Electrolux Annual Report 2020

Plain-text annual report

Electrolux Annual Report 2020 Well positioned to create value A strong focus on innovation to improve the consumer experience and a track record of successfully driving cost efficiency are important competitive assets. A solid balance sheet facilitates profitable growth. This makes Electrolux well positioned to continue to deliver shareholder value. GLOBAL LEADER 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 digital transformation, modularized product architectures, automation and flexibility in production. Sustainability is a key business driver, and a solid balance sheet facilitates profitable growth. Table of contents CEO STATEMENT Strategy reinforced in an 5 exceptional year 7 Financials 2020 Driving profitable growth 8 Sustainability at the heart of our strategy 11 13 Creating shareholder value 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 Climate-Related Financial Disclosures Corporate governance report Remuneration report Events and reports Annual General Meeting 14 39 77 78 82 84 85 86 95 100 119 122 123 CONTINUING OPERATIONS The CEO statement on pages 4–13 in this report includes the consumer business, continuing operations, following the listing of the business area Professional Products (Electrolux Professional) as a separate company in March 2020. Electrolux Professional is accounted for as discontinued operations, for more information see Note 26. The Annual Report for AB Electrolux (publ), 556009-4178, consists of the Report by the Board of Directors and Notes to the financial statements, pages 14—77. The Annual Report is publis- hed in Swedish and English. ELECTROLUX INVESTOR RELATIONS ONLINE Please find more information about business development, strategy and business areas on the Electrolux Investor Relations webpage: www.electroluxgroup.com/ir SUSTAINABILITY The Electrolux sustainability framework and execution are described in the Sustainability reporting section on pages 86–94. The full Electrolux Sustainability Report is published online in March 2021 at: www.electroluxgroup.com/sustainabilityreport2020 341 298 Printed matter Larsson Offsettryck Electrolux, AEG and Zanussi are registered trademarks of AB Electrolux. For further information about trademarks, please contact Electrolux Group Intellectual Property, Trademark. 116 sales billion sek 48 thousand employees 60 million products sold annually 120 markets The figures above are for the consumer business, continuing operations, excluding the discontinued Electrolux Professional operations. Concept, text and production by Electrolux Investor Relations and Hallvarsson & Halvarsson. 4 CEO statement Jonas Samuelson, Electrolux President and CEO ELECTROLUX ANNUAL REPORT 2020 CEO statement 5 Strategy reinforced in an exceptional year The coronavirus pandemic in 2020 had a severe impact on all aspects of society, including on our consumers and our business. We have all experienced challenging times but I believe that our execution and consumers’ response validate that we have the right strategy in place. The financial performance improved significantly during the year as a consequence of an attractive product offer and agile execution. The world is facing a global pandemic that has affected us all in unprecedented ways, both personally and professionally. Our top priorities have been to safeguard the health and safety of our employees and to ensure business continuity. Not least because household appliances are essential for the daily lives of consumers. Our strategy as well as our agile way of working helped us to manage the challenges and uncertainty, as well as respond to changing consumer needs, brought about by the pandemic. I am pleased how we managed the situation during the year by quickly adapting to the changing market, to ensure we took the right measures at the right time. Responding to new situations Following a sharp decline in demand during the onset of the coronavirus pan- demic in first half of 2020, we implemented temporary cost and cash mitigation actions. These included significantly reduced discretionary spending and reprioritizing capital expenditure by deferring and scaling back investments. Cost efficiency is a key part of our busi- ness culture, and the pandemic illustrated how we as an organization can quickly respond to a volatile market environment. Sales increased in the second half of the year driven mainly by pent-up consumer demand, people spending more time at home and government stimulus pro- grams. Again, our agile business enabled us to quickly switch from implementing cost savings to capture the strong increase in consumer demand. I am extremely proud of how we as an organization have navigated this chal- lenging year that put our entire company to the test. Importantly, for me it validated that we have the right strategy in place and that we quickly can act on challenges as well as seize opportunities. sales by brand sales by region Other 20% 36% * 30% 14% *Includes Frigidaire Gallery and Frigidaire Professional. Key data Sales growth,% Operating margin, %1) Operating cash flow, SEKm2) Dividend, SEK per share3) 1) Excluding non-recurring items. 2) Operating cash flow after investments. 3) 2020 proposed by the Board. 2020 3.3 5.0 8,552 8.00 2019 –1.3 3.8 2,280 7.00 ELECTROLUX ANNUAL REPORT 2020 33% 39% 5% 3% 15% 5% 6 CEO statement Due to the pandemic, consumers spent more time at home during 2020 and became more digital. The digital consumer – well-informed and empowered Our strategy is founded on five industry trends, with sustainability and increasing consumer power driven by digitalization being most important. A consequence of the coronavirus pandemic was how it rapidly transformed consumer behavior. This affected long-term market trends for example by accelerating consumer power and digitalization. Consumers spent more time at home due to the pandemic and became more digital. Online purchases increased and consumers became more interested in high-quality appliances with features and benefits that enhance their user experi- ence. Consumers using their appliances more intensively during the pandemic and allocating more of their household budgets to home improvement projects also benefitted our sales. This, in combina- tion with our relentless focus on consumer experience innovation, has continued to improve demand for our more highly featured products, driving a favorable product mix. We also strengthened our online marketing and communication capabilities to capture the growing online and e-commerce trend. We also saw con- sumers paying more attention to health and hygiene in the home environment, and an increased need for products that can boost wellbeing in the home, such as vacuum cleaners, air and water purifiers, dishwashers and washing machines. During the pandemic, sustainability became even more important for con- sumers. Even before the pandemic, we knew that two thirds of global consumers are willing to pay more for sustainable goods.