 4,619 22,603 4,651 22,014 1) Includes SEK 8m (8), referring to the President’s predecessors according to local GAAP. Salaries and remuneration for Board members, senior managers and other employees Parent Company Other Total continuing operations Discontinued operations Total Group including discontinued operations 2019 2018 Board mem- bers and senior managers1) 59 338 397 58 455 Other employees 1,004 14,917 15,921 1,608 Total 1,063 15,255 16,318 1,666 17,529 17,984 Board mem- bers and senior managers1) 64 266 330 54 384 Other employees 1,091 15,460 16,551 428 Total 1,155 15,726 16,881 482 16,979 17,363 1) According to the definition of Senior managers in the Swedish Annual Accounts Act. Of the Board members in Group companies, 91 (102) were men and 14 (12) women, of whom 6 (9) men and 3 (4) women in the Parent Company. According to the definition of Senior managers in the Swedish Annual Accounts Act, the number of Senior managers in the Group consisted of 178 (184) men and 75 (64) women, of whom 6 (7) men and 2 (2) women in the Parent Company. The total pension cost for Board members and senior managers in the Group amounted to SEK 33 m (33). Compensation to Board members ´000 SEK Ordinary compen sation Compen sation for committee work Total compen sation Ordinary compen sation Compen sation for committee work Total compen sation 2019 2018 Staffan Bohman, Chairman (from AGM 2018) 2 ,187 Petra Hedengran Hasse Johansson Ronnie Leten (Chairman up to AGM 2018) Ulla Litzén Bert Nordberg (up to AGM 2019) Fredrik Persson David Porter Jonas Samuelsson, President Ulrika Saxon Kai Wärn Bo Rothze'n (up to AGM 2018) Gunilla Brandt (up to AGM 2018) Ulf Carlsson Viveca Brinkenfeldt-Lever Peter Ferm Total compensation 630 630 — 630 150 630 630 — 630 630 — — — — — 260 310 1601) — 280 160 — — 100 — — — — — — 2,447 1,612 940 790 — 910 150 790 630 — 730 630 — — — — — 595 595 519 595 595 595 595 — 595 595 — — — — — 215 347 1801) 25 343 — 180 — — 100 0 — — — — — 1,827 942 775 544 938 595 775 595 — 695 595 — — — — — 6,747 1,270 8,017 6,891 1,390 8,281 1) Includes compensation for work relating to investments, modularization and quality. ELECTROLUX ANNUAL REPORT 2019 76 Notes All amounts in SEKm unless otherwise stated Cont. Note 27 Compensation to the Board of Directors The Annual General Meeting (AGM) determines the compensation to the Board of Directors for a period of one year until the next AGM. The com- pensation is distributed between the Chairman, other Board Members and remuneration for committee work. The Board decides the distribution of the committee fee between the committee members. Compensation is paid out in advance each quarter. Compensation paid in 2019 refers to one fourth of the compensation authorized by the AGM in 2018, and three fourths of the compensation authorized by the AGM in 2019. Total compensation paid in cash in 2019 amounted to SEK 8.0m, of which SEK 6.7m referred to ordinary compensation and SEK 1.3m to committee work1). 1) Includes compensation for work relating to investments, modularization and quality. Remuneration Committee For information on the Remuneration Committee, see the Corporate Governance Report on page 107. Remuneration guidelines for Group Management The AGM in 2019 approved the proposed remuneration guidelines. These guidelines are described below. The overall principles for compensation within Electrolux are tied strongly to the position held, individual as well as team performance, and competi- tive compensation in the country or region of employment. The overall compensation package for higher-level management com- prises fixed salary, variable salary based on annual targets, long-term share-based compensation and benefits such as pensions and insurance. Electrolux strives to offer fair and competitive total compensation with an emphasis on “pay for performance”. Variable compensation represents a significant proportion of total compensation for higher-level management. Total compensation is lower if targets are not achieved. The Group has a uniform program for variable salary for management and other key positions. Variable salary is based on financial targets and may in certain circumstances include non-financial targets. Each job level is linked to a minimum and a maximum level for variable salary, and the program is capped. Since 2004, Electrolux has long-term performance-share programs for senior managers of the Group. The alignment of Electrolux top manage- ment incentives with the interest of shareholders is a longstanding priority of the Board of Directors. Ownership of Electrolux shares by the Group’s CEO and other Group Management members is an important measure to strengthen this alignment. Thus the Board recommends that the CEO shall build up a personal hold- ing of B-shares in Electrolux representing a value of one gross annual base salary and for Group Management members to build up a personal holding of B-shares in Electrolux representing a value of 50% of one gross annual base salary. Remuneration and terms of employment for the President in 2019 The remuneration package for the President comprises fixed salary, variable salary based on annual targets, a long-term performance-share program and other benefits such as pension and insurance. For the President, the annualized base salary for 2019 has been set at SEK 11.4m. The variable salary is based on annual financial targets for the Group. Each year, a performance range is determined with a minimum and a maximum. If the performance outcome for the year is below or equal to the minimum level, no pay-out will be made. If the performance outcome is at or above the maximum, pay-out is capped at 100% of the annualized base salary. If the performance outcome is between minimum and maximum, the pay-out shall be determined on a linear basis. The President participates in the Group’s long-term performance based share programs. For further information on these programs, see below. The notice period for the company is 12 months, and for the President 6 months. The President is entitled to 12 months severance pay based on base salary with deduction for other income during the 12 months sever- ance period. Severance pay is applicable if the employment is terminated by the company. It is also applicable if the employment is terminated by the President provided serious breach of contract on the company’s behalf or if there has been a major change in ownership structure in combination with changes in management and changed individual accountability. Compensation for extraordinary work efforts in connection with the separation and distribution of Electrolux Professional equivalent to two months base salary will be paid in 2020 conditional upon completion of the distribution. Pensions for the President The President is covered by the collectively agreed ITP plan, the alternative rule of the plan, and Electrolux Pension Plan for CEO. The Electrolux Pension Plan for CEO is a defined contribution plan. The employer contribution to the plan for the President is equivalent to 35% of annual base salary, which also includes the contributions for the benefits of the ITP-plan, alternative ITP and any insurable supplementary disability and survivor’s pension. In addition the Company provides a disability pension of maximum SEK 1.2m per year if long term disability occurs. The retirement age for the President is 65. The capital value of pension commitments for the President in 2019, prior Presidents, and survivors is SEK 221m (222), whereof SEK 30m (24) relates to the current President. Remuneration and terms of employment for other members of Group Management in 2019 Like the President, other members of Group Management receive a remu- neration package that comprises fixed salary, variable salary based on annual targets, long-term performance-share programs and other benefits such as pensions and insurance. Base salary is revised annually per January 1. The average base-salary increase for members of Group Management in 2019 was 2.93% (3.18). Variable salary in 2019 is based on financial targets on business area and Group level. Variable salary for business area heads and heads of Global Operations and Consumer Experience varies between a minimum (no pay- out) and a maximum of 100% of annual base salary, which is also the cap. Group Management members in the USA have a maximum of up to 150% of annual base salary. Group Management members that are Group staff heads receive variable salary that varies between a minimum (no pay out) and a maximum of 80%, which is also the cap. The members of Group Management participate in the Group’s long- term performance based share programs. For further information on these programs, see below. The notice period for Group Management members employed in Sweden is 12 months’ for the company and 6 months for the employee. Certain members of Group Management are entitled to 12 months’ sever- ance pay based on base salary with deduction for other income during the 12 months severance period. Severance pay is applicable if the employ- ment is terminated by the company. It is also applicable if the employment is terminated by the Group Management member provided serious breach of contract on the company’s behalf or if there has been a major change in ownership structure in combination with changes in management and changed individual accountability. For members of Group Management employed outside of Sweden, varying terms of employment and benefits, such as company car, may apply depending upon the country of employment. In addition to the President, compensation for extraordinary work efforts in connection with the separation and distribution of Electrolux Profes- sional will be paid in 2020 to four other members of Group Management equivalent to two months base salary conditional upon completion of the distribution. Pensions for other members of Group Management Group Management members employed in Sweden as from 2012 receive a pension entitlement where the aggregated contribution is 35% of annual base salary. The retirement age is 65 years. Group Management members employed in Sweden before 2012 are covered by the Alternative ITP plan, as well as a supplementary plan. The Alternative ITP plan is a defined contribution plan where the contribution increases with age. The contribution is between 20 and 35% of pensionable salary, between 7.5 and 30 income base amounts. Provided that the member remains in the position until age 60, the company will finalize outstanding premiums in the alternative ITP plan. The contribution to the supplementary plan is 35% of pensionable salary above 20 income base amounts. Electrolux provides disability benefits equal to 70% of pensionable salary less disability benefits from other sources. Electrolux also provides survivor benefits equal to the highest of the accumulated capital for retirement or 250 income base amounts. The pensionable salary is calculated as the current fixed salary including vacation pay plus the average variable salary for the last three years. Accrued capital is subject to a real rate of return of 3.5% per year. For other members of Group Management, employed in Sweden before 2012, the retirement age is 60. The retirement age for one member employed prior to 2012 has been amended. The member’s employment and pension entitle- ment is continued post age 60. For members of Group Management employed outside of Sweden, varying pension terms and conditions apply, depending upon the country of employment. ELECTROLUX ANNUAL REPORT 2019 Notes 77 All amounts in SEKm unless otherwise stated Share-based compensation Over the years, Electrolux has implemented several long-term incentive programs (LTI) for senior managers. These programs are intended to attract, motivate, and retain the participating managers by providing long-term incentives through benefits linked to the company’s share price. They have been designed to align management incentives with shareholder interests. For Electrolux, the share-based compensation programs are classified as equity-settled transactions, and the cost of the granted instrument’s fair value at grant date is recognized over the vesting period which is 2.7 years. At each balance sheet date, the Group revises the estimates to the number of shares that are expected to vest. Electrolux recognizes the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. In addition, the Group provides for employer contributions expected to be paid in connection with the share-based compensation programs. The costs are charged to the income statement over the vesting period. The provision is periodically revalued based on the fair value of the instruments at each closing date. Performance-share programs 2017, 2018 and 2019 The Annual General Meeting in 2019 approved a long-term incentive program. The program is in line with the Group’s principles for remuneration based on performance, and is an integral part of the total compensation for Group Management and other senior managers. Electrolux shareholders benefit from this program since it facilitates recruitment and retention of competent executives and aligns management interest with shareholder interest as the program drives executive shareholding and the participants are more aligned with the long-term strategy of the company. The allocation of shares in the 2017, 2018 and 2019 programs is deter- mined by the position level and the outcome of three financial objectives; (1) annual growth in earnings per share, (2) return on net assets and (3) organic sales growth (adjusted sales growth as from 2018). Performance outcome of the three financial objectives will be determined by the Board after the expiry of the one-year performance period. Remuneration to Group Management For the 2017, 2018 and 2019 programs allocation is linear from minimum to maximum. There is no allocation if the minimum level is not reached. If the maximum is reached, 100% of shares will be allocated. Should the achieve- ment of the objectives be below the maximum but above the minimum, a proportionate allocation will be made. The shares will be allocated after the three-year period free of charge. If a participant’s employment is terminated during the three-year program period, the participant will be excluded from the program and will not receive any shares or other benefits under the program. However, in certain circumstances, including for example a participant’s death, disability, retirement or the divestiture of the participant’s employing company, a participant could be entitled to reduced benefits under the program. Each of the 2017, 2018 and 2019 program covers 210 to 282 senior managers and key employees in almost 30 countries. Participants in the 2019 program comprise six groups, i.e., the President, other members of Group Management, and four groups of other senior managers. All programs comprise Class B shares. The performance outcome for the share program 2019 was zero, thus no shares will be allocated to the participants. For 2019, LTI programs resulted in a cost of SEK 77m (including a cost of SEK 19m in employer contribution) compared to a cost of SEK 125m in 2018 (including a cost of SEK 14m in employer contribution). The total provision for employer contribution in the balance sheet amounted to SEK 53m (61). Repurchased shares for LTI programs The Annual General Meeting in 2018 resolved that the company shall be entitled to sell B shares in the company for the purpose of covering costs, including social security charges, that may arise as a result of the 2016 program, but this mandate has not been used by the company. Allocation of shares for the 2016 program The 2016 performance-share program met 75% of the maximum perfor- mance and performance shares were allocated during 2019 to the partic- ipants according to the terms and conditions of the 2016 share program. ’000 SEK unless otherwise stated Annual fixed salary1) Variable salary2) Long- term PSP (cost)3) Other remuner- ation4) Total pension contri- bution Social contri- bution Annual fixed salary1) Variable salary2) Long- term PSP (cost)3) Other remuner- ation4) Total pension contri- bution Social contri- bution President and CEO 11,591 2,213 5,676 1,911 3,993 4,942 11,326 2,226 7,939 5 3,896 6,224 2019 2018 Other members of Group Management5) Total 48,363 59,954 11,180 13,393 18,590 24,266 6,487 8,398 13,621 17,614 13,616 18,558 49,594 60,920 11,180 13,406 28,482 36,421 4,514 4,519 14,538 18,434 19,284 25,508 1) The annual fixed salary includes vacation salary, paid vacation days and salary deductions for company car. 2) For 2019: variable salary earned 2019 and to be paid in 2020, and for 2018: variable salary earned 2018 and paid in 2019. 3) Cost for share-based incentive programs are accounted for according to IFRS 2, Share-based payments. If the expected cost of the program is reduced, the previous recorded cost is reversed and an income is recorded in the income statement. The cost includes social contribution cost for the program. 4) Includes allowances and other benefits such as gross-up of tax, housing and company car, severance pay, pay for non-compete undertaking and costs for extraordinary arrangements. 5) Other members of Group management comprised of 11 people at the end of 2019 and 2018. Number of potential shares per participant, per category and year Group 1, President and CEO Group 2, other members of Group Management Group 3 Group 4 Group 52) Group 6 Maximum number of B shares1) Maximum value, SEK3) 2019 53,543 17,928 11,189 6,132 4,297 2,967 2018 47,605 17,032 10,032 5,126 3,728 2,444 2017 2019 2018 2017 45,809 11,408,250 11,130,000 10,600,000 17,239 10,212 5,301 3,797 2,562 3,820,000 3,982,000 3,989,000 2,384,000 2,345,000 2,363,000 1,306,000 1,198,000 1,227,000 916,000 632,000 871,000 571,000 879,000 593,000 1) The maximum performance value for the participant in Group 1 will be 100 per cent, for participants in Group 2, 90 per cent, for participants in Group 3, 80 per cent, for participants in Group 4, 60 per cent, for participants in Group 5, 50 per cent and for participants in Group 6, 40 per cent of the participants annual base salary for 2018. At maximum performance the aggregated value is converted to the average number of shares per participant in respective category. The calculation is based on a share price of SEK 231.40 for 2017, SEK 233.80 for 2018, and SEK 213.07 for 2019 which is the average closing price of the Electrolux Class B share on the Nasdaq Stockholm during a period of ten trading days before the day participants were invited to participate in the program, adjusted for net present value of dividends for the period until shares are allocated. 2) New category introduced 2017. 3) The share allocation for the 2017 program will be at 90% of maximum. For the 2018 program, share allocation will be at 1.5% of maximum. For the 2019 program there will be no allocation. Performance-share program 2019 Adjusted organic sales growth, %1) Earnings per share, SEK Return on net assets, % Total allocation Financial objectives Allocation of shares Minimum Maximum Actual Outcome, % Weight, % Allocation, % 1.0 18.4 29.8 4.0 20.4 34.8 –1.0 14.02) 19.12) 0 0 0 10 50 40 0 0 0 0 1) Calculated as organic sales growth including total sales impact from prior year acquisitions and divestments. 2) Including adjustments for acquisitions and divestments. ELECTROLUX ANNUAL REPORT 2019 78 Notes All amounts in SEKm unless otherwise stated Note 28 Fees to auditors At the 2019 Annual General Meeting Deloitte was appointed auditor for the period until the 2020 Annual General Meeting. Deloitte Audit fees1) Audit-related fees2) Tax fees3) All other fees4) Total fees to Deloitte5) Audit fees to other audit firms Total fees to auditors Group Parent Company 2019 2018 2019 2018 47 10 1 1 59 — 59 42 1 1 1 45 4 49 9 9 0 1 19 — 19 8 — — 1 9 — 9 1) Audit fees consist of fees for the annual audit-services engagement and other audit services, which are those services that only the external auditors reasonably can provide, and include the Group audit; statutory audits; comfort letters and consents; and attest services. 2) Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the audit of the accounts and annual reports of the Group and group companies traditionally performed by the external auditors, and include consultations concerning financial accounting and reporting standards; internal control reviews as well as review of interim reports. 3) Tax fees include for example tax compliance and tax consultation services. 4) All other fees include fees for transaction support services, financial advisory and other services. 5) Of audit-related fees, SEK 6m pertains to Deloitte Sweden, of tax fees, SEK 0m pertains to Deloitte Sweden and of all other fees, SEK 1m pertains to Deloitte Sweden. Note 29 Shares and participations Investments in associated companies Electrolux participation in Gångaren 13 Holding AB, Sweden, remained unchanged during the year. Gångaren 13 Holding AB is a real estate com- pany owning the corporate head office in Sweden. The holdings in the South African associated companies SYR Africa and Llitha Solar remained unchanged during the year. SYR Africa supplies Electrolux with valves and has Electrolux as its sole customer. Llitah Solar carry out marginal business activities. The holdings in Next-Tech BVBA/SPRL, Belgium, remained unchanged during the year. Next-Tech designs and sells software and hardware solu- tions for domestic kitchen retailers. In January 2018 Electrolux acquired 40% of the Chinese company Guangdong De Yi Jie Appliances Co., LTD. The company sells AEG house- hold appliances. In April 2019 Electrolux acquired 22% of the Singapore company Vitality Ventures Group. The company sells air purifiers. All associated companies are unlisted. Investments in associated companies Company Gångaren 13 Holding AB, Sweden SYR Africa (Pty), South Africa Llitha Solar (Pty) LTD, South Africa Kwikot Solar, South Africa Next-Tech BVBA/SPRL, Belgium Guangdong De Yi Jie Appliances Co., LTD, China Vitality Ventures Group, Singapore Total 2019 2018 Holding, % Carrying amount Net income1) Holding, % Carrying amount Net income1) 50 50 49 0 49 40 22 201 53 4 0 98 56 12 424 16 2 1 — –14 –22 — –17 50 50 49 0 49 40 — 199 36 11 1 109 41 — 397 14 7 2 1 –7 –41 — –25 1) Represents the Group’s share of net income and is reported in the line Other operating income and expenses in the consolidated statement of comprehensive income. Group companies The following table lists the major companies included in the Electrolux Group. A detailed specification of Group companies has been submitted to the Swedish Companies Registration Office and is available upon request from AB Electrolux Investor Relations. Subsidiaries Major Group companies Argentina Australia Austria Belgium Brazil Canada Chile China Electrolux Argentina S.A. Electrolux Home Products Pty. Ltd Electrolux Professional Australia Pty Ltd Electrolux Austria GmbH Electrolux Home Products Corporation N.V. Electrolux do Brasil S.A. Electrolux Canada Corp. Electrolux de Chile S.A. Electrolux (Hangzhou) Domestic Appliances Co. Ltd Holding, % 100 100 100 100 100 100 100 99.83 100 ELECTROLUX ANNUAL REPORT 2019 Cont. Note 29 Subsidiaries Denmark Egypt Finland France Electrolux (China) Home Appliance Co. Ltd Electrolux Home Products Denmark A/S Electrolux Egypt for Home Appliances S.A.E. Oy Electrolux Ab Electrolux France SAS Electrolux Home Products France SAS Electrolux Professionnel SAS Electrolux Laundry Systems France SNC UNIC SAS Germany Electrolux Deutschland GmbH Electrolux Rothenburg GmbH Factory and Development Electrolux Professional GmbH Hungary Electrolux Lehel Kft Italy Electrolux Professional Hungary Kft Electrolux Appliances S.p.A. Electrolux Professional S.p.A. Electrolux Italia S.p.A. S.P.M. Drink Systems Mexico Electrolux de Mexico, S.A. de C.V. The Netherlands Electrolux Associated Company B.V. Norway Poland Romania Russia Singapore Spain Sweden Electrolux Home Products (Nederland) B.V. Electrolux Home Products Norway AS Electrolux Poland Spolka z.o.o. SC Electrolux Romania SA LLC Electrolux Rus Electrolux SEA Pte Ltd Electrolux España, S.A.U. Electrolux Professional AB Electrolux HemProdukter AB Electrolux Appliances AB Switzerland Electrolux AG Thailand Electrolux Professional AG Electrolux Thailand Co. Ltd. Electrolux Professional (Thailand) Co., Ltd. Ukraine United Kingdom DC Electrolux LLC Electrolux Plc USA Electrolux Professional Ltd. Electrolux Home Products, Inc. Electrolux North America, Inc. Grindmaster Corporation UNIC USA Corp Electrolux Professional Inc. Notes 79 All amounts in SEKm unless otherwise stated Holding, % 100 100 99.96 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 99.83 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Note 30 Transactions with related parties Transactions with associated companies Net sales to associates Purchases from associates Receivables on associates Payables to associates Loans to associates companies with which Electrolux may have transactions within the normal course of business. Commercial terms and market prices apply to any such transactions. Investment details in associated companiesare disclosed in note 29. Trans- actions and balances with associated companies are disclosed in the table to the left. Remuneration to members of the Board of Directors and Group management are disclosed in note 27. Commercial terms and market prices apply to all transactions with related parties. 