* These changes in consumer behavior make our strategy more rele- vant than ever. *Eco Ethical Report, June 2019. Consumer power Growing global middle class I ND UST RY TREND S Digitalization The global household appliance market is being transformed by five major trends. While these changes place demands on investments and economies of scale, they also present major opportunities. Global scale Sustainabillity ELECTROLUX ANNUAL REPORT 2020 CEO statement 7 Financials 2020 Business overview The year was highly volatile with a challenging first half followed by a strong recovery during the second half. This resulted in a significant financial performance improvement for the year, with an operating margin of 5.0% compared to 3.8% last year, exclud- ing non-recurring items. Electrolux organic sales increased 3.2%, although more than offset by currency translation relating to the stronger Swedish Krona, resulting in a small reported net sales decline. The organic sales growth was driven by improved mix through selling more innovative premium products as well as higher net prices ,while sales of lower-end products were decreased. After- market sales, which is one of the Group’s strategic focus areas, increased significantly, accounting for 7% of sales. In Europe, market demand was positive, both in Eastern Europe and in Western Europe. For Electrolux operations, brand and product mix contributed strongly to sales and earnings, while volumes of lower-end products declined, resulting in higher sales and operating margin. The premium brands Electrolux and AEG performed well and gained value market share. Currency headwinds impacted earnings negatively, while costs for raw material were lower. In North America, market demand increased during the year. For Electrolux operations, both price and mix improved while vol- umes were lower. The proactive price and mix management, as well as high growth in aftermarket sales, resulted in a significant earnings improvement for the year. The improvement was limited, however, by lower production volumes as a result of capacity constraints. Those were mostly due to the coronavirus situation affecting the industry as a whole, but also a result of inefficien- cies in the ongoing manufacturing consolidation of the U.S. freezer/fridge production into a new, highly automated facility in Anderson. In Latin America consumer demand is estimated to have increased, driven by the Brazilian market. Electrolux operations had a positive mix development, partly from increased sales of high-end products. All main markets had strong growth in online sales. Significant price increases outweighed large currency headwinds. In Asia-Pacific, Middle East and Africa, the Australian market grew strongly, while markets in Southeast Asia declined due to lockdowns and recession. For Electrolux operations, both price and mix developed favorably, while volumes declined slightly. Electrolux in Australia had a significant organic growth with price increases and successful product launches. Operational efficiencies and lower costs for raw material impacted earnings positively. Operating income and margin improved significantly. operating income bridge1) operating margin SEKbn 10 8 6 4 2 0 3.2 0.3 4.5 -0.6 0.0 5.8 -1.6 EBIT 2019 Organic contribution Raw material & tariﬀs Cost eﬃciency Currency Acq/ Divest EBIT 2020 1) Excluding non-recurring items Our focus on consumer driven innovation continued to impact operating income (EBIT) positively. Also in 2020, we strengthened our platform for future profitable growth through additional efficiency measures and extensive re-engineering investments in automated and modularized manufacturing. SEKbn 8 6 4 2 0 5.8 5.0 16 17 18 19 20 Operating income Operating margin Target, ≥6% sales growth capital turnover-rate return on net assets SEKbn 125 100 75 50 25 0 116 3.3 16 17 18 19 20 %1) 10 8 6 4 2 0 -2 Net sales Sales growth Target, ≥4% 1) Total sales growth excluding currency translation effects. Times/year 10 8 6 4 2 0 4.5 16 17 18 19 20 Capital turnover-rate, times/year Target, ≥4 times/year SEKbn 30 25 20 15 10 5 0 25.6 22.6 16 17 18 19 20 Average net assets Return on net assets Target, >20% % 8 6 4 2 0 % 30 25 20 15 10 5 0 To reach the growth target, we are continuing to strengthen our positions in core markets, new markets and segments. Reducing the amount of capital tied up in operations creates opportunities for profit- able growth. Sustained profitability and a small, efficient capital base enable us to achieve a high long-term return on capital. Note: Targets are over a business cycle. All figures in the graphs above exclude the discontinued business area Professional Products. ELECTROLUX ANNUAL REPORT 2020 8 CEO statement Driving sustainable consumer experience innovation Increasing eﬃciency through digitalization, automation and modularization Solid balance sheet facilitates proﬁtable growth Financial targets for proﬁtable growth* OPERATING MARGIN ≥6% RONA** >20% SALES GROWTH ≥4% * Financial targets are over a business cycle ** Return on net assets Strong focus on sustainable consumer experience innovation and increasing operational efficiency through modularized products in automated production are key drivers for profitable growth, supported by a solid balance sheet. Driving profitable growth Electrolux first financial priority is to reach our objective of at least 6% operating margin with high balance sheet efficiency. Once that is achieved, additional value will be driven by accelerating profitable growth of at least 4%. Our two key drivers for profitable growth are sustainable consumer experience innovation and increasing efficiency through modular- ized products in automated production. A solid balance sheet enables us to invest to drive profitable growth. Sustainable consumer experience innovation Product innovation based on consumer insight enables us to develop our offering based on the needs and expectations of consumers. This driver proved to be more important than ever during the coronavi- rus pandemic. It continued to guide us in offering the right type of products that are preferred by consumers. The attractive, high-margin aftermar- ket business is a focus area for us. We strengthen our position by investing in digital capability to interact individually with consumers, extending the service, consumable and accessories product offering and promoting consumer loyalty. We know that strong brands grow faster, are more profitable and more resil- ient. Our three main brands Electrolux, AEG and Frigidaire are all well-estab- lished and account for around 80% of our gross profit. They target distinct consumer groups with potential to attract a larger audience. An example of our product innovation paying off is the external recognition we received during the year, such as being top ranked in five different categories by Reviewed.com in the U.S., including ELECTROLUX ANNUAL REPORT 2020 CEO statement 9 Three clear innovation areas We shape living for the better by reinventing taste, care and wellbeing experiences for more enjoyable and sustainable living. Taste Enabling users to prepare great-tasting food. As a kitchen appliance leader, we want our products to enable consumers to prepare food with the right taste and texture, minimize food waste, and create healthy and nutritious meals. We continuously add new functionalities in terms of control, interaction and innovative digital technologies. By enabling consumers to achieve excellent culinary results, we inspire people to eat and live more enjoyably and sustainably. The Frigidaire AirFry cooker is one of our commercially success- ful products that promotes healthier cooking. Cookers, hobs, ovens, hoods, microwave ovens, refrigerators and freezers. Care Enabling users to care for their clothes so they stay new for longer. Our laundry products offer consumers outstanding garment care, water and energy efficiency, and effective low temperature wash- ing. Demand for Electrolux washing machines and tumble dryers is driven by innovations that promote user-friendliness and garment care through tailored and adaptive programs combined with leading resource efficiency. We create care solutions that make it easier for consumers to make better choices for their wardrobe, their life and the planet, so they can love their clothes for longer. Our Electrolux PerfectCare 800/900 washers in Europe ensure clothes retain their size, shape and vibrancy, and are wrinkle free. Washing machines, tumble dryers and dishwashers. Wellbeing Enabling users to achieve healthy wellbeing in their homes. We strive to create wellbeing products that are differentiated by their visual appeal, and how they promote healthy indoor environments and sustainable living. Electrolux vacuum clean- ers and air-conditioning equipment reduce harmful allergens and pollutants in the home. Our high-performance wellbeing solutions are easy to use, accessible and versatile. The Electrolux PureQ9 vacuum cleaner is one of our products that efficiently removes fine dust from floors, while being ergonomic and quiet. Vacuum cleaners, air-conditioning equipment, water heaters, heat pumps, small domestic appliances and accessories. 61 % 29 % 10 % share of sales Taste Care Wellbeing ELECTROLUX ANNUAL REPORT 2020 10 CEO statement ‘Best refrigerator’ and ‘Best front-load washer’. We also had great success with our recently launched built-in kitchen range under the Electrolux brand in Europe, read more on page 12. As a sustainability leader in the appli- ance industry, we focus on sustainable product innovation, including improving energy and water efficiency of our prod- ucts. During the year, we further inte- grated sustainability and product R&D into our consumer experience teams. We have defined targets and KPIs for each major product category where efficiency standards exist. Modularized products in automated production Our SEK 8bn re-engineering investment program at Electrolux is crucial to strengthen cost competitiveness and drive profitable growth through increased modularization and automation in the Americas and Europe. Our global modu- larized product platforms are key to con- tinue to drive innovation going forward in a competitive way. The re-engineering investment at our Curitiba plant in Brazil was successfully completed during the year, while our investments in North America and São Carlos in Brazil experienced delays due to the coronavirus situation. This of course pushes cost savings from these invest- ments forward, but I want to emphasize that we still expect our re-engineering and streamlining initiatives to generate approximately SEK 3.5bn of annual cost savings, with full effect from 2024. We are also accelerating investments in digitally integrating our manufacturing and supply chains. CASE - INCREASING EFFICIENCY THROUGH DIGITALIZATION, AUTOMATION AND MODULARIZATION Enhancing competitiveness in Brazil In 2020, Electrolux completed a significant investment in its Curitiba plant in Brazil to enhance competitiveness through greater efficiency and flexibility. Electrolux saw the opportunity to make its Curitiba refrigeration/freezer plant more competitive by improving cost effectiveness and increasing flexibility, while strengthening its position in the growing two-door refrigerator segment. Modularization and new product platform When redesigning the Curitiba plant, standardized global modular product platforms were used. Product modu- larization drives profitable growth as it speeds up innovation by leveraging global technologies, increases flexi- bility, and allows a sharpened offering with more relevant features at a lower cost with best-in-class quality. The Curitiba investment enabled a new product platform geared toward the two-door refrigerator market. These new products also promote sustainabil- ity as they are 30% more energy efficient than the previous generation and use refrigerants with lower climate impact. Increased automation The level of automation in production was significantly increased, from 4% to 23%. In addition, a new warehouse was built next to the factory with state- of-the-art automated equipment to optimize storage and the handling of inbound and outbound goods. Greater automation has improved the safety incident rate by approximately 10%, reduced direct labor by a quarter and decreased raw material stock by almost 20%. Greater efficiency High-speed machines were incor- porated into important production phases – including some that were more than twice as productive as pre- vious equipment, while using less raw materials and energy. For production overall, CO2 has been reduced by 11% and water use by 12% since the invest- ment began in 2017. ELECTROLUX ANNUAL REPORT 2020 CEO statement 11 For the Better 2030 Towards carbon neutrality & circularity Better solutions Better company Better Living Lead in energy- and resource- efficient solutions Be climate neutral and drive clean and resource-efficient operations Make sustainable eating the preferred choice Offer circular products and business solutions Act ethically, lead in diversity and respect human rights Make clothes last twice as long with half the environmental impact Eliminate harmful materials Drive supply chain sustainability Make homes healthier and more sustainable through smart solutions for air, water and floors Support the UN Sustainable Development Goals and Climate targets Solid balance sheet A solid balance sheet is essential as it enables us to continue to invest in areas such as consumer experience innova- tion and re-engineering as well as to strengthen our positions in emerging markets. During the year, we further increased our liquidity buffer to ensure financial stability. Sustainability at the heart of our strategy In 2020, we launched and began imple- menting our new For the Better 2030 sustainability framework, which I am con- fident will maintain our sustainability lead- ership as a competitive advantage and driver of profitable growth over the next decade. In fact, the framework takes our sustainability ambitions to the next level. Our ambition is to achieve climate neutrality by 2050. As around 85% of our carbon