2019 27 122 12 35 15 The Group’s related parties are its associates, joint ventures and the Parent company’s largest shareholder, Board members and Group Management. The Parent company’s largest shareholder, Investor AB, controls approxi- mately 28% (28) of the voting rights in AB Electrolux. The Group has not had any transactions with Investor AB during the year, other than dividends declared, and there are no outstanding balances with Investor AB. Investor AB has controlling or significant influence over ELECTROLUX ANNUAL REPORT 2019 80 Notes All amounts in SEKm unless otherwise stated Note 31 Definitions This report includes financial measures as required by the financial report- ing framework applicable to Electrolux, which is based on IFRS. In addition, there are other measures and indicators that are used to follow up, analyze and manage the business and to provide Electrolux stakeholders with use- ful financial information on the Group’s financial position, performance and development in a consistent way. These other measures and indicators are considered essential in supporting the Group’s financial goals to achieve a combination of continuous growth, high profitability, a stable cash flow, and an optimal capital base to generate a high total return for Electrolux shareholders. Thus, there are measures related to growth, profitability and capital, share-based measures and capital indicators which are considered relevant to present on a continuous basis. Below is a list of definitions of all measures and indicators used, referred to and presented in this report. Computation of average amounts and annualized income statement measures In computation of key ratios where averages of capital balances are related to income statement measures, the average capital balances are based on the opening balance and all quarter-end closing balances included in the reporting period, and the income statement measures are annualized, translated at average rates for the period. In computation of key ratios where end-of-period capital balances are related to income statement measures, the latter are annualized, translated at end-of-period exchange rates. Adjustments are made for acquired and divested operations. Growth measures Change in net sales Current year net sales for the period less previous year net sales for the period as a percentage of previous year net sales for the period. Sales growth Change in net sales adjusted for currency translation effects. Organic growth Change in net sales, adjusted for changes in exchange rates, acquisitions and divestments. Acquisitions Change in net sales, adjusted for organic growth, changes in exchange rates and divestments. The impact from acquisitions relates to net sales reported by acquired operations within 12 months after the acquisition date. Divestments Change in net sales, adjusted for organic growth, changes in exchange rates and acquisitions. The impact from divestments relates to net sales reported by the divested operations within 12 months before the divest- ment date. Profitability measures EBITA Operating income excluding amortization of intangible assets. EBITA margin EBITA expressed as a percentage of net sales. Operating margin (EBIT margin) Operating income (EBIT) expressed as a percentage of net sales. Operating margin (EBIT margin) excluding non-recurring items Operating income (EBIT) excluding non-recurring items, expressed as a percentage of net sales. Return on net assets Operating income (annualized) expressed as a percentage of average net assets. Return on equity Income for the period (annualized) expressed as a percentage of average total equity. Capital measures Net debt/equity ratio Net debt in relation to total equity. Equity/assets ratio Total equity as a percentage of total assets less liquid funds. Capital turnover-rate Net sales (annualized) divided by average net assets. Share-based measures Earnings per share, Basic Income for the period attributable to equity holders of the Parent Company divided by the average number of shares excluding shares held by Electrolux. Earnings per share, Diluted Income for the period attributable to equity holders of the Parent Company divided by the average number of shares after dilution, excluding shares held by Electrolux. Equity per share Total equity divided by total number of shares excluding shares held by Electrolux. Capital indicators Liquid funds Cash and cash equivalents, short-term investments, financial derivative assets1) and prepaid interest expenses and accrued interest income1). Liquid funds in relation to net sales The sum of liquid funds and non-utilized credit facilities divided by annualized net sales. Operating working capital Inventories and trade receivables less accounts payable. Working capital Total current assets exclusive of liquid funds, less non-current other provisions and total current liabilities exclusive of total short-term borrowings. Net assets Total assets exclusive of liquid funds and pension plan assets, less deferred tax liabilities, non-current other provisions and total current liabilities exclusive of total short-term borrowings. Total borrowings Long-term borrowings and short-term borrowings, financial derivative liabilities1), accrued interest expenses and prepaid interest income1). Total short-term borrowings Short-term borrowings, financial derivative liabilities1), accrued interest expenses and prepaid interest income1). Interest-bearing liabilities Long-term borrowings and short-term borrowings exclusive of liabilities related to trade receivables with recourse1). Financial net debt Total borrowings less liquid funds. Net provision for post-employment benefits Provisions for post-employment benefits less pension plan assets. Net debt Financial net debt, lease liabilities and net provision for post-employment benefits. Other measures Operating cash flow after investments Cash flow from operations and investments adjusted for financial items paid, taxes paid and acquisitions/divestments of operations. Interest coverage ratio Operating income plus interest income in relation to total interest expenses. Non-recurring items Material profit or loss items in operating income2) which are relevant for understanding the financial performance when comparing income for the current period with previous periods. 1) See table Net debt on page 62. 2) See Note 7 for more information. ELECTROLUX ANNUAL REPORT 2019 Notes 81 All amounts in SEKm unless otherwise stated Note 32 Proposed distribution of earnings The Board of Directors proposes that income for the period and retained earnings be distributed as follows: A dividend to the shareholders of the shares in Electrolux Professional AB1) A dividend to the shareholders of SEK 8.50 per share2), totaling To be carried forward Total ‘000 SEK 22,893,842 7,749,120 2,442,878 12,701,844 22,893,842 1) The Board of Directors has proposed an Extraordinary General Meeting to be held on February 21, 2020 resolves to distribute all shares in Electrolux Professional AB, the wholly owned subsid- iary operating the Professional Products Business Area, to the shareholders of AB Electrolux. The estimated book value of the shares in Electrolux Professional AB at the time of the distribution is SEK 7,749,120 thousand. 2) Calculated on the number of outstanding shares as per February 13, 2020. The Board of Directors has proposed that the Annual General Meeting 2020 resolves on a dividend to the shareholders of SEK 8.50 per share to be paid in two installments. The record date for the first installment of SEK 4.25 per share is proposed to be Thursday April 2, 2020 and the record date for the second installment of SEK 4.25 per share is proposed to be Friday October 2, 2020. On account hereof, the Board of Directors hereby makes the following statement according to Chapter 18 Section 4 of the Swedish Companies Act. The Board of Directors finds that there will be full coverage for the restricted equity of the Company, after distribution of the proposed dividend. It is the Board of Directors’ assessment that after distribution of the pro- posed dividend, the equity of the Company and the Group will be sufficient with respect to the kind, extent, and risks of the operations. The Board of Directors has hereby considered, among other things, the Company’s and the Group’s historical development, the budgeted development and the state of the market and the proposed dividend of the shares in Electrolux Professional AB. If financial instruments currently valued at fair value in accordance with Chapter 4 Section 14a of the Swedish Annual Accounts Act instead had been valued according to the lower of cost or net realizable value, including cumulative revaluation of external shares, the equity of the company would decrease by SEK 178,985 thousand. After the proposed dividend, the financial strength of the Company and the Group is assessed to continue to be good in relation to the industry in which the Group is operating. The dividend will not affect the ability of the Company and the Group to comply with its payment obligations. The Board of Directors finds that the Company and the Group are well prepared to handle any changes in respect of liquidity, as well as unexpected events. The Board of Directors is of the opinion that the Company and the Group have the ability to take future business risks and also cope with potential losses. The proposed dividend will not negatively affect the Company’s and the Group’s ability to make further commercially motivated investments in accordance with the strategy of the Board of Directors. The Board of Directors declare that the consolidated financial state- ments have been prepared in accordance with IFRS as adopted by the EU and give a true and fair view of the Group’s financial position and results of operations. The financial statements of the Parent Company have been prepared in accordance with generally accepted accounting principles in Sweden and give a true and fair view of the Parent Company’s financial position and results of operations. The statutory Administration Report of the Group and the Parent Company provides a fair review of the development of the Group’s and the Parent Company’s operations, financial position and results of operations and describes material risks and uncertainties facing the Parent Company and the companies included in the Group. Stockholm, February 13, 2020 AB ELECTROLUX (PUBL) 556009–4178 Staffan Bohman Chairman of the Board of Directors Jonas Samuelson Board member and President and Chief Executive Officer Petra Hedengran Board member Hasse Johansson Board member Ulla Litzén Board member Fredrik Persson Board member David Porter Board member Ulrika Saxon Board member Kai Wärn Board member Viveca Brinkenfeldt-Lever Board member, employee representative Ulf Carlsson Board member, employee representative Peter Ferm Board member, employee representative Our audit report was submitted on February 13, 2020 Deloitte AB Jan Berntsson Authorized Public Accountant ELECTROLUX ANNUAL REPORT 2019 82 Auditor's report Auditor's report To the general meeting of the shareholders of AB Electrolux (publ) corporate identity number 556009-4178 Report on the annual accounts and consolidated accounts Opinions We have audited the annual accounts and consolidated accounts of AB Electrolux (publ) for the year 2019. The annual accounts and consolidated accounts of the company are included on pages 17–81 in this document. In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent com- pany as of 31 December 2019 and its financial performance and cash flow for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2019 and their financial performance and cash flow for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act. The statutory admin- istration report is consistent with the other parts of the annual accounts and consolidated accounts. We therefore recommend that the general meeting of the shareholders adopts the income statement and balance sheet for the parent company and the statement of comprehensive income and the balance sheet for the group. Our opinions in this report on the annual accounts and the consolidated accounts are consistent with the content of the additional report that has been submitted to the parent com- pany’s audit committee in accordance with the Audit Regulation (537/2014/EU) Article 11. Basis for Opinions We conducted our audit in accordance with International Standards on Auditing (ISA) and generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accor- dance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. This includes that, based on the best of our knowledge and belief, no prohibited services referred to in the Audit Regulation (537/2014/EU) Article 5.1 have been pro- vided to the audited company or, where applicable, its parent company or its controlled companies within the EU. We believe that the audit evidence we have obtained is suf- ficient and appropriate to provide a basis for our opinions. Key Audit Matters Key audit matters of the audit are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts and consolidated accounts of the current period. These matters were addressed in the context of our audit of, and in forming our opinion thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters. Revenue Recognition Revenues in the group consists primarily of sales of appliances to retailers. Net sales in the group consist of a large number of transactions and amounts, for continuing operations, for 2019 to 118,981 MSEK. Revenue recognition cut off constitutes a key audit matter in our audit. Accounting principles and disclosures related to revenue recognition can be found in note 4. Our audit procedures Our audit procedures included, but were not limited to: • assessing the group’s accounting principles for revenue rec- ognition and its compliance with IFRS, • audit of the internal control environment regarding revenue recognition and test of identified key controls including IT- systems, • analytical procedures, and • detailed testing of sales transactions on a sample basis to confirm proper revenue cut off. Valuation of trade receivables The group has significant amounts of trade receivables. There is a certain concentration of credit risk exposure in certain mar- kets and towards large customers. Procedures for assessing customers’ ability to pay together with appropriate accounting principles to recognize provisions for bad debt constitutes a key audit matter in our audit. Accounting principles and disclosures related to trade receivables can be found in note 1 and 17. Our audit procedures Our audit procedures included, but were not limited to: • assessing the group’s accounting principles for recognizing bad debt for compliance with IFRS, • audit of the internal control environment regarding valuation of trade receivables and test of identified key controls includ- ing IT-systems, • detailed testing on a sample basis against customer state- ments alternatively cash receipts to confirm trade receivables, and • evaluation of aging of trade receivables and management’s estimates of provisions for bad debt. Valuation of inventory The group carries significant inventories of goods held by several production and sales units in many countries. Valuation of inventory and provisions for obsolescence requires clear policies and is subject to management’s estimates. Processes for valuation of inventory and making appropriate provisions for obsolescence constitutes a key audit matter in our audit. Accounting principles and disclosures related to inventory can be found in note 15. ELECTROLUX ANNUAL REPORT 2019 Auditor's report 83 Responsibilities of the Board of Directors and the Managing Director The Board of Directors and the Managing Director are respon- sible for the preparation of the annual accounts and the con- solidated accounts and that they give a fair presentation in accordance with the Annual Accounts Act, and concerning the consolidated accounts, in accordance with IFRS as adopted by the EU. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstate- ment, whether due to fraud or error. In preparing the annual accounts and the consolidated accounts, the Board of Directors and the Managing Director are responsible for the assessment of the company’s and the group’s ability to continue as a going concern. They disclose, as applicable, matters related to going concern and using the going concern basis of accounting. The going concern basis of accounting is however not applied if the Board of Directors and the Managing Director intends to liquidate the company, to cease operations, or has no realistic alternative but to do so. The Audit Committee shall, without prejudice to the Board of Director’s responsibilities and tasks in general, among other things oversee the company’s financial reporting process. Auditor’s responsibility Our objectives are to obtain reasonable assurance about whether the annual accounts and the consolidated accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISA and generally accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstate- ments can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts and consolidated accounts. An additional description of our responsibility for the audit of the annual accounts and the consolidated accounts is located at the Swedish Inspectorate of Auditors’ web page: www.revisor- sinspektionen.se/revisornsansvar. This description is a part of the auditor’s report. Our audit procedures Our audit procedures included, but were not limited to: • assessing the group’s accounting principles for inventory in compliance with IFRS, • audit of the internal control environment regarding valuation of inventory and test of identified key controls including IT- systems, • observations of physical inventory counts, • on a sample basis testing valuation of inventory, and • evaluating management’s estimates related to provisions for obsolescence. Accounting for legal proceedings Electrolux is involved in several legal proceedings which could have a significant impact on the group’s result and financial position. Processes to assess, evaluate and account for legal proceedings constitutes a key audit matter in our audit. Further information on the group’s legal proceedings and management of these can be found in note 25. Our audit procedures Our audit procedures included, but were not limited to: • quarterly meetings with the Group Head of Legal regarding significant ongoing legal proceedings, • obtaining legal statements from a selection of the group’s external lawyers, and • evaluating management’s judgments and estimates related to legal proceedings and the accounting for these. Other information than the annual accounts and consolidated accounts This document also contains other information than the annual accounts and the consolidated accounts and is found on pages 1–16 and 85–121. The Board of Directors and the Managing Director are responsible for this other information. Our opinion on the annual accounts and the consolidated accounts does not cover this other information and we do not express any form of assurance conclusion regarding this other information. In connection with our audit of the annual accounts and the consolidated accounts, our responsibility is to read the informa- tion identified above and consider whether the information is materially inconsistent with the annual accounts and consoli- dated accounts. In this procedure we also take into account our knowledge otherwise obtained in the audit and assess whether the information otherwise appears to be materially misstated. If we, based on the work performed concerning this infor- mation, conclude that there is a material misstatement of this information, we are required to report that fact. We have noth- ing to report in this regard. ELECTROLUX ANNUAL REPORT 2019 84 Auditor's report Report on other legal and regulatory requirements Opinions In addition to our audit of the annual accounts and the consoli- dated accounts, we have also audited the administration of the Board of Directors and the Managing Director of AB Electrolux (publ) for the year 2019 and the proposed appropriations of the company’s profit or loss. We recommend to the general meeting of shareholders that the profit to be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year. Basis for Opinions We conducted the audit in accordance with generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is suf- ficient and appropriate to provide a basis for our opinions. Responsibilities of the Board of Directors and the Managing Director The Board of Directors is responsible for the proposal for appro- priations of the company’s profit or loss. At the proposal of a dividend, this includes an assessment of whether the dividend is justifiable considering the requirements which the company’s and the group’s type of operations, size and risks place on the size of the parent company’s and the group’s equity, consolida- tion requirements, liquidity and position in general. The Board of Directors is responsible for the company’s organization and the administration of the company’s affairs. This includes among other things continuous assessment of the company’s financial situation and ensuring that the company’s organization is designed so that the accounting, management of assets and the company’s financial affairs otherwise are controlled in a reassuring manner. The Managing Director shall manage the ongoing administration according to the Board of Directors’ guidelines and instructions and among other mat- ters take measures that are necessary to fulfill the company’s accounting in accordance with law and handle the manage- ment of assets in a reassuring manner. Auditor’s responsibility Our objective concerning the audit of the administration, and thereby our opinion about discharge from liability is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board of Directors or the Managing Director in any material respect: • has undertaken any action or been guilty of any omission which can give rise to liability to the company, or • in any other way has acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. Our objective concerning the audit of the proposed appropria- tions of the company’s profit or loss, and thereby our opinion about this, is to assess with reasonable degree of assurance whether the proposal is in accordance with the Companies Act. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with gen- erally accepted auditing standards in Sweden will always detect actions or omissions that can give rise to liability to the com- pany, or that the proposed appropriations of the company’s profit or loss are not in accordance with the Companies Act. An additional description of our responsibility for the audit of the administration of the Board of Directors and the Manag- ing Director is located at the Swedish Inspectorate of Auditors’ web page: www.revisorsinspektionen.se/revisornsansvar. This description is a part of the auditor’s report. Deloitte AB, was appointed auditors of AB Electrolux (publ) by the general meeting of the shareholders on April 10, 2019 and has been the company’s auditor since April 5, 2018. Stockholm, February 13, 2020 Deloitte AB Signature on Swedish original Jan Berntsson Authorized Public Accountant This is a translation of the Swedish language original. In the event of any differences between this translation and the Swedish language original, the latter shall prevail. ELECTROLUX ANNUAL REPORT 2019  85 ELECTROLUX ANNUAL REPORT 2019 86 Eleven-year review All amounts in SEKm unless otherwise stated Eleven-year review sekm Net sales and income Net sales Organic growth, % Depreciation and amortization Items affecting comparability 2)/ Non-recurring items 6) Operating income Income after financial items Income for the period Cash flow Cash flow from operations Cash flow from investments of which capital expenditure in property, plant and equipment Cash flow from operations and investments Cash flow from operations and investments excluding acquisitions and divestments of operations Dividend, redemption and repurchase of shares Capital expenditure in property, plant and equipment as % of net sales Margins 3) Operating margin, % Income after financial items as % of net sales Financial position Total assets Net assets Working capital Trade receivables Inventories Accounts payable Total equity Interest-bearing liabilities Provisions for post-employment benefits, net Net debt Data per share Income for the period, SEK Equity, SEK Dividend, SEK4) Trading price of B-shares at year-end, SEK Key ratios Return on equity, % Return on net assets, % Net assets as % of net sales 5) Trade receivables as % of net sales 5) Inventories as % of net sales 5) Net debt/equity ratio Interest coverage ratio Dividend as % of total equity Other data Average number of employees Salaries and remuneration Number of shareholders Average number of shares after buy-backs, million Shares at year end after buy-backs, million 2009 2010 2011 2012 1) 2013 2014 2015 2016 20171) 2018 20187) 2019 5 years 10 years Compound annual growth rate, % 109,132 106,326 101,598 109,994 109,151 112,143 123,511 121,093 120,771 124,129 115,463 118,981 1.2 0.9 –4.8 3,442 –1,561 3,761 3,484 2,607 8,297 –2,967 –2,223 5,330 5,326 69 2.0 4.9 4.6 72,696 19,506 –5,154 20,173 10,050 16,031 18,841 14,022 1.5 3,328 –1,064 5,430 5,306 3,997 7,680 –4,474 –3,221 3,206 3,199 –1,120 3.0 6.1 6.0 73,521 19,904 –5,902 19,346 11,130 17,283 20,613 12,096 0.2 3,173 –138 3,017 2,780 2,064 5,399 –10,049 –3,163 –4,650 906 –1,850 3.1 3.1 2.9 76,384 27,011 –5,180 19,226 11,957 18,490 20,644 14,206 665 –709 6,367 5.5 3,251 –1,032 4,000 3,154 2,365 7,080 –4,702 –4,090 2,378 2,542 –1,868 3.7 4.6 3.8 75,194 25,890 –6,505 18,288 12,963 20,590 15,726 13,088 4,479 10,164 8.26 55 6.50 4.5 3,356 –2,475 1,580 904 672 4,455 –4,734 –3,535 –279 –74 –1,860 3.2 3.7 3.1 76,001 24,961 –5,800 19,441 12,154 20,607 14,308 14,905 2,980 10,653 2.35 50 6.50 9.18 66 4.00 167.50 14.9 19.4 17.1 17.7 8.8 0.04 7.54 6.0 50,633 13,162 52,000 284.0 284.4 14.04 72 6.50 191.00 20.6 27.8 18.2 17.7 10.2 –0.03 12.64 9.0 51,544 12,678 57,200 284.6 284.7 7.25 73 6.50 109.70 170.50 168.50 10.4 13.7 23.8 17.0 10.5 0.31 5.84 9.0 52,916 13,137 58,800 284.7 284.7 14.4 14.8 22.5 15.9 11.3 0.65 2.72 11.8 59,478 13,785 51,800 285.9 286.1 4.4 5.8 21.8 17.0 10.6 0.74 2.11 13.0 60,754 13,521 51,500 286.2 286.2 1.1 3,671 –1,199 3,581 2,997 2,242 7,822 –3,759 –3,006 4,063 4,132 –1,861 2.7 3.2 2.7 85,688 26,099 –8,377 20,663 14,324 25,705 16,468 14,703 4,763 9,631 7.83 57.52 6.50 228.80 15.7 14.2 20.4 16.2 11.2 0.58 5.16 11.3 60,038 14,278 46,500 286.3 286.3 2.2 3,936 — 2,741 2,101 1,568 8,267 –3,403 –3,027 4,864 4,955 –1,870 2.5 2.2 1.7 83,471 21,412 –12,234 17,745 14,179 26,467 15,005 13,097 4,509 6,407 5.45 52.21 6.50 205.20 9.9 11.0 17.3 14.3 11.5 0.43 3.75 12.4 58,265 15,858 45,485 287.1 287.4 –1.1 3,934 — 6,274 5,581 4,493 10,165 –2,557 –2,830 7,608 7,432 –1,868 2.3 5.2 4.6 85,848 18,098 –14,966 19,408 13,418 28,283 17,738 10,202 4,169 360 15.64 61.72 7.50 226.30 29.4 29.9 14.2 15.2 10.5 0.02 3.75 10.5 55,400 15,886 48,939 287.4 287.4 –0.4 3,977 — 7,407 6,966 5,745 10,024 –8,200 –3,892 1,824 5,229 –2,155 3.2 6.1 5.8 89,542 20,678 –15,873 20,747 14,655 31,114 20,480 9,537 2,634 197 19.99 71.26 8.30 264.30 31.9 36.0 17.5 17.5 12.4 0.01 12.16 11.6 55,692 16,470 45,295 287.4 287.4 1.3 4,150 –1,343 5,310 4,887 3,805 8,046 –6,506 –4,650 1,540 2,149 –2,385 3.7 4.3 3.9 97,312 23,574 –16,848 21,482 16,750 34,443 21,749 9,982 3,814 1,825 13.24 75.67 8.50 187.10 18.2 22.7 19.0 17.3 13.5 0.08 9.05 11.2 54,419 17,363 49,870 287.4 287.4 1.2 3,981 –1,343 4,176 3,754 2,854 –2,385 — — — — — 3.9 3.6 3.3 — — — — — 20,306 –17,077 19,824 15,451 32,996 9.93 — 8.50 187.10 — 20.2 17.5 17.1 13.4 — — — 51,253 15,829 49,870 287.4 287.4 –1.0 5,104 –1,344 3,189 2,456 1,820 8,434 –7,683 –5,562 751 1,218 –2,443 4.7 2.7 2.1 106,808 26,172 –17,390 20,847 16,194 33,892 22,574 10,989 3,866 7,683 6.33 78.55 8.50 229.90 11.4 12.0 22.3 17.7 13.8 0.34 3.20 10.8 48,652 16,318 50,544 287.4 287.4 13.1 9.6 –2.3 –3.9 –4.1 1.5 4.5 0.1 0.2 2.5 5.7 6.5 –5.7 –4.1 –4.4 –4.2 6.4 5.5 0.1 –4.1 2.7 1.7 –1.6 –3.4 –3.5 0.2 3.9 3.0 0.3 4.9 7.8 1.8 –2.4 27.7 –3.6 1.8 7.8 3.2 –0.4 2.2 –0.3 1) Amounts for 2012 have been restated where applicable as a consequence of the amended standard for pension accounting, IAS 19 Employee Benefits and 2017 as a consequence of the introduction of IFRS 15 Revenue from Contracts with Customers. 2) As of 2015 the accounting concept of Items affecting comparability is no longer in use. As from 2018, non-recurring items are presented, see definition in Note 31. 3) Items affecting comparability are excluded for the years 2009 to 2013. 2014 has been restated. 4) 2019: Proposed by the Board. 5) Annualized net sales, calculated at end of period exchange rates, 2019: 117,519 (restated 2018: 115,733). 6) For more information, see Note 7. 7) Certain amounts have been restated for discontinued operations as a consequence of the planned distribution of the Professional business area. ELECTROLUX ANNUAL REPORT 2019 2009 2010 2011 2012 1) 2013 2014 2015 2016 20171) 2018 20187) 2019 5 years 10 years Compound annual growth rate, % 109,132 106,326 101,598 109,994 109,151 112,143 123,511 121,093 120,771 124,129 115,463 118,981 1.2 0.9 Eleven-year review 87 All amounts in SEKm unless otherwise stated 1.1 3,671 –1,199 3,581 2,997 2,242 7,822 –3,759 –3,006 4,063 4,132 –1,861 2.7 3.2 2.7 85,688 26,099 –8,377 20,663 14,324 25,705 16,468 14,703 4,763 9,631 7.83 57.52 6.50 228.80 15.7 14.2 20.4 16.2 11.2 0.58 5.16 11.3 60,038 14,278 46,500 286.3 286.3 2.2 3,936 — 2,741 2,101 1,568 8,267 –3,403 –3,027 4,864 4,955 –1,870 2.5 2.2 1.7 83,471 21,412 –12,234 17,745 14,179 26,467 15,005 13,097 4,509 6,407 5.45 52.21 6.50 205.20 9.9 11.0 17.3 14.3 11.5 0.43 3.75 12.4 58,265 15,858 45,485 287.1 287.4 –1.1 3,934 — 6,274 5,581 4,493 10,165 –2,557 –2,830 7,608 7,432 –1,868 2.3 5.2 4.6 85,848 18,098 –14,966 19,408 13,418 28,283 17,738 10,202 4,169 360 15.64 61.72 7.50 226.30 29.4 29.9 14.2 15.2 10.5 0.02 3.75 10.5 55,400 15,886 48,939 287.4 287.4 –0.4 3,977 — 7,407 6,966 5,745 10,024 –8,200 –3,892 1,824 5,229 –2,155 3.2 6.1 5.8 89,542 20,678 –15,873 20,747 14,655 31,114 20,480 9,537 2,634 197 19.99 71.26 8.30 264.30 31.9 36.0 17.5 17.5 12.4 0.01 12.16 11.6 55,692 16,470 45,295 287.4 287.4 1.3 4,150 –1,343 5,310 4,887 3,805 8,046 –6,506 –4,650 1,540 2,149 –2,385 3.7 4.3 3.9 97,312 23,574 –16,848 21,482 16,750 34,443 21,749 9,982 3,814 1,825 13.24 75.67 8.50 187.10 18.2 22.7 19.0 17.3 13.5 0.08 9.05 11.2 54,419 17,363 49,870 287.4 287.4 1.2 3,981 –1,343 4,176 3,754 2,854 — — — — — –2,385 3.9 3.6 3.3 — 20,306 –17,077 19,824 15,451 32,996 — — — — 9.93 — 8.50 187.10 — 20.2 17.5 17.1 13.4 — — — 51,253 15,829 49,870 287.4 287.4 –1.0 5,104 –1,344 3,189 2,456 1,820 8,434 –7,683 –5,562 751 1,218 –2,443 4.7 2.7 2.1 106,808 26,172 –17,390 20,847 16,194 33,892 22,574 10,989 3,866 7,683 6.33 78.55 8.50 229.90 11.4 12.0 22.3 17.7 13.8 0.34 3.20 10.8 48,652 16,318 50,544 287.4 287.4 –2.3 –3.9 –4.1 1.5 –1.6 –3.4 –3.5 0.2 13.1 9.6 4.5 0.1 0.2 2.5 5.7 6.5 –5.7 –4.1 –4.4 –4.2 6.4 5.5 0.1 –4.1 2.7 1.7 3.9 3.0 0.3 4.9 7.8 1.8 –2.4 27.7 –3.6 1.8 7.8 3.2 –0.4 2.2 –0.3 Depreciation and amortization Items affecting comparability 2)/ Non-recurring items 6) sekm Net sales and income Net sales Organic growth, % Operating income Income after financial items Income for the period Cash flow Cash flow from operations Cash flow from investments of which capital expenditure in property, plant and equipment Cash flow from operations and investments Cash flow from operations and investments excluding acquisitions and divestments of operations Dividend, redemption and repurchase of shares Capital expenditure in property, plant and equipment Income after financial items as % of net sales as % of net sales Margins 3) Operating margin, % Financial position Total assets Net assets Working capital Trade receivables Inventories Accounts payable Total equity Interest-bearing liabilities Provisions for post-employment benefits, net Net debt Data per share Equity, SEK Dividend, SEK4) Income for the period, SEK Key ratios Return on equity, % Return on net assets, % Net assets as % of net sales 5) Trade receivables as % of net sales 5) Inventories as % of net sales 5) Net debt/equity ratio Interest coverage ratio Dividend as % of total equity Other data Average number of employees Salaries and remuneration Number of shareholders Average number of shares after buy-backs, million Shares at year end after buy-backs, million –4.8 3,442 –1,561 3,761 3,484 2,607 8,297 –2,967 –2,223 5,330 5,326 69 2.0 4.9 4.6 72,696 19,506 –5,154 20,173 10,050 16,031 18,841 14,022 9.18 66 4.00 167.50 14.9 19.4 17.1 17.7 8.8 0.04 7.54 6.0 50,633 13,162 52,000 284.0 284.4 1.5 3,328 –1,064 5,430 5,306 3,997 7,680 –4,474 –3,221 3,206 3,199 –1,120 3.0 6.1 6.0 73,521 19,904 –5,902 19,346 11,130 17,283 20,613 12,096 14.04 72 6.50 191.00 20.6 27.8 18.2 17.7 10.2 –0.03 12.64 9.0 51,544 12,678 57,200 284.6 284.7 0.2 3,173 –138 3,017 2,780 2,064 5,399 –10,049 –3,163 –4,650 906 –1,850 3.1 3.1 2.9 76,384 27,011 –5,180 19,226 11,957 18,490 20,644 14,206 7.25 73 6.50 10.4 13.7 23.8 17.0 10.5 0.31 5.84 9.0 5.5 3,251 –1,032 4,000 3,154 2,365 7,080 –4,702 –4,090 2,378 2,542 –1,868 3.7 4.6 3.8 75,194 25,890 –6,505 18,288 12,963 20,590 15,726 13,088 4,479 10,164 8.26 55 6.50 14.4 14.8 22.5 15.9 11.3 0.65 2.72 11.8 4.5 3,356 –2,475 1,580 904 672 4,455 –4,734 –3,535 –279 –74 –1,860 3.2 3.7 3.1 76,001 24,961 –5,800 19,441 12,154 20,607 14,308 14,905 2,980 10,653 2.35 50 6.50 4.4 5.8 21.8 17.0 10.6 0.74 2.11 13.0 52,916 13,137 58,800 284.7 284.7 59,478 13,785 51,800 285.9 286.1 60,754 13,521 51,500 286.2 286.2 665 –709 6,367 Trading price of B-shares at year-end, SEK 109.70 170.50 168.50 1) Amounts for 2012 have been restated where applicable as a consequence of the amended standard for pension accounting, IAS 19 Employee Benefits and 2017 as a consequence of the introduction of IFRS 15 Revenue from Contracts with Customers. 2) As of 2015 the accounting concept of Items affecting comparability is no longer in use. As from 2018, non-recurring items are presented, see definition in Note 31. 3) Items affecting comparability are excluded for the years 2009 to 2013. 2014 has been restated. 4) 2019: Proposed by the Board. 6) For more information, see Note 7. 5) Annualized net sales, calculated at end of period exchange rates, 2019: 117,519 (restated 2018: 115,733). 7) Certain amounts have been restated for discontinued operations as a consequence of the planned distribution of the Professional business area. ELECTROLUX ANNUAL REPORT 2019 88 Operations by business area yearly All amounts in SEKm unless otherwise stated Operations by business area yearly sekm Europe Net sales Operating income Margin, % North America Net sales Operating income Margin, % Latin America Net sales Operating income Margin, % Asia-Pacific, Middle East and Africa Net sales Operating income Margin, % Other Net sales Operating income, common Group costs, etc. Total, continuing operations Net sales Operating income Margin, % 2015 2016 20171) 2018 20192) 38,224 2,290 6.0 45,276 1,454 3.2 19,679 459 2.3 39,097 2,794 7.1 44,914 2,657 5.9 16,384 –111 – 0.7 39,231 2,772 7.1 42,083 2,796 6.6 43,321 2,128 4.9 39,804 1,104 2.8 18,277 17,963 483 2.6 492 2.7 45,420 2,493 5.5 38,954 –516 –1.3 19,653 1,821 9.3 13,787 13,833 308 2.2 — –2,631 673 4.9 — –693 13,457 1,077 8.0 — –775 14,375 14,954 979 6.8 — –527 446 3.0 — –1,055 116,965 114,228 113,048 115,463 118,981 1,879 1.6 5,320 4.7 6,353 5.6 4,176 3.6 3,189 2.7 1) Electrolux applies the new standard for revenue recognition, IFRS 15 Revenue from Contracts with Customer, as of January 1, 2018. Reported figures for 2017 have been restated to enable comparison. 2) All years presented have been restated due to changes in the business area structure in 2019. Non-recurring items1) Europe North America Latin America Asia-Pacific, Middle East and Africa Common Group cost Total, continuing operations 2015 –40 –2072) –11 –90 –1,9012) –2,249 2016 2017 — — — — — — — — — — — — 20183) –747 –596 — — — –1,343 20194) –752 –1,071 1,101 –398 –224 –1,344 1) For more information, see Note 7. 2) Refers to costs related to the not completed acquisition of GE Appliances. Costs for preparatory integration work of SEK 158m for 2015 have been charged to operating income for North America. Common Group cost includes transaction costs of SEK 408m for 2015 and a termination fee paid to General Electric in December 2015 of USD 175m, corresponding to SEK 1,493m. In total, costs of SEK 2,059m related to GE Appliances were charged to operating income in 2015 of which SEK 63m in the first quarter, SEK 195m in the second quarter, SEK 142m in the third quar- ter and SEK 1,659m in the fourth quarter. 3) Non-recurring items 2018: SEK –596m refers to the consolidation of freezer production in North America, SEK –747m refers to business area Europe and includes a fine of SEK –493m, relating to an investigation by the French Competition Authority, and a cost of SEK –254m relating to an unfavorable court ruling in France. 4) Non-recurring items 2019 includes SEK –829m related to the consolidation of U.S. cooking production and SEK –225m to the closure of a refrigeration production line in Latin America, recovery of overpaid sales tax in Brazil of SEK 1,403m, a legal settlement in the U.S. of SEK –197m and restructuring charges for efficiency measures and outsourcing projects across business areas and Group common costs of SEK –1,496m. ELECTROLUX ANNUAL REPORT 2019 Quarterly information Quarterly information 89 All amounts in SEKm unless otherwise stated Net sales and income by business area per quarter1) sekm Europe Net sales Operating income Operating margin, % North America Net sales Operating income Operating margin, % Latin America Net sales Operating income Operating margin, % Asia-Pacific, Middle East and Africa Net sales Operating income Operating margin, % Other Q1 2019 Q2 2019 Q3 2019 Q4 2019 Full year 2019 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Full year 2018 10,553 10,479 11,036 13,352 45,420 9,760 10,138 10,885 12,539 43,321 686 6.5 576 5.5 93 0.8 1,138 2,493 8.5 5.5 610 6.2 –286 –2.8 749 6.9 1,055 2,128 8.4 4.9 9,099 10,255 10,880 8,719 38,954 8,785 10,804 10,072 10,143 39,804 –482 –5.3 504 4.9 –20 –0.2 –519 –5.9 –516 –1.3 –148 –1.7 670 6.2 358 3.6 223 2.2 1,104 2.8 4,312 4,816 –223 –5.2 164 3.4 4,613 1,539 33.4 5,913 19,653 4,247 4,518 3,845 5,353 17,963 340 5.8 1,821 9.3 35 0.8 –38 –0.8 205 5.3 290 5.4 492 2.7 3,445 3,682 3,801 4,027 14,954 3,197 3,685 3,507 3,986 14,375 110 3.2 171 4.7 –150 –4.0 315 7.8 446 3.0 163 5.1 243 6.6 270 7.7 302 7.6 979 6.8 Operating income, common group costs, etc. –143 –197 –400 –315 –1,055 –133 –86 –107 –201 –527 Total, continuing operations Net sales Operating income Operating margin, % 27,408 29,232 30,330 32,011 118,981 25,988 29,145 28,309 32,021 115,463 –53 –0.2 1,219 1,063 4.2 3.5 960 3.0 3,189 2.7 527 2.0 503 1.7 1,476 1,670 4,176 5.2 5.2 3.6 Total Group, including discontinued operations Income for the period Earnings per share, SEK2) 79 0.28 1,132 3.94 739 2.57 559 1.94 2,509 8.73 551 1.92 517 1.80 1,162 1,575 4.04 5.48 3,805 13.24 Number of shares after buy-backs, million Average number of shares after buy-backs, million 287.4 287.4 287.4 287.4 287.4 287.4 287.4 287.4 287.4 287.4 287.4 287.4 287.4 287.4 287.4 287.4 287.4 287.4 287.4 287.4 1) The quarters 2018 have been restated due to changes in the business area structure in 2019. 2) Basic, based on average number of shares, excluding shares owned by Electrolux. ELECTROLUX ANNUAL REPORT 2019 90 Sustainability reporting Sustainability reporting 2019 Electrolux is a global leader in household appliances. Sustainability is part of the business model as a transformational driver. In this section, the Group’s sustainability work and the results for 2019 are presented. Electrolux shapes living for the better by reinventing taste, care and wellbeing experiences, making life more enjoyable and sustainable for millions of people. As a leading global appli- ance company, we place the consumer at the heart of every- thing we do. Through our brands, including Electrolux, AEG and Frigidaire, we sell approximately 60 million household products in more than 120 markets every year. In 2019, Electrolux had sales of SEK 119 billion and employed 49,000 people around the world. For more information, go to www.electroluxgroup.com. KEY RESULTS 2019 23/32% products with leading performance accounted for 23% of total units sold and 32% of gross profit for consumer products in 2019 -23% CO2 per manufactured product in 2019 compared to 2018 >6,400 metric tons recycled plastic used in 2019 30,000 took part in the Food Heroes’ workshop on UNs Sustainable Development Goals (SDGs) and sustainable eating Business model and sustainable development To achieve the Electrolux purpose – shape living for the better – and drive profitable growth, Electrolux uses a business model that focuses on delivering outstanding consumer experiences in taste, care and wellbeing. The objective is to create a steady stream of consumer-relevant innovations under well-estab- lished brands in key experience areas. With 60 million home appliances sold annually, Electrolux has long recognized the impact the company has on the environ- ment and in society. Sustainable development is defined as a transformational driver in the business model as the company recognizes the growing importance of sustainability perfor- mance and reputation. This includes the impact of Electrolux business operations and products on the planet and society. Electrolux is continuously making progress on sustainability and is acknowledged as a sustainability leader in the household durables industry. THE BETTER LIVING PROGRAM Better eating Make sustainable eating the preferred choice. Better garment care Make clothes last twice as long with half the environmental impact. Better home environment Make homes healthier and more sustainable through smart solutions for air, water and floors. Better company Make our business circular and climate neutral. In 2019 Electrolux introduced the Better Living Program, a plan to enable better and more sustainable living for consumers around the world through 2030 with targets focusing on better eating, better garment care and better home environment. The initiative widens the scope of the Electrolux commitment to sustainability and will be a part of the company’s sustainability framework from 2020. ELECTROLUX ANNUAL REPORT 2019 Sustainability reporting 91 Electrolux in a changing world The world in which Electrolux operates is constantly changing. Demographic trends are increasing pressure on resources, rapid technological development requires new business approaches, and planetary boundaries are influencing decision making at all levels. Such global megatrends create challenges for the business – but also bring about business opportunities. Demographics Global demographic trends – such as population growth, the growing middle class, an aging population and urbanization – are increasing the demand for home appliances, which puts more pressure on natural resources. Between 2015 and 2030, another billion people are expected to buy their first refrigerator. Implications for Electrolux: • Significant growth potential in emerging markets. • Continued need to decrease the overall environmental foot- print of products. • Growing importance of the elderly consumer group and the increasing number of smaller households. • Potential for new business models, such as shared ownership. Resources and planetary boundaries The need to reduce greenhouse gas emissions, and adapt to a changing climate and resource limitations, will drive manufac- turers toward circular business models that promote resource efficiency, cleaner chemistry and waste reduction. Implications for Electrolux: • Continued need to improve the environmental performance of products. • Pressure to reduce water consumption in areas with water scarcity. • Competition for some metals and minerals. • Growing importance of the circular economy. • Expectations to go beyond chemical legislation. • Problems with plastic waste pollution increase pressure on recycling solutions. Technology New technologies are scaled rapidly and globally, with purchas- ing decisions increasingly influenced by online information and social media. The Internet of Things (IoT) promises to connect billions of products in the near future. Implications for Electrolux: • Greater consumer empowerment and awareness require transparency and sustainable business practices. • Digitalization will drive the next wave of operational efficiency, including closer integration with suppliers. • Connectivity offers opportunities for new business models that result in better resource efficiency. • IoT enables a lifelong relationship between producers and consumers, but requires high standards of data security and privacy. Materiality Material issues are topics that reflect the most significant eco- nomic, environmental and social impacts for Electrolux. The materiality process aims to identify and understand the topics that are important to stakeholders, as well as to the Group’s business strategy. It is an important way of evaluating the ability to create and sustain value. Electrolux draws on insights from global trends and drivers, market intelligence, product research, internal and external dia- logue, expert opinion and consumer surveys, and other sources of information to develop an up-to-date understanding of the prevailing business context. The material issues have been expressed in the Group’s sustainability framework – For the Better – as nine promises with defined 2020 sustainability goals, and supported by key perfor- mance indicators (KPIs) (see page 92 for more details about For the Better). As 2020 is the target year for the current framework, a materiality process was conducted during 2019 to formulate an update of the Group’s sustainability framework. In 2019, Electrolux introduced the Better Living Program with the objective to enable better and more sustainable living for consumers with targets focusing on better eating, better gar- ment care and a better home environment. This program will be included in the updated sustainability framework with targets for 2030. New targets will be aligned with relevant UN Sustainable Development Goals. (For details see www.electroluxgroup.com/ sustainability). AVERAGE CO2 IMPACT DURING THE LIFETIME OF APPLIANCES1) Recycling 1% Materials, 7% Manufacturing, 1% Transportation, 1% Product usage, 85% Greenhouse gas, 5% The product life-cycle perspective guides how to best reduce climate impacts. The most significant carbon emission impact for Electrolux is a result of energy consumption when products are used. In 2018, Electrolux set Science Based Targets to align its business with the objective of the Paris Agreement to limit global warming to well below 2 °C, i.e. to reduce absolute carbon dioxide emissions from operations by 80% and emissions from products by 25% by 2025 compared to 2015. With the Company target in the Better Living Program Electrolux commits to be carbon neutral in its operations by 2030, and through the UNGC’s Business Ambition for 1.5 °C to have net zero emissions throughout its value chain by 2050. 