footprint is in the user phase of our products, our focus is on offering as energy efficient products as possible to consumers. Offering efficient products is our greatest contribution to tackling climate change, while also boosting margins. Our most resource-efficient products have consistently had a higher margin in recent years, and accounted for 26% of total units sold and 36% of gross profit in 2020. I am also particularly proud of our new long-term incentive program for senior managers that includes a sub- stantial climate impact reduction element to drive our climate action going forward. But our sustainability agenda goes far beyond combatting climate change and the impact of our products – to pro- actively work with our operations, supply chain, and the overall circularity of our CO2 IMPACT THE ELECTROLUX CLIMATE NEUTRALITY ROADMAP Target1) –50% -39% 1) The target for 2020 was to reduce CO₂ impact by 50% compared to 2005, focusing on product efficiency in the main product categories. Sales volumes and emission factors were normalized to 2005. The Group’s 50% target was not reached mainly due to delays in legislation and product efficiency regulation in key markets. The 50% target was established in 2013, before the UN Paris agreement in 2015 and launch of the Science Based Target (SBT) initiative. The Electrolux SBT now replaces the 50% target. For more results see the separate Electrolux Sustainability Report online. ELECTROLUX ANNUAL REPORT 2020 80% carbon emissions reduction in operations 25% carbon emissions reduction in product use 1 Climate neutral operations 2 Climate neutral across the value chain 2015 2020 2025 2030 3 2050 1) Science based target (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) United Nations Global Compact Business ambition för 1.5°C - climate neutral value chain by 2050 12 CEO statement CASE - DRIVING SUSTAINABLE CONSUMER EXPERIENCE INNOVATION Driving profitable growth through innovation Built-in kitchen is a key innovation area for Electrolux in Europe where it has further strengthened its position in recent years. Electrolux has strengthened its premium position in the built-in kitchen area in Europe through deep consumer insight to drive sales, consumer ratings and profit. Consumer insight drives innovation The new built-in kitchen range features appliances with intuitive user interfaces that provide real-time guidance to the user. The Electrolux QuickSelect dishwasher interface is an excellent example of identifying real consumer needs around product use and sustain- ability. Electrolux QuickSelect has been appreciated by consumers with a 4.92 star rating out of 5, while net sales and gross profit have increased by 11%.¹ consumer brand recall was tested and validated throughout the entire cam- paign to ensure high success rate. The result showed that the advertisement was effective both in terms of boosting short term sales and having the poten- tial to build Electrolux brand power in the long run. Success in the strategic Polish market has already been mea- sured and Electrolux is now rated as a top three brand in Poland following the successful brand campaign. The importance of branding and effective marketing In early 2019, a sharpened Electrolux brand was communicated based on clearly defined attributes such as ‘most human centric innovation’, ‘leader in sustainable solutions’ and ‘designed in Sweden’. This was then developed into a comprehensive campaign across all media touchpoints, including TV, and Delivering profitable growth Built-in kitchen is a key innovation area for Electrolux in Europe where it has fur- ther strengthened its position in recent years. This has involved sharpening its range through consumer insight to better meet consumer needs and create simply outstanding consumer experiences. During the second half of 2019, Electrolux launched its new built-in kitchen range under a sharp- ened Electrolux brand. New products contributed to an increase in net sales for built-in kitchen of 5.3% and gross profit of 5.9%.¹ Electrolux has a 22% value market share of the built-in kitchen market in Europe and a no 1 or no 2 position in eight of its key sales clusters.² The built-in kitchen range has been well received by the market with consumers rating it 4.9 stars out of 5 when first launched. ¹ Nine months 2020 vs nine months 2019. ² September 2020. ELECTROLUX ANNUAL REPORT 2020 CEO statement 13 business. Our re-engineering program for example plays a key role in driving resource efficiency in our operations to strengthen our competitiveness. The framework is also intended to inspire and empower people to make choices that will help them live more sustainably, while providing us with engaging new ways to communicate with consumers. I would also like to acknowledge the role of our purpose ‘to shape living for the better’ in guiding us and supporting society during what was a difficult year for many. The Electrolux Food Foundation made funding available to help people in need during the pandemic. Working together with partners and Electrolux employees, close to half a million meals were donated to people in need. Our people also contributed to other health- care efforts in our various markets. Creating shareholder value In March, we made Electrolux Professional into a separate public entity. This was the latest in a long history of successful spin-offs where Electrolux shareholders received shares in a newly listed company. The move enables both the consumer and professional businesses to develop and flourish on their own given their different business models. The spin-off has made us into an even more consumer-focused business, which I believe helped us navi- gate the turbulence of last year. Additionally, the Board of Directors proposed to reinstate a dividend for the fiscal year 2019 based on the recovery in earnings and cash flow. The dividend of SEK 7 per share was decided at an Extraordinary General Meeting on November 3. I especially want to thank my colleagues for the great commitment and professionalism they have shown during this challenging year due to the corona- virus pandemic. It has not only affected how we work but also how we live our lives. As the pandemic continues into 2021, we are ready to respond in an agile manner. I am confident that our strategy ensures we remain well positioned to deliver long-term shareholder value even in rapidly changing market conditions. Stockholm, February 2021 Jonas Samuelson President and CEO ELECTROLUX ANNUAL REPORT 2020 Report by the Board of Directors Electrolux Professional AB was listed on Nasdaq Stockholm as a separate company on March 23, 2020, and is therefore no longer part of the Electrolux Group. Results for Electrolux Professional, for the time it was part of the Electrolux Group, are reported as discontinued operations. The comments in this report refer to the consumer business, continued operations, unless otherwise stated. For information on accounting principles, see Note 1 and Note 26. Board of Directors’ report and financial statements 15 Report by the Board of Directors • Net sales amounted to SEK 115,960m (118,981). The sales growth excluding currency translation effects was 3.3%. • Operating income amounted to SEK 5,778m (3,189), corresponding to a margin of 5.0% (2.7). Last year included non-recurring items of SEK –1,344m. • Income for the period amounted to SEK 3,988m (1,820), corresponding to SEK 13.88 (6.33) per share. • Operating cash flow after investments amounted to SEK 8,552m (2,280). • Electrolux Professional AB was distributed to AB Electrolux shareholders and listed on Nasdaq Stockholm March 23, 2020. • The Board proposes a dividend for 2020 of SEK 8.00 (7.00) 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 investments 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 period4) Earnings per share, SEK Equity per share, SEK Dividend per share, SEK Return on equity, % 2020 2019 Change, % 115,960 118,981 –3 3.3 3.2 0.1 — –5.8 5,778 5.0 5,096 3,988 13.88 8,552 22.6 4.5 –1.3 –1.0 0.0 –0.3 4.3 3,189 2.7 2,456 1,820 6.33 2,280 12.0 4.5 47,543 0.08 48,652 0.34 6,584 22.91 65.10 8.005) 34.1 2,509 8.73 78.55 7.00 11.4 81 108 119 162 1) Change in net sales adjusted for currency translation effects. 2) Operating income for 2019 included non-recurring items of SEK –1,344m. Excluding these items, operating income for 2019 amounted to SEK 4,533m, corre- sponding to a margin of 3.8%, 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) Income for the period 2020 included a settlement gain from the distribution of Electrolux Professional of SEK 2,379m. 5) Proposed by the Board of Directors. AB Electrolux (publ), 556009–4178 Annual Report 2020, page 14–77 Sustainability Reporting 2020, page 86–94 Climate-Related Financial Disclosures, page 95-99 Corporate Governance Report 2020, page 100–118 Remuneration Report 2020, page 119–121 ELECTROLUX ANNUAL REPORT 2020 16 Board of Directors’ report and financial statements Net sales and income • Sales decreased by 2.5%. This was a result of negative currency translation effects of 5.8%, while organic sales increased by 3.2% and acquisitions had a positive impact of 0.1%. • Operating income amounted to SEK 5,778m (3,189), corresponding to a margin of 5.0% (2.7). Last year included non-recurring items of SEK –1,344m. Excluding those items, operating income 2019 amounted to SEK 4,533m, corresponding to a margin of 3.8%. • Mix developed favorably and operating margin improved across all business areas, excluding non-recurring items. • Positive price development fully offset significant currency headwinds. • Income for the period for continuing operations amounted to SEK 3,988m (1,820), corresponding to SEK 13.88 (6.33) per share. Financial net Net financial items amounted to SEK –681m (–733), mainly a result of lower interest costs. Income after financial items Income after financial items amounted to SEK 5,096m (2,456), corresponding to 4.4% (2.1) of net sales. Taxes Total taxes for 2020 amounted to SEK –1,108m (–636), corresponding to a tax rate of 21.7% (25.9). Income for the period and earnings per share Income for the period for continuing operations, amounted to SEK 3,988m (1,820), corresponding to SEK 13.88 (6.33) in earn- ings per share before dilution. Income for the period for the Group, including discontinued operations, amounted to SEK 6,584m (2,509), corresponding to SEK 22.91 (8.73) in earnings per share before dilution. The income for the period for the Group included a settlement gain from the distribution of Electrolux Professional of SEK 2,379m. Net sales Net sales in 2020 amounted to SEK 115,960m (118,981), which is a decrease of 2.5%. Organic sales increased by 3.2% and acquisitions had a positive impact of 0.1%, while currency translation had a negative impact of 5.8%. All business areas reported organic sales growth. Positive price development and mix improvements through selling more innovative premium products contributed to the growth, as well as increased aftermarket sales. However, sales volumes decreased. Operating income Operating income for 2020 amounted to SEK 5,778m (3,189), corresponding to a margin of 5.0% (2.7). Last year, operat- ing income included non-recurring items of SEK –1,344m, see Note 7. The increase in operating income was mainly driven by the organic contribution. Mix developed strongly across business areas and higher net prices more than offset significant currency headwinds. Lower costs for raw material impacted operating income positively. Operating margin, excluding non-recurring items last year, increased in all business areas. For more information on the performance of each business area, see page 18–21. Effects of changes in exchange rates Changes in exchange rates had a negative impact of SEK –1,621m on operating income year-over-year. The impact of transaction effects was SEK –1,340m. Translation effects amounted to SEK –281m. SALES GROWTH OPERATING MARGIN SEKM 125,000 100,000 75,000 50,000 25,000 0 % 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 % 8 6 4 2 0 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 84. 16 17 18 19 20 16 17 18 19 20 Financial targets are over a business cycle. For comparable reasons the figures in the graphs above are exclusive of the discontinued business area Professional Products. ELECTROLUX ANNUAL REPORT 2020 Board of Directors’ report and financial statements 17 Consolidated statement of comprehensive income note 3, 4 5, 7 5, 7 5, 7 6, 7, 29 3, 8 9 10 26 22 11, 18 11 11 20 20 2020 115,960 –93,689 22,272 –11,071 –5,116 –307 5,778 –681 5,096 –1,108 3,988 2,595 6,584 189 –46 143 32 –3,326 48 –3,246 –3,103 3,481 6,584 0 6,584 3,481 –0 3,481 13.88 9.03 22.91 13.86 9.02 22.88 287.4 287.7 2019 118,981 –99,182 19,799 –12,186 –5,481 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 sekm 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 2020 18 Board of Directors’ report and financial statements Operations by business area • Strong performance in Europe driven by product and brand mix. • Improved price and mix in North America more than offset lower volumes and manufacturing transition cost. • In Latin America positive price and mix outweighed significant currency headwinds. However, earnings decreased compared to last year, which included positive one-off items. • Strong organic development in Australia was the main driver for increased operating income in Asia-Pacific, Middle East and Africa. Market demand overview The coronavirus pandemic resulted in more time spent at home. Several markets benefitted from consumers allocating more of their household budgets to home improvement in the second half of 2020. Market demand for core appliances in Europe increased by 3% in 2020. This was driven by growth of 8% in Eastern Europe and of 1% in Western Europe. In the U.S., market demand for core appliances increased by 6%. Market demand in Brazil is estimated to have increased in 2020, while demand in Argentina and Chile is estimated to have declined, due to restrictions to limit the spread of the coronavirus and political instability. In Asia-Pacific, Middle East and Africa, overall consumer demand for appliances is estimated to have declined in 2020, mainly due to lockdowns to limit the spread of the coronavirus and reces- sions. However, consumer demand in Australia, one of Electrolux main markets, grew strongly. INDUSTRY SHIPMENTS FOR CORE APPLIANCES IN THE U.S. INDUSTRY SHIPMENTS FOR CORE APPLIANCES IN EUROPE MILLION UNITS MILLION UNITS 55 51 47 43 39 35 105 100 95 90 85 80 A total of approximately 51 million core appliances were sold in the U.S. in 2020. A total of approximately 103 million core appliances were sold in Europe in 2020. 