1) The graph is based on the Group’s total CO2 impact in 2015 (82 million metric tons) used for setting Science Based Targets. ELECTROLUX ANNUAL REPORT 2019 92 Sustainability reporting For the Better The Group’s sustainability framework – For the Better – comprises of three areas: Better solutions, Better operations and Better society. It includes a target to halve the Group’s direct carbon emissions before the end of 2020 and nine promises to make a positive difference for the better. FOR THE BETTER Better solutions Better operations Better society Improve product performance and efficiency Ensure the best health and safety Solutions for healthy and sustainable living for more people Make better use of resources Achieve more with less Be a force for good Eliminate harmful materials Respect human rights and ethical principles Improve supply chain sustainability Climate targets Better solutions Meeting the growing global market for household appliances without increasing environmental impact requires Electrolux to improve product efficiency even further and to use resources more efficiently. Constantly improve product performance and efficiency Tackling climate change and the increasing demand for water are among the most urgent challenges facing society. Electrolux contributes by offering resource-efficient products that help consumers and customers to live better lives, save money and reduce their environmental footprint. In 2019, products with leading environmental performances represented 23% of products sold and 32% of gross profit. One example is improved refrigerators and freezers that will be produced in the new Electrolux factory in Anderson (U.S.). Make better use of resources The materials used in household appliances are primarily steel, plastic and electronical components. One of the ways of contributing to greater resource efficiency is to increase the use of recycled materials and support initiatives for product recy- cling. In 2015, Electrolux set a target of to replace 20,000 metric tons of virgin plastics in products with recycled by 2020 and in 2019 the Group achieved 6,400 metric tons. With the forecasted volume for 2020 the target will not be achieved on time. The gap is mainly due to challenges in transferring solutions between dif- ferent product and process technologies, slowing down imple- mentation in some regions. Eliminate harmful materials Electrolux has a robust approach to choosing materials for its products to protect human health and the environment. The Group continues to implement its common process for chemical management. New scientific findings and stake- holder requirements are used to update the Group’s Restricted Materials List. In 2019, Electrolux joined the Cool Coalition initiative, which encourages companies to make commitments to reduce emissions in the cooling sector. Electrolux commits to find alternative refrigerants with less Global Warming Potential in refrigerators, freezers and air conditioning units. OPERATIONAL RESOURCE EFFICIENCY ELECTROLUX –50% CLIMATE TARGET FOR 2020 INDEX 100 80 60 40 20 0 15 16 17 18 19 Energy per standard unit Energy consumption CO2 emissions Water consumption 05 - 16 17 18 19 Product use Greenhouse gas Manufacturing Transport 2020 Target -50% The target is to reduce climate impact by 50% focusing on product efficiency, and it encompasses the main product categories. Sales volumes and emission factors are normalized to 2005 ELECTROLUX ANNUAL REPORT 2019 Better operations Electrolux influences people’s daily life around the world. The Group works continuously to be more resource efficient and ensure safe and ethical operations. Achieve more with less Efficient use of resources reduces environmental impact and reduces costs. The Green Spirit program, a part of the Electrolux Manufacturing System, has the objective to continuously reduce energy use and to shift to renewables in the Group’s opera- tions around the world. In 2019, Electrolux reduced its energy consumption by 5.5% (2.7%) and CO2 emissions by 34% (15%) compared to 2018. In 2019, over 45% of the total energy used came from renewable sources. Ensure the best health and safety The Group’s safety mindset involves preventing accidents and keeping employees safe and sound, no matter where they are in the world. Since 2015, the injury rate has declined by 39% across the Group. The global incident rate (TCIR) was 0.53* (0.57) in 2019. Better society As a global company, Electrolux affects millions of people — customers, suppliers and local communities. Electrolux strives to make a difference in society by helping all stakeholders throughout the value chain to become more sustainable and by creating a positive impact in the communities in which the Group operates. Electrolux makes efficient appliances acces- sible to more people, creating opportunities for a better life. As a global company, Electrolux can contribute to a faster transfer of technology to new growing markets. The Group participates in United for Efficiency, a global program supporting developing countries to move their markets to energy-efficient appliances. Resource efficient solutions improve the lives of people and minimize environmental impacts. Be a force for good As a world-leader in kitchen appliances, the Group’s commu- nity investment activities focus on food — in cooperation with employees and global and local partners. The objectives are to spread knowledge regarding sustainable cooking and eating habits and to support people in need. Actions are facilitated through the Electrolux Food Foundation, and the Feed the Planet partnership together with the World Association of Chefs’ Societies (Worldchefs) and the world’s largest youth organiza- Climate targets The most significant carbon emission impact for Electrolux is a result of energy consumption when products are used, (50% target). In 2018, Electrolux set Science Based Targets to align its business with the objective in the Paris Agreement to limit- ing global warming to well below 2° C, i.e. to reduce absolute carbon dioxide emissions from operations by 80% and emis- sions from products by 25% by 2025 compared to 2015. With 2005–2020 -50% Target 1 Science based targets 2 3 Better Living Program – Company target United Nations Global Compact – Business ambition for 1.5 °C Sustainability reporting 93 Regrettably, in early 2019, a fatality of an Electrolux employee occurred in one of our plants in Latin America. The tragedy happened despite control measures being in place at the time of the accident. Electrolux is continuously improving its processes related to safety in all its operations. The employee’s family received full support and all relevant information was provided to the local authorities. Always act ethically and respect human rights Electrolux continues to build an ethical, trusted company, where everyone impacted by the Group’s operations can feel confident that their rights are respected. Electrolux has a global ethics program encompassing both training and a whistle- blowing system – the Electrolux Ethics Helpline – and in 2019, 215 (247) Helpline reports were made. Human rights action plans, based on risk assessments, forms the basis for driving the company’s approach to human rights. *Discontinued operations reported an incident rate (TCIR) of 1.8 in 2019. tion AIESEC. The Group intends to annually fund the Electrolux Food Foundation until 2030, with an expected total of SEK 100m. The focus in 2019, has been to replicate and scale up suc- cessful project models such as the Food Heroes program educating children on sustainable eating habits and the Like a Chef program to teach unemployed persons sustainable culinary skills. Over 30,000 people participated in Food Heroes workshops in 2019, and 142 people graduated from Like a Chef. This program has enabled many graduates to either find a job, become self-employed or pursue further culinary studies. Improve sustainability in the supply chain Regardless of where the Group’s products and components are manufactured, it must be done with respect for people and care for the environment. As part of its responsible sourcing efforts, Electrolux carried out 351* (399) supplier audits in 2019, and over 4,200 (6,400) supplier employees were trained in the Electrolux Supplier Workplace Standard and other relevant sus- tainability issues. Electrolux has cooperated with logistic part- ners to reduce the climate impact of container sea transport. *For discontinued operations 8 audits were performed in 2019. the Company target in the Better Living Program, Electrolux commits to be carbon neutral in its operations by 2030, and through the UNGC’s Business Ambition for 1.5° C to have net zero emissions throughout its value chain by 2050. The 2025 emission targets for Electrolux operations have been verified by the Science Based Targets Initiative to be in line with a 1.5° C climate scenario. 1. Science based targets (SBT) Scope 1 + Scope 2 – 80% reduction and Scope 3 – 25% reduction by 2025 2. Company target, Climate neutral operations (Scope 1 + Scope 2 = 0) by 2030 3. UNGC Business ambition for 1.5 °C – climate neutral value chain by 2050 2015 2020 2025 2030 2050 1. Science based targets (SBT) Scope 1 + Scope 2 80% reduction and Scope 3 25% reduction by 2025 2. Company target, Climate neutral operations (Scope 1 + Scope 2 = 0) by 2030 3. UNGC’s Business Pledge – climate neutral value chain by 2050 ELECTROLUX ANNUAL REPORT 2019 94 Sustainability reporting Managing sustainability – Risks and Opportunities Governance The Group’s sustainability framework – For the Better – is directly overseen by the Group Management and the Business Areas’ Management teams that have been engaged in the develop- ment of the priorities and objectives for the nine promises and the climate targets. In 2019, regular education and communication on the Code of Conduct and key Group Policies was introduced. All office based staff must acknowledge the Code of Conduct by elec- tronic signature. Each business area is responsible for contributing to the fulfill- ment of the Group’s sustainability targets under the nine prom- ises, and several of the KPIs are broken down and monitored at business area level. Reference groups and steering groups with Group Management and senior management participation are in place for various programs; for example, the Ethics & Human Rights Steering Group; Industrial Operations; External Affairs; and Chemicals. A number of Group functions are accountable for identifying and managing non-financial risks in their area of responsibility. Risks are reported to Group Management, and they feed the materiality process. In 2019, Electrolux formed the Sustainability Board led by the CEO, tasked with assessing priorities, monitoring progress and evaluating risks. The board will propose actions and targets to Group Management, and will be essential in delivering on Electrolux sustainability targets going forward. Key sustainability governance responsibilities: • The Board of Directors is responsible for identifying how sus- tainability issues impact risks to and business opportunities for the company. • Internal Audit evaluates and improves governance, internal control and risk management processes. • Group Risk Management benchmarks and monitors key risks in operations and critical suppliers. • Group Legal Affairs is responsible for implementing an anti- corruption program. • Each Business Area’s Sourcing Board is responsible for moni- toring supplier compliance, with the support of the Respon- sible Sourcing team. • Group Sustainability Affairs assesses materiality, develops policies, targets, monitors the implementation of programs, and manages the Responsible Sourcing program. • The Ethics Helpline (whistleblower function) and programs for ethics and human rights are overseen by the Ethics & Human Rights Steering Group. Aspect Policies Environment • Environmental Policy • Workplace Policy Key areas • Product design • Efficiency in operations • Influencing legislation Social, labor and human rights • Workplace Policy • Supplier Workplace Standard • Workplace Directive • Child and forced labor • Health and safety, working hours, compensation • Discrimination and harassment • Environmental management systems • Freedom of association, collective bargaining The full text of Electrolux policies is available at www.electroluxgroup.com/en/category/sustainability/codes-and-policies Anti-corruption • Anti-Corruption Policy • Conflict of Interest Policy • Conflict of interest • Bribes or other improper benefits • Business partners and customers • Political contributions Environment From a product life-cycle perspective, Electrolux has a relatively large environmental impact – including energy consumption, use of materials and chemicals. Generally, the most significant impacts occur during a product’s use phase, and the Group’s strategy is to improve product performance. The Electrolux Environmental Policy outlines how Electrolux aims to improve environmental performance in production and product use, as well as how to design products for disposal. Requirements for the Group’s operations and in supply chain are described in the Workplace Directive. All Electrolux facto- ries with more than 50 employees are required to be ISO 14001 and ISO 50001 certified. Group requirements on suppliers are described in the Sup- plier Workplace Standard and the Workplace Directive. Com- pliance is mandatory when evaluating potential and existing suppliers. The Group’s major suppliers of finished products must measure and monitor their energy use and report it through the energy reporting standard. They have also been included in the WWF Water Risk Filter assessment. Electrolux responds to the annual CDP Climate and Water questionnaires. In 2019, Electrolux achieved A- both in CDP Climate and CDP Water. The Group’s proactive approach aims to develop and promote sales of products with lower environmental impact. Readiness for more stringent product legislation, for example, can lead to increased sales. For many years, products with superior environmental performance have delivered higher profit margins. Electrolux products are affected by legislation in areas including energy consumption, producer responsibility, and management of hazardous substances. Some customers have requirements that go beyond legislation. ELECTROLUX ANNUAL REPORT 2019 Sustainability reporting 95 The main environmental risks are related to regulatory and customer requirements (see pages 96–97). Not meeting require- ments could result in fines or limitations in production permits, reduced sales or product withdrawal. Electrolux has processes in place to mitigate these risks, including ISO management systems, internal audits, a Responsible Sourcing program, and targets in the product development plans. The Group’s programs to reduce operational resource consumption and to introduce more recycled materials in products are saving costs. In 2018, the Group’s Science Based Targets in line with the Paris Agreement (COP 21) were approved. In March 2019, Electrolux introduced the world’s first green bond framework in its industry to raise funds earmarked for investments contributing to reduced environmental impacts from the company’s products and operations. The proceeds are used to finance projects covered by environmental areas in the Electrolux sustainability framework For the Better. In 2019, Electrolux issued the first bond loan within its green bond frame- work, raising SEK 1bn. Social, labor and human rights Electrolux reputation is built on trust, which means that all actions and decisions must be governed by principles of ethics, integrity, and respect for people and care for the environment – no matter where the Group operates in the world. Consumers are increasingly making purchasing decisions based on their trust in companies and how they contribute to society. Additionally, employees prefer to work for a company with values that match their own. Respecting human rights and being an ethical company goes beyond simply meeting legal requirements. It is about guiding employees to know what is right and wrong, and how to make decisions accordingly. The goals in For the Better reflect the Group’s commitment to build a strong culture for ethics and human rights. The key human rights risks include freedom of association, discrimination and working conditions. Other risks are privacy of information, and corruption. The Electrolux Code of Conduct was launched in 2018, and contains the Group’s Human Rights policy statement, firmly stating that human rights shall be respected. During 2019, Code of Conduct e-learning and communications was rolled out to employees. The Group’s human rights commitment is further detailed through a new Human Rights Directive. The Workplace Policy, the Supplier Workplace Standard and the Workplace Directive contain mandatory requirements relating to labor Anti-corruption Corruption poses a threat to sustainable economic and social development around the world and in particular in poor com- munities. Corruption could also have severe negative impacts for the Group by obstructing business growth, increasing costs and imposing serious legal and reputational risks. Operating in 58 countries all over the world, including countries in emerg- ing markets, Electrolux is exposed to risks related to corruption and bribery. These risks may arise in several phases of the value chain, such as in purchasing and sales. Electrolux has zero tolerance of corruption and works contin- uously to raise awareness among employees in order to mini- mize the risk for corruption. Measures against corruption are included in the Anti-Corruption Policy, which all employees are required to follow. This policy provides guidance to employees on how to do the right thing and explains what actions consti- tute unlawful and inappropriate behavior. Employees can report ethical misconduct through a whistle- blower system. In 2019, 215 (247) reports were received, out of which 19 (24) reports in the area of business integrity were investigated. Business integrity includes allegations related to corruption, fraud, theft, internal control and anti-trust. Electrolux conducts Group-wide e-learning courses on anti- corruption. These initiatives complement the tailored training that certain functions such as sales, procurement and senior management receive (roles that are more exposed to corruption ELECTROLUX ANNUAL REPORT 2019 rights, health, safety and environment within Electrolux and suppliers. Electrolux monitors performance and manages risks through internal and external audits, an annual self-assessment process for manufacturing units, local human rights assessments, edu- cation, the Ethics Helpline, management-labor dialogue, as well as health and safety committees. Risks in the supply chain are addressed through audits and training efforts as part of the Responsible Sourcing program. Human rights procedures engage many functions through- out the organization, from Human Resources to Purchasing and Global Industrial Operations. Accountability for the ethics program and the oversight of human rights lies with the Ethics & Human Rights Steering Group, which comprises of senior man- agement representatives from Group functions. Electrolux conducts human rights impact assessments at both Group and local level, in line with the UN Guiding Principles on Business and Human Rights. Five issues and three business processes constitute the Group’s salient human rights issues. The methodology for the assessments focuses on identifying the risk of harming people, as a direct or indirect result of Electrolux operations. In 2019, the focus was on following up on the actions from the assessments conducted in Egypt, Thailand and Ukraine in 2017 and 2018. risks). Such face-to-face training sessions have been conducted locally throughout the organization by either in-house legal counsel or by external experts. Training requirements are contin- uously monitored and evaluated based on business needs, and the legal and risk context. The local human rights assessments include the review and assessment of corruption risks. 77% of employees trust that the concerns reported through the Ethics Helpline (Alertline in North America) are handled confidentially and fairly in 2019. 96 Sustainability reporting Impacts throughout the value chain A value chain perspective helps Electrolux identify how it can best manage its impacts and create maximal value. This approach makes it easier to identify opportuni- ties, minimize or enhance impacts, and understand boundaries. It also helps the company to understand how its actions and impacts are interrelated. The following section identifies the Group’s key sustainability risks and impacts, and how they are managed. It also identifies the degree of influence along the value chain, and the value created for the company and the society. Product development Suppliers Electrolux operations Close collaboration between Design, Marketing and R&D enables new products to offer best-in-class consumer experiences. The ambition is to develop solutions with leading environmental per- formance. Timely innovation is key to meeting forthcoming legal requirements and mar- ket demands. The focus is on energy, water and material efficiency, as well as chemical use in appliances. Risks • Not meeting regulatory or market requirements. • Not meeting consumer expectations. • Not adapting to a low- carbon economy. How impacts are managed • Continuously improve prod- uct efficiency. • Increase use of recycled materials. • Eliminate harmful materials. • Integrate future require- ments into product develop- ment plans. • Participate in the United for Efficiency program. Ability to influence - High Generating value Products with leading envi- ronmental performance deliver customer value in line with the business strategy, while reducing negative impact on the environment. Electrolux relies on thousands of first-tier suppliers, many in emerging markets. The focus is on safeguarding Electrolux standards and developing supplier capacity to improve sustainability performance. Electrolux also requires all its suppliers to comply with Electrolux Supplier Workplace Standard and the Workplace Directive. Risks • Connections to social, ethical and human rights violations. • Severe weather conditions caused by climate change could negatively affect supply. • Business interruptions due to unethical business practices in the supply chain. How impacts are managed • Apply a risk-based approach to identify suppli- ers in scope. • Assess the climate impact of key suppliers. • Conduct auditing to safe- guard standards. • Hold training and drive improvement programs. Ability to influence - Medium Generating value Enforcing Electrolux stan- dards supports human rights and raises environmental, labor and economic stan- dards, particularly in emerg- ing markets. This also builds trust and a resilient supply chain, while reducing busi- ness and reputational risks. Electrolux has 42 factories and sales in 120 markets, with approximately 49,000 employees. The main focus areas are to reduce the envi- ronmental footprint, maintain high ethical standards and working conditions, as well as to have a positive impact in local communities. Risks • Disruptions due to emissions and discharges as a result of incidents. • Disruptions caused by severe weather as a result of climate change. • Impact due to social, ethical and human rights violations. • Corruption related to weak governance. How impacts are managed • Apply the environmental management systems and efficiency programs. • Ensure the best conditions for health and safety. • Governance systems and training to enforce sustain- ability policies. • Assess the climate impact on operations. • Support local community programs. Ability to influence - High Generating value Electrolux creates com- munity benefit by providing jobs, knowledge transfer and economic opportunities. Posi- tive employee relationships promote competence devel- opment, employee wellbeing and job satisfaction. Local community engagement creates good stakeholder relations, improves employee pride and enhances brand reputation. ELECTROLUX ANNUAL REPORT 2019 Sustainability reporting 97 Transport Sales Consumer use End-of-life Electrolux sells approximately 60 million products in over 120 markets every year, primarily through retailers. Energy and performance labeling, and sustainability communica- tion allow us to raise energy efficiency awareness among consumers. As the main environmen- tal impacts of Electrolux products occur when they are used, product energy and water efficiency is a top priority. Greater use of connected products in the future will help improve optimal product use. Risks • Failure to effectively inform consumers on product use. • Not meeting consumer expectations on product efficiency. • Limited opportunity to influ- ence decision-making at the point-of-purchase. • Corruption. How impacts are managed • Continuously improve product performance and efficiency. • Improve pre- and point of purchase communication. • Secure third party endorse- ment of products (such as best-in-test recognitions). • Communicate on themes such as food storage, reduc- ing food waste, caring for clothes and textiles. • Conduct Group-wide train- ings on anti-corruption. Ability to influence - Medium Generating value Promoting transparency and the Group’s sustainable product offering contributes to retailer sustainability goals, strengthens brands and builds customer loyalty. As sales of the Group’s products with leading environmental performance demonstrate, an efficient product offering is a profitable strategy. Risks • Not meeting expectations on product performance. • Consumers not using prod- ucts in an optimal way. • Product safety. • Data privacy for users of connected products. How impacts are managed • Continuously improve product performance and efficiency. • Better Living Program • Prepare for increased data privacy regulation. • Follow the product safety governance and proce- dures. • Increase development and sales of connected products. Ability to influence - Medium Generating value Appliances deliver social benefits that many take for granted – such as food pres- ervation, hygiene standards, freeing up time from house- hold chores, and facilitating equal opportunities – factors that are particularly sig- nificant in emerging markets. Providing efficient products, raising consumer awareness and increasing appliance connectivity can help counter rising global CO2 emissions, while reducing food waste and the wear of clothes. Legislation on appliance recycling is being introduced in more markets. On aver- age, materials account for approximately 7% of a prod- uct’s life-cycle impact, and Electrolux market research indicates that it is a top priority for consumers. In Europe, the region with the most comprehen- sive producer responsibility legislation, 80% of the materi- als from collected end-of-life large appliances must be recovered. Risks • Not meeting expectations beyond legislation. • Waste of resources due to a lack of recycling. • Illegal trade of discarded products and recycled materials. How impacts are managed • Establish a more circular business by using recycled materials. • Eliminate harmful materi- als to enable higher quality recycled materials and decrease environmental impact. • Promote proper recycling as part of producer’s respon- sibility. Ability to influence - Low Generating value Building resource-efficient and closed-loop systems help reduce environmental impact and overall resource con- sumption. Innovative designs that allow material reuse saves money and energy, and increases consumer trust in the Electrolux brand. Addressing transportation is part of a life-cycle approach to the Group’s overall impacts. Electrolux emits more CO2 transporting its goods than it emits through the total energy used in the Group operations. Approximately 300,000 metric tons are emitted annu- ally through the distribution of goods via sea, land and air in Europe, North America and Brazil. Risks • Emissions from transporta- tion. • Labor conditions in logistics companies. How impacts are managed • Implement collaborative solutions to mitigate logis- tics-related impacts. • Promote efficient modes of transport. Ability to influence - Medium Generating value Helping to create a more sustainable transport indus- try strengthens the Group’s brand reputation. Transport is included in the Electrolux carbon target. It also sup- ports suppliers in their work to improve their environmental and labor standards. ELECTROLUX ANNUAL REPORT 2019 98 Sustainability reporting The sustainability reporting section in the administration report has been developed to fulfill the requirements in the Swedish Annual Accounts Act. For more detailed information on Electrolux and sustainability, please read the Sustainability Report prepared based on the GRI Standards at: www.electroluxgroup.com/sustainability Sustainability reporting and information The Electrolux sustainability routines and systems for informa- tion and communication aim at providing key stakeholders with accurate, relevant and timely information concerning the targets and results of the Group’s sustainability framework, For the Better. The sustainability reporting section in the administration report has been developed to fulfill the requirements in the Swedish Annual Accounts Act. This report also highlights how the Group’s priorities reflect its commitment to the 10 principles of the UN Global Compact. Unless otherwise indicated, sustain- ability disclosures include all operations that can potentially affect Group performance for calendar year 2019. Discontinued operations (Professional Product business area), are reported separately where relevant. Sustainability information is shared regularly in the form of: • Electrolux Sustainability Report, including -United Nations Global Compact Communication on Progress -United Nations Guiding Principles Reporting Framework • Sustainability in Brief • Mandatory reporting regarding transparency in the supply chain • Press releases • Meetings with key stakeholders worldwide • Responses to questionnaires from investors and analysts • Annual submission to CDP for climate and water Reports, policies and press releases are available at: www.electroluxgroup.com Stockholm, February 13, 2020 AB Electrolux (publ) Board of Directors Auditor’s report on the statutory sustainability report To the general meeting of the shareholders in AB Electrolux (publ), corporate identity number 556009-4178. Engagement and responsibility It is the board of directors who is responsible for the statutory sustainability report for the year 2019 on pages 90–98 and that it has been prepared in accordance with the Annual Accounts Act. The scope of the audit Our examination has been conducted in accordance with FAR’s auditing standard RevR 12 The auditor´s opinion regarding the statutory sustainability report. This means that our examination of the statutory sustainability report is substantially different and less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufficient basis for our opinion. Opinion A statutory sustainability report has been prepared. Stockholm, February 13, 2020 Deloitte AB Signature on Swedish original Jan Berntsson Authorized Public Accountant This is a translation of the Swedish language original. In the event of any differences between this translation and the Swedish language original, the latter shall prevail. ELECTROLUX — A LEADER IN THE HOUSEHOLD DURABLES INDUSTRY The Group’s sustainability performance strengthens relations with investors and Electrolux is recognized as a leader in the household durables industry. In 2019, Electrolux was included in the Dow Jones Sustainability Index (DJSI) World and Europe indexes and thereby ranks among the top 10% of the world’s 2,500 largest companies for social and environmental performance. Additionally, Electrolux has received recognition from other indexes and organizations, including SAM, OEKOM, CDP and UN Global Compact Top 100. ELECTROLUX ANNUAL REPORT 2019 Electrolux Sustainability Report 2019 VISIT OUR REPORT Electrolux Sustainability Report 2019 – www.electroluxgroup.com/sustainability Corporate governance report 2019 Corporate governance report 101 Corporate governance report Chairman's introduction As a leading global appliance company, Electrolux shapes living for the better by reinventing taste, care and wellbeing experiences to make life more enjoyable and sustainable for millions of people. Through the Group’s different brands, we sell approximately 60 million products in approximately 120 markets every year. Our large installed base of approximately 400 million products globally gives us high aftermarket sales potential. Corporate Governance Report This Corporate Governance Report provides details of the over- all governance structure of Electrolux, the interactions between the formal corporate bodies, internal policies and procedures as well as relevant control functions and reporting, which ensures a robust global governance framework and strong corporate culture. Board's focus areas during the year When Electrolux was founded it was a consumer focused busi- ness selling vacuum cleaners to households around the world. Over the years Electrolux has ventured into a variety of different product areas including products for professional use. 2019 marked the Company’s 100-year anniversary and during the year significant steps have been taken to reshape the Company into a streamlined organization with a clear consumer focus, all with a view to deliver on our profitable growth strategy. One element is the decision to change the Group’s business area structure resulting in the creation of four consumer-focused regional business areas as well as a new organizational struc- ture, responsible for marketing, design, product lines, digital consumer solutions and ownership experience. Other important decisions include the global streamlining measures to improve the organization’s efficiency announced in September 2019, and the proposal to list and distribute Electrolux Professional to the shareholders announced in December 2019. The Board has also had a continued focus on investments in automation, digi- talization and innovation capabilities. With the announcements of the investments in our European refrigerator facilities in Italy and Hungary our extensive re-engineering program is now fully underway. These measures, taken with a long term perspective, will lead to increased operational efficiency, outstanding prod- ucts and creation of shareholder value. Since the Board sets the Group’s strategy and provides the governance framework, the Board needs to have a high understanding of the Group’s business drivers and local market conditions. During the year Board members have individually continued to visit Electrolux sites to get a first-hand understand- ing of the operations and, in connection with a strategy session, the Board visited Electrolux sites and retailers in Thailand and Vietnam. I would like to take this opportunity to thank my fellow Board members for good cooperation, constructive contributions and engaged work. I would also like to thank the management for its exceptional work efforts during a challenging year. Staffan Bohman Chairman of the Board ELECTROLUX ANNUAL REPORT 2019 Corporate governance report 2019 102 Corporate governance report Governance in Electrolux Electrolux aims at implementing strict norms and efficient gover- nance processes to ensure that all operations create long-term value for shareholders and other stakeholders. This involves the maintenance of an efficient organizational structure, systems for internal control and risk management and transparent internal and external reporting. The Electrolux Group comprises approximately 180 com- panies with sales in approximately 120 markets. The parent company of the Group is AB Electrolux, a public Swedish limited liability company. The company’s shares are listed on Nasdaq Stockholm. The governance of Electrolux is based on the Swedish the Swedish Code of Corporate Governance (the “Code”), as well as other relevant Swedish and foreign laws and regu- lations. The Code is published on the website of the Swedish Corporate Governance Board, which admini strates the Code: www.corporategovernanceboard.se This corporate governance report has been drawn up as a part of Electrolux application of the Code. Electrolux did not report any deviations from the Code in 2019. There has been no infringement by Electrolux of applicable stock exchange rules and no breach of good practice on the securities market reported by the disciplinary committee of Nasdaq Stockholm or the Swedish Securities Council in 2019. Companies Act, Nasdaq Stockholm’s rule book for issuers and Below is Electrolux formal governance structure. GOVERNANCE STRUCTURE Shareholders by the AGM External Audit Board of Directors Nomination Committee Remuneration Committee Audit Committee Group Internal Audit President and Group Management Business area Boards Internal Bodies Major external regulations • Swedish Companies Act. • Nasdaq Stockholm’s rule book for issuers. • Swedish Code of Corporate Governance. Major internal regulations • Articles of Association. • Board of Directors’ working procedures. • Policies for information, finance, credit, accounting manual, etc. • Processes for internal control and risk management. • Code of Conduct, Anti-Corruption Policy and Workplace Policy. Electrolux is a leading global appliance company that has shaped living for the better for more than 100 years. We reinvent taste, care and wellbeing experiences for millions of people around the world, always striving to be at the forefront of sustainability in society through our solutions and operations. Under our brands, including Electrolux, AEG and Frigidaire, we sell approximately 60 million household products in approximately 120 markets every year. In 2019, Electrolux had sales of SEK 119bn and employed 49,000 people around the world. For more information go to www.electroluxgroup.com AB Electrolux (publ) is registered under number 556009-4178 with the Swedish Companies Registration Office. The registered office of the Board of Directors is in Stockholm, Sweden. The address of the Group headquarters is S:t Göransgatan 143, SE-105 45 Stockholm, Sweden. ELECTROLUX ANNUAL REPORT 2019 Corporate governance report 103 Highlights 2019 • Proposal for the distribution of Electrolux Professional AB. • Re-election of Staffan Bohman as Chairman of the Board. • Performance-based, long-term incentive program for senior management. Shares and shareholders The Electrolux share is listed on Nasdaq Stockholm. At year- end 2019, Electrolux had 50,544 shareholders according to Euroclear Sweden AB and Holdings. Of the total share capital, 61% was owned by Swedish institutions and mutual funds, 33% by foreign investors and 6% by Swedish private investors, see below. Investor AB is the largest shareholder, holding 16.4% of the share capital and 28.4% of the voting rights. The ten larg- est shareholders accounted for 48.8% of the share capital and 58.1% of the voting rights in the company. Voting rights The share capital of AB Electrolux consists of Class A shares and Class B shares. One A share entitles the holder to one vote and one B share to one-tenth of a vote. Both A shares and B shares entitle the holders to the same proportion of assets and earn- ings and carry equal rights in terms of dividends. Owners of A shares can request to convert their A shares into B shares. Con- version reduces the total number of votes in the company. As of December 31, 2019, the total number of registered shares in the company amounted to 308,920,308 shares, of which 8,192,539 were Class A shares and 300,727,769 were Class B shares. The total number of votes in the company was 38,265,316. Class B shares represented 78.6% of the voting rights and 97.3% of the share capital. Dividend policy Electrolux target is for the dividend to correspond to at least 30% of the income for the period. For a number of years, the dividend level has been considerably higher than 30%. The Annual General Meeting (AGM) in April 2019 decided to adopt the Board’s proposed dividend of SEK 8.50 per share for the fiscal year 2018 which, in accordance with the Board’s proposal, was paid out in two equal installments. The Board of Directors proposes a dividend for the fiscal year 2019 of SEK 8.50 per share to be paid in two equal installments, for a total divi- dend payment of approximately SEK 2,443m. On December 5, 2019 the Board's proposal to distribute Electrolux Professional AB to the shareholders of Electrolux was announced. Shareholders meeting General Meetings of shareholders The decision-making rights of share- holders in Electrolux are exercised at shareholders’ meetings. The AGM of AB Electrolux is held in Stockholm, Sweden, during the first half of the year. Extraordinary General Meetings may be held at the discretion of the Board or, if requested, by the auditors or by shareholders owning at least 10% of all shares in the company. Participation in decision-making requires the share holder’s presence at the meeting, either personally or by proxy. In addi- tion, the shareholder must be registered in the share register by a stipulated date prior to the meeting and must provide notice of participation in the manner prescribed. Additional require- ments for participation apply to share holders with holdings in the form of American Depositary Receipts (ADR) or similar certificates. Holders of such certificates are advised to contact the ADR depositary bank, the fund manager or the issuer of the certificates in good time before the meeting in order to obtain additional information. Individual shareholders requesting that a specific issue be included in the agenda of a shareholders’ meeting can normally request the Electrolux Board to do so. The last date for making such a request for the respective meeting will be published on the Group’s website. Decisions at the meeting are usually taken on the basis of a simple majority. However, as regards certain issues, the Swedish Companies Act stipulates that proposals must be approved by shareholders representing a larger number of the votes cast and the shares represented at the meeting. Annual General Meeting 2019 The 2019 AGM was held at the Stockholm Waterfront Congress Centre in Stockholm, Sweden, on April 10, 2019. 952 shareholders representing a total of 57.7% of the share capital and 69.3% of the votes were represented at the AGM. The President’s speech was broadcasted live via the Group’s website and is also available on www.electroluxgroup.com/corporate-governance, together with the minutes. The meeting was held in Swedish, with simultane- ous interpretation into English. All Board members, as well as the Group’s auditor in charge, were present at the meeting. OWNERSHIP STRUCTURE ATTENDANCE AT AGMS 2015–2019 % 75 60 45 30 15 0 % of share capital % of votes Shareholders ATTENDANCE 1,200 1,000 800 600 400 200 15 16 17 18 19 952 shareholders representing a total of 57.7% of the share capital and 69.3% of the votes were present at the 2019 AGM. Swedish institutions and mutual funds, 61% Foreign investors, 33% Swedish private investors, 6% Source: Euroclear Sweden and Holdings as per December 31, 2019. The foreign ownership has decreased to 33% at year-end 2019 from 38% at year-end 2018. Foreign investors are not always recorded in the share register. Foreign banks and other custodians may be registered for one or several customers’ shares, and the actual owners are then usually not displayed in the register. For additional information regarding the ownership structure, see above. The information on ownership structure is updated quarterly on the Group’s website: www.electroluxgroup.com/corporate-governance ELECTROLUX ANNUAL REPORT 2019 104 Corporate governance report Decisions at the Annual General Meeting 2019 included: • Dividend payment of SEK 8.50 per share for fiscal year 2018 to be paid out in two equal installments of SEK 4.25 per share. • Re-election of the Board members Staffan Bohman, Petra Hedengran, Hasse Johansson, Ulla Litzén, Fredrik Persson, David Porter, Jonas Samuelson, Ulrika Saxon and Kai Wärn. Bert Nordberg declined re-election. • Re-election of Staffan Bohman as Chairman of the Board. • Re-election of Deloitte AB as auditors. • Remuneration to the Board members. • Approval of remuneration guidelines for Electrolux Group Management. • Performance-based, long-term incentive program for 2019 covering up to 350 managers and key employees. • Authorization to acquire own shares and to transfer own shares on account of company acquisitions and to cover costs that may arise as a result of the share pro- gram for 2017. Extraordinary General Meeting 2020 An EGM of AB Electrolux will be held on Friday, February 21, 2020, at AB Electrolux headquarter, S:t Göransgatan 143, Stockholm, Sweden. The EGM will resolve upon the Board of Directors’ proposal to distribute all shares in Electrolux Professional AB, the wholly owned subsidiary operating the Professional Products Business Area, to the shareholders of AB Electrolux. Annual General Meeting 2020 The next AGM of AB Electrolux will be held on Tuesday, March 31, 2020, at Stockholm Waterfront Congress Centre in Stockholm, Sweden. For additional information on the next AGM and how to register attendance, see page 120. Nomination Committee Nomination Committee The AGM resolves upon the nomination process for the Board of Directors and the auditors. The AGM 2011 adopted an instruction for the Nomina- tion Committee which applies until further notice. The instruc- tion involves a process for the appointment of a Nomination Committee comprised of six members. The members should be one representative of each of the four largest shareholders, in terms of voting rights that wish to participate in the Committee, together with the Chairman of the Electrolux Board and one additional Board member. The composition of the Nomination Committee shall be based on shareholder statistics from Euroclear Sweden AB as of the last banking day in August in the year prior to the AGM and on other reliable shareholder information which is provided to the company at such time. The names of the representa- tives and the names of the shareholders they represent shall be announced as soon as they have been appointed. If the The AGM resolves upon: • The adoption of the Annual Report. • Dividend. • Election of Board members and, if applicable, auditors. • Remuneration to Board members and auditors. • Guidelines for remuneration to Group Management. • Other important matters. shareholder structure changes during the nomination process, the composition of the Nomination Committee may be adjusted accordingly. The Nomination Committee is assisted in preparing proposals for auditors by the company’s Audit Committee and the Nomination Committee’s proposal is to include the Audit Committee’s recommendation on the election of auditors. The Nomination Committee’s proposals are publicly announced no later than on the date of notification of the AGM. Shareholders may submit proposals for nominees to the Nomination Committee. Nomination Committee for the AGM 2019 The Nomination Committee for the AGM 2019 was comprised of six members. Johan Forssell of Investor AB led the Nomination Committee’s work. For the proposal for the AGM 2019, the Nomination Committee made an assessment of the composition and size of the current Board as well as the Electrolux Group’s operations. Areas of particular interest were Electrolux strategies and goals and the demands on the Board that are expected from the Group’s positioning for the future. The Nomination Committee applied rule 4.1 of the Code as diversity policy in its nomination work. The Nomination Committee considered that a breadth and variety as regards age, nationality, educational back- ground, gender, experience, competence and term of office is represented among the Board members. The Nomination Committee proposed re-election of all Board members except Bert Nordberg who had declined re-election. The Nomination Committee also proposed re-election of Staffan Bohman as Chairman of the Board. After the election at the AGM 2019, three out of eight Board members elected