02 04 06 08 10 12 14 16 18 20 Source: AHAM. 02 04 06 08 10 12 14 16 18 20 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. Business areas Electrolux operations are organized into four regional business areas: Europe, North America, Latin America and Asia-Pacific, Middle East and Africa. The Group’s operations include products for consumers comprising of major appli- ances, 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. SHARE OF SALES BY BUSINESS AREA Europe, 40% North America, 33% Latin America, 14% Asia-Paciﬁc, Middle East and Africa, 13% ELECTROLUX ANNUAL REPORT 2020 Board of Directors’ report and financial statements 19 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. 2020 115,960 3,643 1,215 666 1,038 –783 5,778 5.0 5.0 2019 Change, % 118,981 2,493 –516 1,821 446 –1,055 3,189 2.7 3.8 –3 46 n.m. –63 133 26 81 Europe Market demand in Europe increased by 3% in 2020. This was driven by growth in Eastern Europe of 8% and in Western Europe of 1%. Electrolux operations reported an organic sales growth of 3.3% in 2020 driven by improvement in brand and product mix, while volumes of lower-end products declined. The improved product mix was mainly driven by the focus areas built-in kitchen and premium laundry products and the business area gained value market share in its premium brands Electrolux and AEG. The strategically important aftermarket sales also increased. Operating income and margin improved year-over-year, excluding the non-recurring items last year, see Note 7. This was mainly driven by improved mix as well as lower raw material costs. Currency headwinds impacted earnings negatively. 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 2020 2019 46,038 45,420 3.3 — 1.7 0.1 3,643 2,493 7.9 7.9 1,406 153.8 2,155 5.5 7.1 1,429 113.5 2,399 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 16 17 18 19 20 Average number of employees 17,661 17,943 1) For information on non-recurring items, see Note 7 and page 84. ELECTROLUX ANNUAL REPORT 2020 20 Board of Directors’ report and financial statements North America Market demand for core appliances in the U.S. increased by 6% in 2020. Market demand for all major appliances, including microwave ovens and home-comfort products, increased by 4%. Electrolux operations in North America reported an organic sales increase of 0.9%. Both price and mix improved, while volumes were lower. Volumes were impacted by capacity constraints, mostly due to the coronavirus situation affecting the industry as a whole, but also as a result of inefficiencies related to the ongoing manufacturing consolidation for refrigerators and freezers. Operating income and margin improved year-over-year, excluding non-recurring items last year, see Note 7. Positive price and mix development more than offset negative effects from lower volumes and cost inefficiencies related to the manu- facturing consolidation and the pandemic. High growth of aftermarket sales also contributed to earnings. 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 2020 2019 38,219 38,954 0.9 — 1,215 3.2 3.2 6,086 16.3 1,772 –8.7 –1.0 –516 –1.3 1.4 6,496 –8.3 2,573 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 16 17 18 19 20 Average number of employees 11,551 11,287 1) For information on non-recurring items, see Note 7 and page 84. Latin America Overall consumer demand for core appliances in Latin America is estimated to have increased in 2020, driven by Electrolux main market Brazil. In Argentina, the demand is estimated to have declined significantly due to restrictions to limit the coronavirus pandemic and political instability. The market demand in Chile is estimated to have decreased slightly. Electrolux operations in Latin America reported an organic sales growth of 10.0% in 2020, even though net sales declined due to the negative currency translation effect. The organic sales growth was mainly driven by Brazil but also by Argentina and Chile. Both higher price and mix improvement contrib- uted, as well as higher sales volumes in Brazil. Aftermarket sales increased and all main markets had strong growth in online sales. Operating income decreased year-over-year, excluding non-recurring items last year, see Note 7. Volumes declined but mix developed favorably, partly driven by increased sales of high-end products. Significant price increases outweighed large currency headwinds. Efficiency initiatives driven mainly by digital trasformation impacted positively. Last year, operating income included a positive impact related to operational taxes and a reversal of provision in Brazil. 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 84. NET SALES AND OPERATING MARGIN SEKM 25,000 20,000 15,000 10,000 5,000 0 2020 2019 16,915 19,653 10.0 666 3.9 3.9 10.9 1,821 9.3 3.7 4,526 7,044 11.9 665 27.1 956 9,391 10,230 Net sales Operating margin Operating margin excl. non-recurring items % 10 8 6 4 2 0 -2 16 17 18 19 20 ELECTROLUX ANNUAL REPORT 2020 Board of Directors’ report and financial statements 21 Asia-Pacific, Middle East and Africa Overall consumer demand for appliances is estimated to have declined in the region in 2020, mainly due to lockdowns to limit the spread of the coronavirus and recessions. However, demand in Australia, one of Electrolux main markets, grew strongly as household consumption increased significantly. Electrolux reported an organic sales growth of 1.7%. Both price and mix developed favorably, while volumes declined slightly. Electrolux in Australia had a significant organic growth with price increases and successful product launches. Operating income and margin increased year-over-year, excluding non-recurring items last year, see Note 7. The posi- tive organic development from price and mix contributed to the improvement as well as operational efficiencies and lower costs for raw material. Currency headwinds impacted operating income negatively. 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 84. NET SALES AND OPERATING MARGIN 2020 2019 14,788 14,954 1.7 0.6 1,038 7.0 7.0 –1.3 0.1 446 3.0 5.6 3,996 6,062 20.3 562 7.4 456 7,526 7,919 SEKM 15,000 12,000 9,000 6,000 3,000 0 Net sales Operating margin Operating margin excl. non-recurring items % 10 8 6 4 2 0 16 17 18 19 20 Other facts Changes in Group Management during 2020 On March 16, 2020 it was announced that Adam Cich would replace Dan Arler as new head of the business area Asia-Pacific, Middle East and Africa with immediate effect. Adam Cich was also appointed Executive Vice President. On August 18, 2020 it was announced that Jan Brockmann would resign from his position as Chief Operations Officer on September 30, 2020. On September 16, 2020 it was announced that Carsten Franke had been appointed new Chief Operations Officer and Executive Vice President as from October 1, 2020. 