at the share- holders’ meeting are women (in this calculation, the President has not been included in the total number of Board members). The Nomination Committee also proposed, in accordance with the recommendation by the Audit Committee, re-election of Deloitte AB as the company’s auditors for the period until the end of the AGM 2020. A report regarding the work of the Nomination Committee was included in the Nomination Committee’s explanatory state- ment that was published before the AGM 2019. Further informa- tion regarding the Nomination Committee and its work can be found on the Group’s website: www.electroluxgroup.com/corporate-governance Nomination Committee for the AGM 2020 The Nomination Committee for the AGM 2020 is based on the owner ship structure as of August 31, 2019, and was announced in a press release on September 13, 2019. The Nomination Committee’s members are: • Johan Forssell, Investor AB, Chairman • Kaj Thorén, Alecta • Marianne Nilsson, Swedbank Robur Funds • Anders Oscarsson, AMF - Försäkring och Fonder • Staffan Bohman, Chairman of Electrolux • Fredrik Persson, Board member of Electrolux The Nomination Committee’s tasks include preparing a proposal for the next AGM regarding: • Chairman of the AGM. • Board members. • Chairman of the Board. • Remuneration to Board members. • Remuneration for committee work. • Amendments of instructions for the Nomination Committee, • Auditors and auditors’ fees, when these matters are to be decided if deemed necessary. by the following AGM. ELECTROLUX ANNUAL REPORT 2019 Corporate governance report 105 responsibilities delegated to the committees appointed by the Board. In accordance with the procedures and the Code, the Chairman shall among other things: • Organize and distribute the Board’s work. • Ensure that the Board discharges its duties and has relevant knowledge of the company. • Secure the efficient functioning of the Board. • Ensure that the Board’s decisions are implemented efficiently. • Ensure that the Board evaluates its work annually. The working procedures for the Board also include detailed instructions to the President and other corporate functions regarding issues requiring the Board’s approval. Among other things, these instructions specify the maximum amounts that various decision-making functions within the Group are author- ized to approve as regards credit limits, capital expenditure and other expenditure. The working procedures stipulate that the meeting for the formal constitution of the Board shall be held directly after the AGM. Decisions at this statutory meeting include the election of members of the committees of the Board and authorization to sign on behalf of the company. In addition to the statutory Board meeting, the Board normally holds seven other ordinary meetings during the year. Four of these meetings are held in conjunction with the publication of the Group’s full-year report and interim reports. One or two meetings are held in connection with visits to Group operations. Additional meetings, including telephone conferences, are held when necessary. The Board’s work in 2019 During the year, the Board held nine meetings. All physical meetings except one were held in Stockholm, Sweden. The attendance of each Board member at these meetings is shown in the table on page 113. All Board meetings during the year followed an agenda, which, together with the documentation for each item on the agenda, was sent to Board members in advance of the meet- ings. Meetings usually last for half a day or one entire day in order to allow time for presentations and discussions. Electrolux General Counsel serves as secretary at the Board meetings. Each scheduled Board meeting includes a review of the Group’s results and financial position, as well as the outlook for the forthcoming quarters, as presented by the President. The meetings also deal with investments and the establishment of new operations, as well as acquisitions and divestments. The Board decides on all investments exceeding SEK 100m and receives reports on all investments exceeding SEK 25m. Normally, the head of a business area also reviews a current strategic issue at the meeting. For an overview of how the Board’s work is spread over the year, see the table on pages 106–107. Board of Directors The Board of Directors The Board of Directors has the overall responsibility for Electrolux organization and administration. Composition of the Board The Electrolux Board is comprised of nine members without deputies, who are elected by the AGM, and three members with deputies, who are appointed by the Swedish employee organi- zations in accordance with Swedish labor law. The AGM elects the Chairman of the Board. Directly after the AGM, the Board holds a meeting for formal constitution at which the members of the committees of the Board are elected, among other things. The Chairman of the Board of Electrolux is Staffan Bohman. All current members of the Board elected by the AGM, except for the President, are non-executive members. One of the nine Board members, who are elected by the AGM, is not a Swedish citizen. For additional information regarding the Board of Directors, see pages 112–113. The information is updated regularly at the Group’s website: www.electroluxgroup.com Independence The Board is considered to be in compliance with the Swedish Companies Act's and the Code's requirements for independ- ence. The assessment of each Board member’s independence is presented in the table on page 113. All Directors except for Petra Hedengran and Jonas Samuelson have been considered independent. Petra Heden- gran has been considered independent in relation to the com- pany and the administration of the company, but not in relation to major shareholders of Electrolux. Jonas Samuelson has been considered independent in relation to major shareholders of Electrolux but not, in his capacity as President and CEO, in rela- tion to the company and the administration of the company. Jonas Samuelson has no major shareholdings, nor is he a part-owner in companies having significant business relations with Electrolux. Jonas Samuelson is the only member of Group Management with a seat on the Board. The Board’s tasks One of the main tasks of the Board is to manage the Group’s operations in such a manner as to assure the owners that their interests in terms of a long-term profitable growth and value creation are being met in the best possible manner. The Board’s work is governed by rules and regulations including the Swedish Companies Act, the Articles of Association, the Code and the working procedures established by the Board. The Articles of Association of Electrolux are available on the Group’s website: www.electroluxgroup.com/corporate-governance Working procedures and Board meetings The Board determines its working procedures each year and reviews these procedures as required. The working procedures describe the Chairman’s specific role and tasks, as well as the The Board deals with and decides on Group-related issues such as: • Main goals. • Strategic orientation. • Essential issues related to financing, investments, acquisitions and • Follow-up and control of operations, communication and organiza- divestments. tion, including evaluation of the Group’s operational and sustainability management. • Appointment of and, if necessary, dismissal of the President. • Overall responsibility for establishing an effective system of internal control and risk management as well as a satisfactory process for monitoring the company’s compliance with relevant laws and other regulations as well as internal policies. Remuneration to the Board of Directors 2017–2019 (applicable as from the respective AGM) SEK 2019 2018 2017 Chairman of the Board 2,200,000 2,150,000 2,075,000 Board member Chairman of the Audit Committee 640,000 600,000 580,000 280,000 260,000 250,000 Member of the Audit Committee 160,000 140,000 120,000 Chairman of the Remuneration Committee Member of the Remuneration Committee 150,000 125,000 125,000 100,000 75,000 75,000 ELECTROLUX ANNUAL REPORT 2019 106 Corporate governance report Key focus areas for the Board during 2019 • Dividend payment for the fiscal year 2018. • Adapting Electrolux strategy and business model to global industry drivers such as digitalization, consolida- tion, increased consumer power, sustainability and a growing middle class. • Revising the business area structure creating four con- sumer focused regional business areas. • Establishment of new organizational structure focusing on consumer experiences. • Preparing for the listing and distribution of Electrolux Professional AB. • Investments in manufacturing for increased cost effi- ciency, through automation and digitalization, mainly in Europe and North America. • Acquisition of UNIC S.A.S., a French manufacturer of professional espresso machines. • Global streamlining measures to improve efficiency and sharpen the consumer organization. Ensuring quality in financial reporting The working procedures determined annually by the Board include detailed instructions on the type of financial reports and similar information which are to be submitted to the Board. In addition to the full-year report, interim reports and the annual report, the Board reviews and evaluates comprehensive finan- cial information regarding the Group as a whole and the entities within the Group. The Board also reviews, primarily through the Board’s Audit Committee, the most important accounting principles applied by the Group in financial reporting, as well as major changes in these principles. The tasks of the Audit Committee also include reviewing reports regarding internal control and financial reporting processes, as well as internal audit reports submitted by the Group’s internal audit function, Group Internal Audit. The Group’s external auditors report to the Board as necessary, but at least once a year. A minimum of one such meeting is held without the presence of the President or any other member of Group Management. The external auditors also attend the meetings of the Audit Committee. The Audit Committee reports to the Board after each of its meetings. Minutes are taken at all meetings and are made available to all Board members and to the auditors. Board work evaluation The Board evaluates its work annually with regard to working procedures and the working climate, as well as regards the focus of the Board work. This evaluation also focuses on access to and requirements of special competence in the Board. The evaluation is a tool for the development of the Board work and also serves as input for the Nomination Committee’s work. The evaluation of the Board is each year initiated and lead by the Chairman of the Board. The evaluation of the Chairman is led by one of the other members of the Board. Evaluation tools include questionnaires and discussions. In 2019, Board members responded to written question- naires. As part of the evaluation process, the Chairman also had individual discussions with Board members. The evaluations were discussed at a Board meeting. The result of the evaluations was presented for the Nomination Committee. Fees to Board members Fees to Board members is determined by the AGM and dis- tributed to the Board members who are not employed by Electrolux. The fees to the Chairman and the Board members was revised during 2019, see page 105. The Nomination Committee has recommended that Board members appointed by the AGM acquire Electrolux shares and that these are maintained as long as they are part of the Board. A shareholding of a Board member should after five years correspond to the value of one gross annual fee. Board members who are not employed by Electrolux are not invited to participate in the Group’s long-term incentive programs for senior managers and key employees. For additional information on remuneration to Board members, see Note 27. OVERVIEW OF VARIOUS ITEMS ON THE BOARD’S AGENDA AND COMMITTEE MEETINGS 2019 • Q4, Consolidated results. • Report by external auditors. • Dividend. • Proposals for the AGM. Statutory Board meeting: • Appointment of committee members. • Signatory powers. • Q1 Quarterly financial statements. Ordinary Board meetings Audit Committee Remuneration Committee • • • • Jan • Feb March • • • • Apr May June July Aug Sep Oct Nov Dec • • • • • • • • • Each scheduled Board meeting included a review of the Group’s results and financial position, as well as the outlook for the forthcoming quarters. ELECTROLUX ANNUAL REPORT 2019 Corporate governance report 107 Remuneration Committee Audit Committee Committees of the Board The Board has established a Remunera- tion Committee and an Audit Committee. The major tasks of these committees are preparatory and advisory, but the Board may delegate deci- sion-making powers on specific issues to the committees. The issues considered at committee meetings shall be recorded in minutes of the meetings and reported at the following Board meeting. The members and Chairmen of the committees are appointed at the statutory Board meeting following election of Board members. The Board has also determined that issues may be referred to ad hoc committees dealing with specific matters. Remuneration Committee One of the Remuneration Committee’s primary tasks is to propose guidelines for the remuneration to the members of Group Management. The Committee also proposes changes in remuneration to the President, for resolution by the Board, and reviews and resolves on changes in remuneration to other mem- bers of Group Management on proposal by the President. The Committee has consisted of the following three Board members: Petra Hedengran (Chairman), Staffan Bohman and Ulrika Saxon. At least two meetings are convened annually. Additional meetings are held as needed. In 2019, the Remuneration Committee held three meetings. The attendance of each Board member at these meetings is shown in the table on page 113. Significant issues addressed include resolution on remuneration to new members of Group Management, review and resolution on changes in the remuneration to members of Group Management, follow-up and evaluation of previously approved long-term incentive programs and remuneration guidelines for Group Management and general review and preparation of long-term incentive program and remuneration guidelines for Group Management for 2020. The Head of Human Resources and Communication participated in the meetings and was responsible for meeting preparations. Audit Committee The main task of the Audit Committee is to oversee the processes of Electrolux financial reporting and internal control in order to secure the quality of the Group’s external reporting. The Audit Committee is also tasked with supporting the Nomination Committee with proposals when electing external auditors. The Audit Committee has consisted of the following four Board members: Ulla Litzén (Chairman), Staffan Bohman, Petra Hedengran and Fredrik Persson. The external auditors report to the Committee at each ordinary meeting. At least three meet- ings are held annually. Additional meetings are held as needed. In 2019, the Audit Committee held seven meetings. The attendance of each Board member at these meetings is shown in the table on page 113 Electrolux managers have also had regular contacts with the Committee Chairman between meet- ings regarding specific issues. The Group’s Chief Financial Officer and the Head of Global Tax & Accounting have participated in the Audit Committee meetings. Management. The Remuneration Committee’s tasks include for example: • To prepare and evaluate remuneration guidelines for Group • To prepare and evaluate targets and principles for variable • To prepare terms for pensions, notices of termination and severance • To prepare and evaluate Electrolux long-term incentive programs. pay as well as other benefits for Group Management. compensation. management, concerning the financial reporting. The Audit Committee’s tasks include for example: • To review the financial reporting. • To monitor the effectiveness of the internal control, including risk • To follow up the activities of the Group Internal Audit as regards to organization, recruiting, budgets, plans, results and audit reports. • To review and approve certain credit limits. • To keep informed of the external audit and the quality control performed by the Supervisory Board of Public Accountants and to evaluate the work of the external auditors. • To inform the Board of the outcome of the external audit and explain how the audit contributed to the reliability of the financial reporting as well as the role of the Committee in this process. engagements in other tasks than audit services. • To review, and when appropriate, preapprove the external auditors’ • To evaluate the objectivity and independence of the external auditors. • To support the Nomination Committee with proposals when electing Ordinary Board meetings Audit Committee Remuneration Committee • • • • Jan • Feb • • • • Apr March May external auditors. • Q3 Quarterly financial statements. • • Aug Sep Oct Nov • Board work evaluation. • • • Dec • Visit to one of the Group’s operations. • Rules of procedure of the Board. • Q2 Quarterly financial statements. • June • • • July ELECTROLUX ANNUAL REPORT 2019 108 Corporate governance report External Audit External auditors The AGM in 2019 re-elected Deloitte AB (Deloitte) as the Group’s external auditors for one year, until the AGM in 2020. The Nomination Committee's proposal for re-election was based on the recommendation by the Audit Committee. Authorized Public Accountant Jan Bernts- son is the auditor in charge of Electrolux. Deloitte provides an audit opinion regarding AB Electrolux, the financial statements of the majority of its subsidiaries, the consolidated financial statements for the Electrolux Group and the administration of AB Electrolux. The auditors also conduct a review of the report for the second quarter. The audit is conducted in accordance with the Swedish Companies Act, International Standards on Auditing (ISA) and generally accepted auditing standards in Sweden. Audits of local statutory financial statements for legal entities outside of Sweden are performed as required by law or applica- ble regulations in the respective countries, including issuance of audit opinions for the various legal entities. Deloitte Audit fees Audit-related fees Tax fees All other fees Total fees to Deloitte PwC1) Audit fees Audit fees to other audit firms Total fees to auditors 2019 2018 2017 47 10 1 1 59 — — 59 42 1 1 1 45 4 — 49 — — — — — 41 2 43 1) PricewaterhouseCoopers (PwC) was the Group's auditors until the 2018 Annual General Meeting. For details regarding fees paid to the auditors and their non-audit assignments in the Group, see note 28. Internal Audit Group Internal Audit The internal audit function is responsible for independent, objective assurance, in order to systematically evaluate and propose improvements for more effective governance, internal control and risk manage- ment processes. The process of internal control and risk management has been developed to provide reasonable assurance that the Group’s goals are met in terms of efficient operations, compli- ance with relevant laws and regulations and reliable financial reporting. Internal audit assignments are conducted according to a risk based plan developed annually and approved by the Audit Committee. The audit plan is derived from an independent risk assessment conducted by Group Internal Audit to identify and evaluate risks associated with the execution of the company strategy, operations, and processes. The plan is designed to address the most significant risks identified within the Group and its business areas. The audits are executed using a methodology for evaluating the design and effectiveness of internal controls to ensure that risks are adequately addressed and processes are operated efficiently. Opportunities for improving the efficiency in the governance and internal control and risk management processes identified in the internal audits are reported to responsible business area management for action. A summary of audit results is provided to the Audit Board and the Audit Committee, as is the status of management’s implementation of agreed actions to address findings identified in the audits. For additional information on internal control, see pages 116–117. For additional information on risk management, see Note 1, Note 2 and Note 18. ELECTROLUX ANNUAL REPORT 2019 Corporate governance report 109 Company Management of Electrolux Electrolux – a global leader with a purpose to shape living for the better Electrolux has a strategic framework that connects a consumer experience focused business model with a clear company purpose – Shape living for the better. To achieve the purpose and drive profitable growth, Electrolux uses a business model which focuses on creating outstanding consumer experiences. By creating desirable solu- tions and great experiences that enrich peoples’ daily lives and the health of the planet, Electrolux wants to be a driving force in defining enjoyable and sustainable living. Focus is to invest in innovations that are most relevant for creating the outstanding consumer experience to make great tasting food, the best care for clothes and to increase wellbeing in the home. Targeted growth and optimization of the product portfolio to the most profitable product categories and products with distinct consumer benefits, will strengthen the presence of Electrolux in the product categories and channels where the Group is most competitive. This is supported by a strong founda- tion of Operational Excellence and Talent, Teamship and Con- tinuous Improvement, as well as three important transforma- tional drivers; Emerging markets acceleration, Digital transfor- mation and Sustainable development. Electrolux objective is to grow with consistent profitability, see the financial targets below. A sustainable business Sustainability leadership is crucial to realizing the Electrolux strategy for long-term profitable growth. In 2019, Electrolux most resource-efficient products represented 23% of products sold and 32% of gross profit. The company takes a consistent approach to sustain ability in the countries where Electrolux operates. Understanding and engaging in challenges such as climate change, creating ethi- cal and safe workplaces, and adopting a responsible approach to sourcing and restructuring are important for realizing the business strategy. In 2018, Electrolux established a new Code of Conduct, setting out the framework of how Electrolux shall conduct its operations in ethical and sustainable ways. The Code of Conduct, which has been approved by the Board, serves as an introduction to the Group Policies, and its purpose is to increase the clarity on what the company's principles mean for the employees. During 2019, an educational campaign was rolled out with e-learning and e-signature for office based employees, and communication materials for production environments. By the end of the year, 83% of eligible staff had taken the e-learning and signed off on the Code of Conduct. The Ethics Program also encompasses a global whistleblow- ing system – Ethics Helpline – through which employees can report suspected misconduct in local languages. Reports may be submitted anonymously if legally permitted. The largest cat- egories of reports in 2019 related to workplace conduct, verbal abuse and other types of disrespectful behavior. In line with the UN Guiding Principles on Business and Human Rights, Electrolux conducts human rights risk assessments at both global and local levels since 2016. The methodology for the assessments focuses on identifying the risk of harming people, as a direct or indirect result of Electrolux operations, and includes corruption risks as well as opportunities to increase local positive impacts. In 2019, the focus was on following up on the actions from the assessments conducted in Egypt, Thailand and Ukraine in 2017 and 2018. The Group’s sustainability performance strengthens relations with investors and Electrolux is recognized as a leader in the household durables industry. In 2019, Electrolux was included in the Dow Jones Sustainability Index (DJSI) World and Europe indexes and thereby ranks among the top 10% of the world’s 2,500 largest companies for social and environmental perfor- mance. Read more about Electrolux sustainability work: www.electroluxgroup.com/sustainability Electrolux as a tax payer1) One important aspect of Electrolux company purpose – Shape living for the better – is to act as a good corporate citizen and taxpayer wherever Electrolux operates. Electrolux plays an important role in contributing to public finances in all jurisdictions where the Group operates. The Group has approximately 52,000 employees operating in more than 50 countries and has about 50 manufacturing facilities across five continents. Of Electrolux Group total tax contribution, as defined in the below chart, corporate tax represented approximately 12% in 2019. Corporate income taxes are only a portion of the Group’s total contribution to public finances in Electrolux markets. In addition to corporate income taxes, Electrolux pays indirect taxes, customs duties, property taxes, employee related taxes, environmental charges and a number of other direct or indi- rect contributions to governments. The total contribution to public finances for 2019 amounted to approximately SEK 7.6bn whereof approximately half related to emerging markets. Electrolux most transparent contribution to public finances around the world is corporate income taxes, see Note 10. Corporate income taxes amounted to SEK 950m in 2019, repre- senting a global effective tax rate of the Group of 27.5%. For more information on Electrolux tax policy, see: www.electroluxgroup.com 1) In this section the group includes both Electrolux and Electrolux Professional. ELECTROLUX TOTAL TAXES 2019 Employer tax & fees, 48 % Corporate tax, 12% Property tax, 2 % Customs, 22% Indirect tax, 11 % Environmental tax & fees, 5% Taste, Care & Wellbeing Innovation Branded Star Products with Preferred Partners Outstanding Consumer Experiences Engaging Ownership & Quality Experience Operational Excellence Talent, Teamship & Continuous Improvement Emerging Markets Acceleration Digital Transformation Sustainable Development ELECTROLUX ANNUAL REPORT 2019 Financial targets over a business cycle The financial goals set by Electrolux aim to strengthen the Group’s leading, global position in the industry and assist in generating a healthy total yield for Electrolux shareholders. The objective is growth with improved profitability. • Sales growth of at least 4% annually. • Operating margin of at least 6%. • Capital turnover-rate of at least 4. • Return on net assets >20%. 110 Corporate governance report External and emerging risks Electrolux monitors and minimizes key risks in a structured and proactive manner. In general, there are two types of risks: Strate- gic risks and manageable business risks. The strategic risks are related to the Group’s strategy and are impacted by the external environment. The business risks comprise of operational and financial risks which are managed by the Group’s operational units and Group Treasury, respectively. Electrolux ability to increase profitability and shareholder value is largely dependent on its success in developing innova- tive products and create outstanding consumer experiences under strong brands while maintaining cost-efficient operations. Realizing this potential requires effective and controlled enter- prise risk management. Macroeconomic trends, changes in industry dynamics and political risks are factors that impact the appliance industry and the markets in which Electrolux operates. To manage exter- nal risks and opportunities, Electrolux puts close attention to understanding the economic and political development in its key markets and pro-actively manage and adapt operations. External risks include, variations in demand, price competition and changes in prices for raw materials. Changing industry dynamics such as digitalization, consolidation and sustainability are other examples. In addition, the Group is exposed to risks related to financial operations, e.g., interest risks, financing risks, currency risks and credit risks. Electrolux also look at emerging risks. They can either develop from macro-level changes such as climate change, consumer preferences or the introduction of AI – artificial intel- ligence. With the growth of digitalization, Electrolux also faces increased cyber risks. Risk exposures are managed by internal bodies, see chart below, and business area boards. The purpose of the internal audit function, Group Internal Audit, is to provide reasonable assurance that the Group’s goals are met in terms of efficient operations, compliance with rele- vant laws and regulations and reliable financial reporting, see pages 116–117. Management and company structure Electrolux aims at implementing strict norms and efficient pro- cesses to ensure that all operations create long-term value for shareholders and other stakeholders. This involves the mainten- ance of an efficient organizational structure, systems for inter- nal control and enterprise risk management and transparent internal and external reporting. The Group has a decentralized corporate structure in which the overall management of operational activities is largely per- formed by the business area boards. one business area for Professional Products. On December 5, 2019 the Board proposed to distribute the Professional Products business area to Electrolux shareholders. As from February 1, 2019, five group staff functions have sup- ported the business areas: Finance, Legal Affairs, HR & Commu- nications, Global Operations and Global Consumer Experience organization. The Global Consumer Experience organization is globally responsible for areas such as marketing, design, prod- uct lines, digital consumer solutions and ownership experience. There are also a number of internal bodies which are forums that are preparatory and decision-making in their respective areas, see chart below. Each body includes representatives from concerned functions. In order to fully take advantage of the Group’s global pres- ence and economies of scale, the Group has established Global Operations with the responsibility for product development, purchasing, manufacturing and quality. President and Group Management President and Group Management Group Management currently includes the President, the five business area heads and five group staff heads. The President is appointed by and receives instructions from the Board. The President, in turn, appoints other members of Group Management and is respon sible for the ongoing management of the Group in accordance with the Board’s guidelines and instructions. Group Management holds monthly meetings to review the previous month’s results, to update forecasts and plans and to discuss strategic issues. A diversified management team The Electrolux management team, with its extensive expertise, diverse cultural backgrounds and experiences from various markets in the world, forms an excellent platform for pursuing profitable growth in accordance with the Group’s strategy. Electrolux Group Management represents seven different nationalities. Most of them have previous experience of predominantly multinational consumer goods companies. In recent years, a number of major initiatives have been launched aimed at better leveraging the unique, global position of Electrolux. In several areas, global and cross-border orga- nizations have been established to, for example, increase the pace of innovation in product development, reduce complexity in manufacturing and optimize purchasing. Changes in Group Management The following changes in the Group management have been announced with effect from February 1, 2019. Ola Nilsson, previous Head of Home Care & SDA, was Electrolux operations has as from February 1, 2019, been organized into four geographically defined business areas and appointed Group Chief Experience Officer (CXO) and Executive Vice President, and as a consequence of the new INTERNAL BODIES President and Group Management Internal bodies Insider Committee Disclosure Committee Enterprise Risk Management Board Ethics & Human Rights Steering Group Tax Board Pension Board Sourcing Board Audit Board ELECTROLUX ANNUAL REPORT 2019 Corporate governance report 111 organizational structure, the Chief Marketing Officer Lars Hygrell is no longer member of Group Management. Jan Brock- mann, Chief Operations Officer was also appointed as Execu- tive Vice President. On December 12, 2019, it was announced that Alan Shaw, Head of Electrolux Business Area North America, had decided to retire. It was also announced that Nolan Pike, previously Senior Vice President within Electrolux Global Consumer Experi- ence Organization, was appointed Executive Vice President and new Head of the Business Area North America with effect from January 1, 2020. For details regarding members of Group Management, see pages 114–115 The information is updated regularly at the Group’s website: www.electroluxgroup.com Business Area Boards Business areas The business area heads are also mem- bers of Group Management and have responsibility for the operating income and net assets of their respective business area. The overall management of the business areas is the respon- sibility of business area boards, which meet quarterly. The Presi- dent is the chairman of all such boards. The business area board meetings are attended by the President, the management of the respective business area and the group staff heads. The business area boards are responsible for monitoring on-going operations, establishing strategies, determining business area budgets and making decisions on major investments. Key focus areas for the President and Group Management in 2019 • Revising the business area structure to create four con- sumer focused regional business areas. • Accelerating product and ownership experience inno- vation through a new global organization. • Focus on taste, care and wellbeing innovation areas to provide outstanding consumer experiences. • Improve efficiency through global streamlining mea- sures to improve efficiency in both the consumer and professional organizations. • Investments in modularization, automation and digitali- zation within manufacturing for further growth and cost efficiency, mainly in Europe, North America and Latin America. • Actions to mitigate increased costs for raw material, trade tariffs in North America and currency headwinds, particularly in Latin America. • Digitalization such as connected appliances and digital commerce. • Appointment of new Group Management members. • Preparation for stock exchange listing of Professional Products. Remuneration Remuneration to Group Management Remuneration guidelines for Group Management are resolved upon by the AGM, based on the proposal from the Board. Remuneration to the President is then resolved upon by the Board, based on proposals from the Remuneration Committee. Changes in the remuneration to other members of Group Management is resolved upon by the Remuneration Committee, based on proposals from the President, and reported to the Board. Electrolux shall strive to offer total remuneration that is fair and competitive in relation to the country of employment or region of each Group Management member. The remuneration terms shall emphasize “pay for performance”, and vary with the performance of the individual and the Group. Remuneration may comprise of: • Fixed compensation. • Variable compensation. • Other benefits such as pension and insurance. Following the “pay for performance” principle, variable compen- sation shall represent a significant portion of the total compen- sation opportunity for Group Management. Variable compensa- tion shall always be measured against pre-defined targets and have a maximum above which no pay-out shall be made. The targets shall principally relate to financial performance. Each year, the Board of Directors will evaluate whether or not a long-term incentive program shall be proposed to the AGM. The AGM 2019 decided on a long-term share program for up to 350 senior managers and key employees. For additional information on remuneration, remuneration guidelines, long-term incentive programs and pension benefits, see Note 27. TIME-LINE FOR THE LONG-TERM INCENTIVE PROGRAM FOR SENIOR MANAGEMENT 2019 2019 2020 2021 Performance period Start 1 2 3 2022 Year The calculation of the number of per- formance shares, if any, is connected to three performance targets for the Group established by the Board; (i) earnings per share (ii) return on net assets, and (iii) adjusted organic sales growth, for the 2019 financial year. Allotment of perfor- mance shares, if any, to the participants will be made in 2022. Invitations to participants in the program. ELECTROLUX ANNUAL REPORT 2019 Performance shares allotted. 112 Corporate governance report Board of Directors and Auditors JONAS SAMUELSON President and CEO Born 1968. Sweden. M.Sc. Econ. Elected 2016. Other assignments: Board Member of Polygon AB and Axel Johnson AB. Previous positions: Various senior positions within Electrolux including CFO of AB Electrolux, COO Global Operations Major Appliances and Head of Major Appliances EMEA. Chief Financial Officer and Executive Vice President of Munters AB. Various posi- tions within General Motors, mainly in the U.S., and Saab Automobile AB. Holdings in AB Electrolux: 47,138 B-shares. STAFFAN BOHMAN Chairman Born 1949. Sweden. B.Sc. Econ. Elected 2018. Member of the Electrolux Audit Committee and the Electrolux Remuneration Committee. Other assignments: Chairman of the Board of Research Institute for Industrial Economics, Ipco AB, Upplands Motor Holding AB and the German-Swedish Chamber of Commerce. Board member of Atlas Copco AB and member of the Royal Swedish Academy of Engineering Sciences (IVA). Previous positions: President and CEO of Sapa and DeLaval as well as Board Member of, inter alia., Scania AB, Inter-IKEA Holding NV and Rezidor Hotel Group AB. Holdings in AB Electrolux: 50,000 B-shares. 120,279 call options, issued by Investor AB entitling the right to purchase Electrolux B shares. PETRA HEDENGRAN Born 1964. Sweden. M. of Laws. Elected 2014. Chairman of the Electrolux Remuneration Committee and member of the Electrolux Audit Committee. Other assignments: General Counsel and member of Group Management of Investor AB. Board Member of Alecta and the Association for Generally Accepted Principles in the Securities Market (Sw. Föreningen för god sed på värdepappersmarknaden). Previous positions: Attorney and partner at Advokatfirman Lindahl. Various positions within the ABB Financial Services including General Counsel of ABB Financial Services, Nordic Region. Law Clerk with the Stockholm District Court. Associate at Gunnar Lindhs Advokatbyrå. Holdings in AB Electrolux: 11,000 B-shares. HASSE JOHANSSON Born 1949. Sweden. M.Sc. in Electrical Engineering. Elected 2008. Other assignments: Chairman of the Board of Dynamate Industrial Services AB and Uniter AB. Board Member of Autoliv Inc., PowerCell Sweden AB, Skyllbergs Bruk AB, CalixKlippan Group AB, DevPort AB and SEM Electromagnet Holding AB. Previous positions: Executive Vice President and Head of R&D of Scania CV AB. Founder of Mecel AB (part of Delphi Corporation). Various senior management positions within Delphi Corporation. Holdings in AB Electrolux: 4,000 B-shares. ULLA LITZÉN Born 1956. Sweden. B.Sc. Econ. and M.B.A. Elected 2016. Chairman of the Electrolux Audit Committee. Other assignments: Board Member of Epiroc AB, Husqvarna AB, NCC AB and Ratos AB. Previous positions: President of W Capital Management AB, wholly-owned by the Wallenberg Foundations. Various leading positions within the Investor Group including Managing Director and member of Group Management of Investor AB. Holdings in AB Electrolux: 4,000 B-shares. DAVID PORTER ULRIKA SAXON KAI WÄRN Born 1965. USA. Bachelor’s degree, Finance. Elected 2016. Other assignments: Head of Microsoft Stores, Corporate Vice President, Microsoft Corp. Previous positions: Head of Worldwide Product Distribution at DreamWorks Animation SKG. Various positions within WalMart Stores, Inc. Holdings in AB Electrolux: 1,250 B-shares. Born 1966. Sweden. Studies in Economics. Elected 2011. Member of the Electrolux Remuneration Committee. Other assignments: President and CEO of Bonnier Ventures. Board Member of SF Studios, Adlibris, KIT Story Engine, FLX, Refunder and partner in AI Sustainability Center. Previous positions: Senior posi- tions within the Bonnier Group including CEO of Bonnier Magazines. Holdings in AB Electrolux: 2,000 B-shares. Born 1959. Sweden. M.Sc. in Mechanical Engineering. Elected 2017. Other assignments: President and CEO of Husqvarna AB. Board Member of Husqvarna AB. Previous positions: Operations Partner at IK Investment Partners Norden AB. President and CEO of Seco Tools AB. Various positions within ABB. Holdings in AB Electrolux: 4,000 B-shares. FREDRIK PERSSON Born 1968. Sweden. M.Sc. Econ. Elected 2012. Member of the Electrolux Audit Committee. Other assignments: Chairman of the Board of JM AB, the Confederation of Swedish Enterprise (Sw. Svenskt Näringsliv) and ICC Sweden. Board Member of Hufvudstaden AB, ICA Gruppen AB and Ahlström Capital Oy. Previous positions: Various leading positions within Axel Johnson AB including President and CEO. Head of Research of Aros Securities AB. Various positions within ABB Financial Services AB. Holdings in AB Electrolux: 3,000 B-shares. ELECTROLUX ANNUAL REPORT 2019 EMPLOYEE REPRESENTATIVES VIVECA BRINKENFELDT-LEVER Born 1960. Representative of the Federation of the Salaried Employees in Industry and Service. Elected 2018. Board meeting attendance: 9/9 Holdings in AB Electrolux: 0 shares. ULF CARLSSON Born 1958. Representative of the Swedish Confederation of Trade Unions. Elected 2001. Board meeting attendance: 9/9 Holdings in AB Electrolux: 0 shares. PETER FERM Born 1965. Representative of the Federation of Salaried Employees in Industry and Services. Elected 2018. Board meeting attendance: 7/9 Holdings in AB Electrolux: 100 B-shares. Corporate governance report 113 SECRETARY OF THE BOARD MIKAEL ÖSTMAN Born 1967. M. of Laws and B.Sc. Econ. General Counsel of AB Electrolux. Secretary of the Electrolux Board since 2017. Holdings in AB Electrolux: 4,114 B-shares. COMMITTEES OF THE BOARD OF DIRECTORS Remuneration Committee Petra Hedengran (Chairman), Staffan Bohman and Ulrika Saxon. Audit Committee Ulla Litzén (Chairman), Staffan Bohman, Petra Hedengran and Fredrik Persson. AUDITORS Deloitte AB JAN BERNTSSON Born 1964. Authorized Public Accountant. Other audit assignments: Kinnevik AB and Boliden AB. Holdings in AB Electrolux: 0 shares. At the Annual General Meeting in 2019, Deloitte AB was re-elected as auditors for a period of one year until the Annual General Meeting in 2020. EMPLOYEE REPRESENTATIVES, DEPUTY MEMBERS RICHARD DELLNER Born 1953. Representative of the Federation of Salaried Employees in Industry and Services. Elected 2013. JOACHIM NORD Born 1966. Representative of the Federation of Salaried Employees in Industry and Services. Elected 2018. Holdings in AB Electrolux: 500 B-shares. Holdings in AB Electrolux: 100 B-shares. Holdings in AB Electrolux are stated as of December 31, 2019 and includes holdings of related natural and legal persons, when applicable. THE BOARD’S REMUNERATION DURING 2019, MEETING ATTENDANCE AND INDEPENDENCE Staffan Bohman Petra Hedengran Hasse Johansson2) Ulla Litzén Bert Nordberg3) Fredrik Persson David Porter Jonas Samuelson Ulrika Saxon Kai Wärn Total remuneration 20 19, '000 SEK Board meeting attendance Remuneration Committee attendance Audit Committee attendance Indepen dence1) 2,447 940 790 910 150 790 630 - 730 630 9/9 9/9 9/9 9/9 3/9 9/9 7/9 9/9 9/9 8/9 7/7 7/7 7/7 6/7 3/3 3/3 3/3 Yes No Yes Yes Yes Yes Yes No Yes Yes 1) For further information about the independence assessment, see page 105. 2) The total remuneration 2019 for Hasse Johansson includes compensation for work relating to investments, modularization and quality. 3) Bert Nordberg declined re-election and resigned from the Board following the Annual General Meeting in April 2019. ELECTROLUX ANNUAL REPORT 2019 114 Corporate governance report Group Management JONAS SAMUELSON President and CEO — Born 1968. Sweden. M.Sc. in Business Administration and Economics. In Group Management and employed since 2008. Other assignments: Board Member of Polygon AB and Axel Johnson AB. Previous positions: Various senior positions within Electrolux including CFO of AB Electrolux, COO Global Operations Major Appliances and Head of Major Appliances EMEA. Chief Financial Officer and Executive Vice President of Munters AB. Various senior positions within General Motors, mainly in the U.S., and Saab Automobile AB. Holdings in AB Electrolux: 47,138 B-shares. THERESE FRIBERG Chief Financial Officer — Born 1975. Sweden. B.Sc. in Business Administration. In Group Management since 2018 and employed since 1999. Previous positions: CFO of Electrolux Major Appliances EMEA. Other senior positions within Electrolux including Head of Group Business Control and Sector Controller Home Care & SDA. Holdings in AB Electrolux: 8,067 B-shares DANIEL (DAN) ARLER Head Business Area Asia Pacific, Middle East and Africa, Executive Vice President — Born 1969. The Netherlands. B.Sc. in Marketing. In Group Management since 2016 and employed since 2002. Previous positions: Head of Electrolux Major Appliances EMEA. Other senior positions within Electrolux including General Manager of Electrolux Japan and Senior Vice President Product Line Kitchen in Major Appliances EMEA. Management positions in Stanley Works Europe and the Whirlpool Corporation in Europe. Holdings in AB Electrolux: 15,126 B-shares. JAN BROCKMANN Chief Operations Officer, Executive Vice President — Born 1966. Germany. M.Sc. in Mechanical Engineering, M.B.A. In Group Management since 2011 and employed since 2010. Previous positions: Various senior positions within Electrolux including Group Chief Technology Officer and Head of R&D, Electrolux Major Appliances. Various senior product management positions within Volkswagen Group. Project Manager in Roland Berger Strategy Consultants GmbH. Management positions within Valeo Group. Holdings in AB Electrolux: 17,720 B-shares. RICARDO CONS Head Business Area Latin America, Executive Vice President — Born 1967. Brazil. Bachelor in Business Administration, Finance and Marketing, MBA in Team Management. In Group Management since 2016 and employed since 1997–2011 and 2016. Previous positions: Management positions at Franke in Brazil. Various senior positions at Electrolux Brazil, including President Small Appliances Latin America, Sales and Marketing Director Major Appliances. Positions in Volvo Brazil. Holdings in AB Electrolux: 0 shares. OLA NILSSON Chief Experience Officer, Executive Vice President — Born 1969. Sweden. M.Sc. in International Business Administration. In Group Management since 2016 and employed since 1994. Previous positions: Head of Home Care & Small Domestic Appliances. Various senior positions within Electrolux including Senior Vice President, Product Line Laundry Major Appliances EMEA and President Small Appliances Asia Pacific. Holdings in AB Electrolux: 9,981 B-shares Holdings in AB Electrolux are stated as of December 31, 2019 and includes holdings of related natural and legal persons, when applicable. ELECTROLUX ANNUAL REPORT 2019 Corporate governance report 115 ANNA OHLSSON-LEIJON Head Business Area Europe, Executive Vice President — Born 1968. Sweden. B.Sc. in Business Administration and Economics. In Group Management since 2016 and employed since 2001. Other assignments: Board member of Alfa Laval AB. Previous positions: Chief Financial Officer of AB Electrolux. Other senior positions within Electrolux including CFO of Electrolux Major Appliances EMEA and Head of Electrolux Corporate Control & Services. Chief Financial Officer of Kimoda. Various positions within PricewaterhouseCoopers. Holdings in AB Electrolux: 13,002 B-shares. NOLAN PIKE Head Business Area North America, Executive Vice President — Born 1969. USA. Bachelor of Business Administration, M.B.A. in Business Management. In Group Management since 2020 and employed since 2013. Previous positions: Senior Vice President of Electrolux Consumer