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, 2020, the Group had a total of 3,403 (3,897) cases pending, representing approximately 3,440 (approxi- mately 3,933) plaintiffs. During 2020, 930 new cases with approx- imately 931 plaintiffs were filed and 1,424 pending cases with approximately 1,424 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 2020 22 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. Working capital and net assets items below exclude assets and liabilities of Electrolux Professional for both 2020 and 2019. Financial position • Equity/assets ratio was 23.6% (23.6). • Return on equity was 34.1% (11.4). • Return on net assets was 22.6% (12.0). • Financial net cash position amounted to SEK 4,741m, compared to a financial net debt position of SEK 667m end of 2019. Working capital and net assets Working capital as of December 31, 2020, amounted to SEK –19,191m (–17,390), corresponding to –17.9% (–14.8) of annualized net sales. Operating working capital amounted to SEK 1,851m (3,149), corresponding to 1.7% (2.7) of annualized net sales. Average net assets were SEK 25,563m (26,532), corresponding to 22.0% (22.3) of annualized net sales. Return on net assets was 22.6% (12.0). 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 sales2) Average net assets Annualized net sales3) Return on net assets, % 1) Annualized, see Note 31. 2) Calculated at end of period exchange rates. 3) Calculated at average exchange rates. Dec. 31, 2020 % of net sales1) Dec. 31, 2019 % of net sales1) 13,213 19,944 –31,306 1,851 –8,083 –12,777 –181 –19,191 20,452 2,351 6,369 4,696 5,588 20,265 107,142 25,563 115,960 22.6 12.3 18.6 –29.2 1.7 –17.9 18.9 22.0 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 Liquid funds Liquid funds as of December 31, 2020, amounted to SEK 20,467m (11,189), excluding back-up credit facilities. Electrolux strengthened its liquidity buffer during the year to secure financial stability in a volatile environment as a conse- quence of the pandemic. Electrolux has an unused committed back-up multi- currency revolving credit facility of EUR 1,000m, approximately SEK 10,057m, maturing 2023, a revolving credit facility of SEK 3,000m, maturing 2021 and a revolving credit facility of SEK 10,000m, maturing 2025. Liquidity profile sekm Liquid funds % of annualized net sales1) Net liquidity Fixed interest term, days Effective annual yield, % Dec. 31, 2020 Dec. 31, 2019 20,467 40.6 18,864 17 0.5 11,189 18.4 7,569 12 0.8 1) Liquid funds in relation to net sales, see Note 31 for definition. For additional information on the liquidity profile, see Note 18. CAPITAL TURNOVER-RATE RETURN ON NET ASSETS TIMES/YEAR 8 6 4 2 0 Capital turnover-rate Target: at least 4 times/year SEKM 30,000 22,500 15,000 7,500 0 Average net assets Return on net assets Target: >20% % 40 30 20 10 0 16 17 18 19 20 16 17 18 19 20 Financial targets are over a business cycle. For comparable reasons the figures in the graphs above are exclusive of the discontinued business area Professional Products. ELECTROLUX ANNUAL REPORT 2020 Board of Directors’ report and financial statements 23 note December 31, 2020 December 31, 2019 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 20,452 21,803 2,351 6,369 3,480 274 6,064 65 1,272 878 2,811 7,071 3,817 424 6,618 93 1,043 1,486 41,205 45,166 13,213 19,944 894 135 3,846 172 20,196 — 58,399 99,604 1,545 2,905 –4,593 18,846 18,702 7 18,709 14,123 1,834 476 4,951 5,567 26,952 31,306 562 17,114 1,329 784 332 2,516 — 53,943 80,894 99,604 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 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 2020 24 Board of Directors’ report and financial statements Net debt items as per December 31, 2019, exclude assets and liabilities of Electrolux Professional. Equity as per December 31, 2019, includes Electrolux Professional. Cont. Financial position Net debt As of December 31, 2020, Electrolux had a financial net cash position (excluding lease liabilities and post-employment provisions) of SEK 4,741m, compared to the financial net debt position of SEK 667m as of December 31, 2019. Net provisions for post-employment benefits was SEK 3,679m (3,866) and lease liabilities amounted to SEK 2,618m (3,150) as of December 31, 2020. In total, net debt amounted to SEK 1,556m, a decrease by SEK 6,127m compared to SEK 7,683m per December 31, 2019. 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, 2020 Dec. 31, 20191) 1,012 277 40 1,329 210 64 1,603 14,123 15,727 1,307 1,446 602 3,354 233 33 3,620 8,236 11,856 20,196 10,807 172 81 18 190 176 16 Liquid funds 20,467 11,189 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, % –4,741 2,618 3,679 1,556 0.08 18,709 65.10 34.1 23.6 667 3,150 3,866 7,683 0.34 22,574 78.55 11.4 23.6 1) Electrolux Professional was 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 were repaid in connection with the listing of Electrolux Professional on March 23, 2020. 2) Whereof interest-bearing liabilities amounting to SEK 15,412m as of December 31, 2020, and SEK 10,989m as of December 31, 2019. Long-term borrowings and long-term borrowings with maturi- ties within 12 months amounted to a total of SEK 14,400m as of December 31, 2020 with average maturity of 2.8 years, com- pared to SEK 9,682m and 3.0 years at the end of 2019. During 2021, long-term borrowings amounting to approximately SEK 0.3bn 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. In March 2020, to ensure financial flexibility and to mitigate the potential impact from the coronavirus pandemic, the Board of Directors approved a temporary exception from the long-term borrowing limits. The maximum amount of long-term borrowings maturing in any given 12-months period was SEK 5,744m at the end of 2020. At year-end, the average interest- fixing period for long- term borrowings was 1.6 years (1.5). At year-end, the average interest rate for the Group’s total interest-bearing borrowings was 1.6% (1.6). Rating Electrolux has an investment-grade rating from S&P Global Ratings, A- with a stable outlook. Rating S&P Global Ratings 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 0.08 (0.34). The equity/assets ratio was 23.6% (23.6). Equity and return on equity Total equity as of December 31, 2020, amounted to SEK 18,709m (22,574), which corresponds to SEK 65.10 (78.55) per share. Return on equity was 34.1% (11.4), impacted by a settlement gain from the distribution of Electrolux Professional. Adjusted for the settlement gain, return on equity was 21.7% (11.4). LONG-TERM BORROWINGS, BY MATURITY NET DEBT/EQUITY RATIO1) EQUITY/ASSETS RATIO1) SEKM 5,000 4,000 3,000 2,000 1,000 0 In 2021, long-term borrowings in the amount of approximately SEK 0.3bn will mature. For information on borrowings, see Note 2 and 18. 