Experience Area Taste. Senior Vice President of North American Product Lines at Electrolux. General management, product and sales positions at GE. Vice President and General Manager of Kenmore, and VP/GMM of home appliances at Sears Holding Corp. Holdings in AB Electrolux: 0 shares. LARS WORSØE PETERSEN Head of HR & Communications, Senior Vice President — Born 1958. Denmark. M.Sc. in Economics and Business Administration. In Group Management since 2011 and employed since 1994–2005 and 2011. Previous positions: Head of Group Staff Human Resources at Husqvarna AB, 2005–2011. Various senior positions within Electrolux including Head of Human Resources for Electrolux Major Appliances North America and Head of Electrolux Holding A/S in Denmark. Holdings in AB Electrolux: 22,133 B-shares. ALBERTO ZANATA Head of Professional Products, Executive Vice President — Born 1960. Italy. University degree in Electronic Engineering with Business Administration. In Group Management since 2009 and employed since 1989. Previous positions: Senior management positions within Electrolux including Head of Professional Products in North America and senior management positions in Electrolux Professional Products. Holdings in AB Electrolux: 33,108 B-shares. CHANGES IN GROUP MANAGEMENT ANNOUNCED AFTER JANUARY 1, 2020 Alberto Zanata was appointed President and CEO of Electroux Professional in 2019. As from the distribution of Electrolux Professional AB, Alberto Zanata will no longer be a member of the Group management of Electrolux. MIKAEL ÖSTMAN General Counsel, Senior Vice President — Born 1967. Sweden. M. of Laws and B.Sc. Econ. In Group Management since 2017 and employed since 2002. Previous positions: Various senior positions within Electrolux including Head of Electrolux Corporate Legal Department and Head of Electrolux Legal Affairs Europe. Corporate Counsel at Telia Mobile AB. Lawyer at Advokatfirman Vinge. Law Clerk with the Stockholm District Court. Holdings in AB Electrolux: 4,114 B-shares. ELECTROLUX ANNUAL REPORT 2019 116 Corporate governance report Internal control over financial reporting The Electrolux Control System (ECS) has been developed to ensure accurate and reliable financial reporting and preparation of financial statements in accordance with applicable laws and regulations, generally accepted accounting principles and other requirements for listed companies. The ECS adds value through clarified roles and responsibilities, improved process efficiency, increased risk awareness and improved decision support. The ECS is based on the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The five components of this framework are control environment, risk assessment, control activities, monitor and improve and inform and communicate. Control environment The foundation for the ECS is the control environment, which determines the individual and collective behavior within the Group. It is defined by policies and directives, man- uals, and codes, and enforced by the organ- izational structure of Electrolux with clear responsibility and authority based on collective values. Corruption Policy, as well as in policies for information, finance, and in the accounting manual. Together with laws and external regulations, these internal guidelines form the control environment and all Electrolux employees are held accountable for compliance. The Electrolux Board has overall responsibility for establishing an effective system of internal con- trol. Responsibility for maintain- ing effective internal controls is delegated to the President. The governance structure of the Group is described on page 102. Specifically for financial reporting, the Board has estab- lished an Audit Committee, which assists in overseeing relevant policies and important accounting principles applied by the Group. urth Q u arte r Ele Fo c t r o l u x Control Syste First Q Risk assessment m u a r t e r Improve Inform and communicate Control activities All entities within the Electrolux Group must maintain adequate internal controls. As a minimum requirement, control activities should address key risks identified within the Group. Group Management have the ultimate responsibility for internal controls within their areas of responsibility. Group Manage- ment is described on pages 114–115. The ECS Program Office, a department within the Group Internal Audit function, has devel- oped the methodology and is responsible for maintaining the ECS. The limits of responsibilities and authorities are given in directives for delegation of authority, manuals, policies and procedures, and codes, including the Code of Conduct, the Workplace Policy, and the Anti- Q u To ensure timely completion of these activities, specific roles aligned with the company structure, with clear responsibilities regarding internal control, have been assigned within the Group. T Monitor h ir d C ontrol env i r o n m e arter S e a rter n t u d Q n o c CONTROL ENVIRONMENT — EXAMPLE Code of Conduct Minimum standards in the area of environment, health and safety, labor standards and human rights. The Code of Conduct is mandatory for Electrolux units. Credit Directive Rules for customer assessment and credit risk that clarify responsibilities and are the frame- work for credit decisions. Internal Control Directive Details responsibility for internal controls. Controls should address the Minimum Internal Control Requirements (MICR) within every appli- cable process, for example “Order to Cash”. Group Finance Policy Details the general framework for how financial operations shall be organized and managed within the Group. The policy contains directives and other mandatory standards issued by the Group Finance organization. Delegation of Authority Directive Details the approval rights, with monetary, volume or other appropriate limits, e.g., approval of credit limits and credit notes. Accounting Manual Accounting principles and reporting instruc- tions for the Group‘s reporting entities are contained in the Electrolux Accounting Manual. The Accounting Manual is mandatory for all reporting units. ELECTROLUX ANNUAL REPORT 2019 Risk assessment Risk assessment Risk assessment includes identifying risks of not fulfilling the fundamental criteria, i.e., completeness, accuracy, valuation and reporting for significant accounts in the financial reporting for the Group as well as risk of loss or misappropriation of assets. At the beginning of each calendar year, the ECS Program Office performs a global risk assessment to determine the reporting units, data centers and processes in scope for the ECS activities. Within the Electrolux Group, a number of different processes generating transactions that end up in significant accounts in the financial reporting have been identified. All larger reporting units perform the ECS activities. The ECS has been rolled out to almost all of the smaller units within the Group. The scope for smaller units is limited in terms of monitoring as management is not formally required to test the controls. Control activities Control activities Control activities mitigate the risks iden- tified and ensure accurate and reliable financial reporting as well as process efficiency. Control activities include both general and detailed controls aimed at preventing, detecting and correcting errors and irreg- ularities. In the ECS, the following types of controls are imple- mented, documented and tested: • Manual and application controls — to secure that key risks related to financial reporting within processes are controlled. • IT general controls — to secure the IT environment for key applications. • Entity-wide controls — to secure and enhance the control environment. Corporate governance report 117 Monitor Improve Monitor and Improve Monitor and test of control activities is performed periodically to ensure that risks are properly mitigated. The effectiveness of control activities is monitored continuously at four levels: Group, business area, reporting unit, and process. Monitor- ing involves both formal and informal procedures applied by management, process owners and control operators, including reviews of results in comparison with budgets and plans, analyti- cal procedures, and key-performance indicators. Within the ECS, management is responsible for testing key controls. Management testers who are independent of the control operator perform these activities. Group Internal Audit maintains test plans and performs independent testing of selected controls. Controls that have failed must be remediated, which means establishing and implementing actions to correct weaknesses. The Audit Committee reviews reports regarding internal con- trol and processes for financial reporting. Group Internal Audit proactively proposes improvements to the control environment. The head of Group Internal Audit has dual reporting lines: to the President and the Audit Committee for assurance activities, and to the CFO for other activities. Inform and communicate Inform and communicate Inform and communicate within the Electrolux Group regarding risks and controls contributes to ensuring that the right business decisions are made. Guidelines for financial reporting are communicated to employees, e.g., by ensuring that all manuals, policies and codes are published and accessible through the Group-wide intranet as well as information related to the ECS. To inform and communicate is a central element of the ECS and is performed continuously during the year. Management, process owners and control operators in general are respon- sible for informing and communicating the results within the ECS. The status of the ECS activities is followed up continuously through status meetings between the ECS Program Office and coordinators in the business areas. Information about the status of the ECS is provided periodically to business area and Group Management, the Audit Board and the Audit Committee. ENTERPRISE RISK ASSESSMENT — EXAMPLE CONTROL ACTIVITIES — EXAMPLE Closing Routine — Risks assessed Manage IT — Risks assessed Order to Cash — Risks assessed ELECTROLUX ANNUAL REPORT 2019 Risk assessed Control activity Process Closing Routine Risk of incorrect financial reporting. Manage IT Risk of unauthorized/incorrect changes in the IT environment. Order to Cash Risk of not receiving payment from customers in due time. Order to Cash Risk of incurring bad debt. Reconciliation between general ledger and accounts receivable sub- ledger is performed, documented and approved. All changes in the IT environment are authorized, tested, verified and finally approved. Customers’ payments are monitored and outstanding payments are followed up. Application automatically blocks sales orders/deliveries when the credit limit is exceeded. 118 Corporate governance report Financial reporting and information Electrolux routines and systems for information and commu- nication aim at providing the market with relevant, reliable, correct and vital information concerning the development of the Group and its financial position. Specifically for purposes of considering the materiality of information, including financial reporting, relating to Electrolux and ensuring timely commu- nication to the market, a Disclosure Committee as well as an Insider Committee has been formed. Electrolux has an information policy and an insider policy meeting the requirements for a listed company. Financial information is issued regularly in the form of: • Full-year reports and interim reports, published as press releases. • The Annual Report. • Press releases on all matters which could have a significant effect on the share price. • Presentations and telephone conferences for financial analysts, investors and media representatives on the day of publication of full-year and quarterly results. All reports, presentations and press releases are published at: www.electroluxgroup.com/ir Stockholm, February 13, 2020 AB Electrolux (publ) The Board of Directors Auditor’s report on the Corporate Governance Statement To the general meeting of the shareholders in AB Electrolux (publ) corporate identity number 556009-4178 Engagement and responsibility It is the board of directors who is responsible for the corporate governance statement for the financial year 2019-01-01 – 2019-12-31 on pages 101–118 and that it has been prepared in accordance with the Annual Accounts Act. The scope of the audit Our examination has been conducted in accordance with FAR’s auditing standard RevU 16 The auditor’s examination of the cor- porate governance statement. This means that our examination of the corporate governance statement is different and substan- tially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufficient basis for our opinions. Opinions A corporate governance statement has been prepared. Disclo- sures in accordance with chapter 6 section 6 the second para- graph points 2–6 the Annual Accounts Act and chapter 7 section 31 the second paragraph the same law are consistent with the annual accounts and the consolidated accounts and are in accordance with the Annual Accounts Act. Stockholm, February 13, 2020 Deloitte AB Signature on Swedish original Jan Berntsson Authorized Public Accountant This is a translation of the Swedish language original. In the event of any differences between this translation and the Swedish language original, the latter shall prevail. Factors affecting forward-looking statements This annual report contains “forward-looking” statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such statements include, among others, the financial goals and targets of Electrolux for future periods and future business and financial plans. These statements are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially due to a variety of factors. These factors include, but are not limited to the following; consumer demand and market conditions in the geographical areas and industries in which Electrolux operates, effects of currency fluctuations, competitive pressures to reduce prices, significant loss of business from major retailers, the success in developing new products and marketing initiatives, developments in product liability litigation, pro- gress in achieving operational and capital efficiency goals, the success in identifying growth opportunities and acquisition candidates and the integration of these opportunities with existing businesses, progress in achieving structural and supply-chain reorganization goals. ELECTROLUX ANNUAL REPORT 2019 Events and reports 119 Events and reports The Electrolux website www.electroluxgroup.com/ir contains additional and updated information about such items as the Electrolux share, sustainability and corporate governance as well as a platform for financial statistics. Electrolux Annual Report 2019 www.electroluxgroup.com/annualreport2019 Electrolux Annual Review 2019 www.electroluxgroup.com/annualreports/2019 Q4 2019 Intense transformation phase • Net sales for continuing operations, excluding Electrolux Professional, amounted to SEK 32,011m (32,021). Sales growth was -2,8%, mainly due to lower volumes in North America related to both consolidation of manufacturing and a weak market. • Operating income for continuing operations amounted to SEK 960m (1,670), corresponding to a margin of 3.0% (5.2). • Three out of four business areas improved earnings, but lower volumes and transition costs related to the consolidation of manufacturing in North America impacted earnings negatively. • Income for the period for the total Group, including Electrolux Professional, decreased to SEK 559m (1,575), and earnings per share was SEK 1.94 (5.48). • Operating income for Electrolux Professional declined due to lower volumes and transition costs. • Operating cash flow after investments for the total Group, including Electrolux Professional, was SEK 3,226m (3,163). • The Board proposes a dividend for 2019 of SEK 8.50 (8.50) per share, to be paid in two installments. • The Board has decided to propose that an EGM is held to resolve on the distribution of Electrolux Professional. Financial overview SEKM Continuing operations Net sales Sales growth, %¹ Organic growth, % Acquisitions,% Divestments, % Changes in exchange rates, % Operating income² Operating margin, % Income after financial items Income for the period Earnings per share, SEK³ Return on net assets, % Operating cash flow after investments Total Group, including discontinued operations Income for the period Earnings per share, SEK³ Operating cash flow after investments Q4 2019 Q4 2018 Change, % Full-year 2019 Full-year 2018 Change, % 32,011 -2.8 -2.8 - - 2.8 960 3.0 736 366 1.27 - 2,822 559 1.94 3,226 32,021 1.9 2.6 0.1 -0.8 3.1 1,670 5.2 1,537 1,243 4.33 - 2,656 1,575 5.48 3,163 -0 -43 -52 -71 -65 118,981 -1.3 -1.0 - -0.3 4.3 3,189 2.7 2,456 1,820 6.33 12.0 2,280 2,509 8.73 3,433 115,463 1.2 1.2 0.4 -0.4 0.9 4,176 3.6 3,754 2,854 9.93 20.2 2,646 3,805 13.24 3,649 3 -24 -35 -36 -34 ¹ Change in net sales adjusted for currency translation effects. ² Operating income for continuing operations in the fourth quarter of 2019 included non-recurring items of SEK 0m (71). In the full year 2019 operating income for continuing operations included non-recurring items of SEK –1,344m (-1,343). Excluding these items, operating income amounted to SEK 4,533 m (5,519), corresponding to a margin of 3.8% (4.8), see page 20. ³ Basic. For definitions, see pages 29-30. Electrolux Interim Report January –December 2019 Stockholm, January 31, 2020 Electrolux Sustainability Report (GRI) 2019 www.electroluxgroup.com/sustainabilityreport2019 Electrolux Interim Reports www.electroluxgroup.com/ir Financial reports and major events in 2020 31 Jan 21 Feb 31 Mar 7 May 17 Jul 23 Oct Consolidated report Extraordinary General Meeting Annual General Meeting Interim report January–March Interim report January–June Interim report January–September Electrolux subscription service can be accessed at www.electroluxgroup.com/subscribe Investor Relations www.electroluxgroup.com/ir ELECTROLUX ANNUAL REPORT 2019 120 Annual General Meeting Annual General Meeting The Annual General Meeting will be held at 4 pm on Tuesday, March 31, 2020, at Stockholm Waterfront Congress Centre, Nils Ericsons plan 4, Stockholm, Sweden. Participation Shareholders who intend to participate in the Annual General Meeting must • be registered in the share register kept by the Swedish central securities depository Euroclear Sweden AB on Wednesday, March 25, 2020, and • give notice of intent to participate, to Electrolux on Wednesday, March 25, 2020, at the latest. Notice of participation Notice of intent to participate can be given • on the Group’s website; www.electroluxgroup.com/agm2020 • by telephone +46 8 402 92 79, on weekdays between 9 am and 4 pm • by mail to AB Electrolux c/o Euroclear Sweden AB Box 191 SE-101 23 Stockholm Sweden Notice should include the shareholder’s name, personal identity or registration number, address, telephone number and the number of assistants attending, if any. Shareholders may vote by proxy, in which case a power of attorney should be submitted to Electrolux well in advance of the Annual General Meeting. Proxy forms in English and Swedish are available on the Group’s website: www.electroluxgroup.com/agm2020 Shares registered by trustee Shareholders that have their shares registered in the name of a nominee must, in addition to giving notice of participation in the meeting, temporarily be recorded in the share register in their own names (so called voting-rights registration) to be able to participate in the General Meeting. In order for such registration to be effectuated on Wednesday, March 25, 2020, shareholders should contact their bank or trustee well in advance of that date. Dividend The Board of Directors proposes a dividend for the fiscal year 2019 of SEK 8.50 per share, for a total dividend payment of approximately SEK 2,443m (2,443). The proposed dividend corre- sponds to approximately 97% (64) of income for the period. The dividend is proposed to be paid in two equal installments, the first with the record date Thursday, April 2, 2020, and the second with the record date Friday October 2, 2020. The first installment is estimated to be paid on Tuesday, April 7, 2020 and the second installments on Wednesday, October 7, 2020. Proposal for election of board members In preparation for the Annual General Meeting, the Nomination Committee has in February 2020 proposed re-election of Staffan Bohman, Petra Hedengran, Ulla Litzén, Fredrik Persson, David Porter, Jonas Samuelson and Kai Wärn as board members. Hasse Johansson and Ulrika Saxon declined re-election. The Nomi- nation committee also proposed election of Henrik Henriksson and Karin Overbeck as new board members. Staffan Bohman was proposed to be re-elected as Chairman of the Board of Directors. DATES REGARDING THE AGM 2020 2019 2020 September February March April October 13 Nomination Committee appointed for AGM 2020 7 Proposals from Nomination Committee presented 21 Notice to AGM estimated to be published 25 Deadline for notice of intent to participate in AGM and registration in share register 31 AGM 2020 2 Proposed record date for the first instalment of the dividend payment 7 Estimated date for payment of first instalment of dividend 2 Proposed record date for the second instal- ment of the dividend payment 7 Estimated date for payment of second instalment of dividend ELECTROLUX ANNUAL REPORT 2019 Founded in Sweden in 1919 by entrepreneur Axel Wenner-Gren 1920s The Electrolux salesmen sold vacuum cleaners all over the world, supported by innovative marketing methods like the vacuum cleaner car. 1930s The innovative and completely silent absorption fridge could run on either electricity or gas, and became a global success. 1940s The launch of the groundbreaking Assistent food processor was Electrolux first venture into cooking products. 1950s Electrolux legendary ”floating wing” W20 washing machine helped to shorten the time consuming and cumbersome laundry process considerably. 1960s The “Luxomatic” vacuum cleaner was launched in 1964 and had innovations like an adjustable nozzle and a cord winder. 1970s The Datalux cooker launched in 1978 had an electronic rear control panel featuring a digital clock and a timer. 1980s The legendary Electrolux "Troika" with Anders Scharp, Hans Werthén and Gösta Bystedt made Electrolux into a global appliance company through hundreds of acquisitions. 1990s The prototype of the world's first robotic vacuum cleaner, the Trilobite, was presented in 1997. 2000s The innovative battery-driven vacuum cleaner Ergorapido was launched in 2004 following systematic product development and consumer tests. 2010s Electrolux expanded its offering of connected appliances, here with Google Assistant. Celebrating a century of better living Electrolux turned 100 years old in 2019 and has contributed to strong achievements over the past century – including its well-established brands, strong innovation heritage, winning sales orientation, contribution to societal development and sustainability leadership. By creating great taste, care and wellbeing experiences, and better living for hundreds of millions of people around the world over the past century, Electrolux has not only enhanced the quality of life of its consumers, but also the societies in which they live. Electrolux is part of an industry that has revolutionized, domestic duties, general hygiene and eating habits within less than half a century. In the 1990s, Electrolux was the first appliance company to focus on sustainability, which has been at the heart of the Electrolux strategy ever since. Today, the Electrolux brand is associated with sustainability, which is a differentiator that results in additional growth opportunities. Electrolux celebrated its anniversary year by launching the Better Living Program – a bold initiative to enable it to continue to be at the forefront of sustainability. The program includes a broad range of actions and targets until 2030. Mailing address: SE-105 45 Stockholm, Sweden | Visiting address: S:t Göransgatan 143, Stockholm Telephone: +46 8 738 60 00 | Website: www.electroluxgroup.com AB ELECTROLUX (PUBL), 556009-4178 annual review on the web www.electroluxgroup.com/annualreports/2019 

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