21 22 23 24 25 26- 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 % 50 40 30 20 10 0 11 12 13 14 15 16 17 18 19 20 11 12 13 14 15 16 17 18 19 20 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 2020 Board of Directors’ report and financial statements 25 Changes in consolidated equity Attributable to equity holders of the Parent Company sekm Opening balance, January 1, 2019 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 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 Dividend1) Acquisition of non-controlling interest Total transactions with equity holders Closing balance, December 31, 2020 Other paid-in capital Other reserves Retained earnings Share capital 1,545 — 1,545 — — — — — — — — — — — 2,905 –2,394 — — 2,905 –2,394 — — — — — — — — — — — — –10 1,029 — 24 1,044 1,044 — — — — 1,545 2,905 –1,351 — — — — — — — — — — — — — — — — — — — — — — — 32 –3,322 — 48 –3,242 –3,242 — — — — 1,545 2,905 –4,593 19,683 –234 19,450 2,509 — — –103 3 –100 2,409 52 Total 21,738 –234 21,504 2,509 –10 1,029 –103 27 944 3,453 52 –2,443 –2,443 — –2,391 19,468 6,584 — –4 189 –46 140 6,723 70 — –2,391 22,566 6,584 32 –3,326 189 2 –3,102 3,481 70 –7,415 –7,415 — –7,345 18,846 — –7,345 18,702 Non- controlling interests 11 — 11 –1 — 0 — — — –1 — –1 –1 –2 8 0 — –0 — — –0 –0 — –0 –0 –0 7 Total equity 21,749 –234 21,515 2,509 –10 1,029 –103 27 944 3,452 52 –2,443 –1 –2,393 22,574 6,584 32 –3,326 189 2 –3,103 3,481 70 –7,415 –0 –7,346 18,709 1) 2020: Dividend payment to shareholders SEK 2,012m. Distribution of Electrolux Professional AB of SEK 5,403m, equivalent to the fair market value of Electrolux Professional at listing at Nasdaq Stockholm on March 23, 2020. For more information on share capital, number of shares and earnings per share, see Note 20. ELECTROLUX ANNUAL REPORT 2020 26 Board of Directors’ report and financial statements Cash flow • Operating cash flow after investments amounted to SEK 8,552m (2,280). • Capital expenditure amounted to SEK 5,338m (6,674). • R&D expenditure amounted to 3.3% (3.3) of net sales. Operating cash flow after investments Operating cash flow after investments in 2020 amounted to SEK 8,552m (2,280). The year-over-year comparison reflects an increased operating income, a lower level of investments as well as a more favorable development of operating assets and liabil- ities. As a result of the strong market demand during the second half of the year that could not fully be met, inventory levels were low at the same time as procurements were high. Capital expenditure Capital expenditure in property, plant and equipment in 2020 amounted to SEK 4,325m (5,320). The investments were mainly related to new products and architectures, manufacturing effi- ciency, automation and re-engineering. Including investments in product development and software, capital expenditure amounted to SEK 5,338m (6,674), corresponding to 4.6% (5.6) of net sales. Cash flow sekm Capital expenditure by business area 2020 2019 sekm Operating income adjusted for non-cash items1) 10,807 9,746 Europe Change in operating assets and liabilities 2,852 –498 % of net sales Operating cash flow 13,659 9,248 North America Investments in tangible and intangible assets –5,338 –6,674 % of net sales Changes in other investments 230 –294 Latin America Operating cash flow after investments 8,552 2,280 % of net sales Acquisitions and divestments of operations –8 –27 Asia-Pacific, Middle East and Africa Operating cash flow after structural changes Financial items paid, net2) Taxes paid 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 8,544 2,254 –596 –656 –1,132 –1,277 6,816 –911 321 –870 –2,012 –2,443 0 9 3,894 –2,982 1) Operating income adjusted for depreciation and amortization and other non-cash items. 2) For the period January 1 — December 31, 2020. Interests and similar items received SEK 72m (74), interests and similar items paid SEK –397m (–495) and other financial items paid SEK –163m (–110). Interest paid related to lease liabilities SEK –108m (–124). % of net sales Other Total % of net sales R&D expenditure The expenditure for research and development in 2020, including capitalization of SEK 563m (788), amounted to SEK 3,799m (3,899) corresponding to 3.3% (3.3) of net sales. 2020 2019 2,155 2,399 4.7 5.3 1,772 2,573 4.6 665 3.9 562 3.8 183 6.6 956 4.9 456 3.0 290 5,338 6,674 4.6 5.6 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 2020 for continuing operations amounted to SEK 8,552m (2,280). 16 17 18 19 20 16 17 18 19 20 1)The figures for 2018, 2019 and 2020 are for continuing operations, exclusive of Electrolux Professional. Capital expenditure Depreciation and amortization Capital expenditure in 2020 for continuing operations including product development and software amounted to SEK 5,338m (6,674). ELECTROLUX ANNUAL REPORT 2020 Consolidated cash flow statement sekm Operations Operating income from continuing operations Depreciation and amortization1) Other non-cash items Financial items paid, net2) 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 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 borrowings New long-term borrowings Amortization of long-term borrowings3) Payment of lease liabilities Dividend Share-based payments Cash flow from financing Total cash flow, continuing operations Board of Directors’ report and financial statements 27 note 2020 2019 5,778 4,587 442 –596 –1,132 9,079 1,236 –2,401 1,737 2,279 2,852 11,932 –8 –4,325 –563 –450 230 –5,115 6,816 16 –308 9,793 –4,555 –911 –2,012 0 2,023 8,839 26 12 13 13 18 18 3,189 4,821 1,736 –656 –1,277 7,813 –437 –604 67 476 –498 7,314 –27 –5,320 –788 –566 –294 –6,994 321 –13 854 3,810 –2,376 –870 –2,443 9 –1,028 –707 297 –411 11,697 172 — 11,458 Total cash flow, discontinued operations 26 1,177 Total cash flow, total Group Cash and cash equivalents at beginning of period Exchange-rate differences referring to cash and cash equivalents Cash and cash equivalents in distributed operations Cash and cash equivalents at end of period4) 10,016 11,458 –667 –611 20,196 1) Depreciation related to right-of-use assets amounted to SEK –876m (–876). 2) Interest and similar items received SEK 72m (74), interest and similar items paid SEK –397m (–495) and other financial items received/paid SEK –163m (–110). Interest paid related to lease liabilities SEK –108m (–124). 3) For 2020, the amount includes loan repurchases and early repayment of loan of SEK 3,085m. 4) The difference between Cash and cash equivalents for full year 2019 in the Consolidated cash flow statement and Consolidated balance sheet corresponded to the cash and cash equivalents of Electrolux Professional amounting to approximately SEK 0.6bn. ELECTROLUX ANNUAL REPORT 2020 28 Board of Directors’ report and financial statements Risk management Electrolux continuously monitors its identified key risks as well as new and evolving risks, aiming to respond flexibly to internal or external changes. The structured process to monitor and coordinate the risk management related activities are super- vised and directed by the Enterprise Risk Management (ERM) Board. Both the risk appetite as well as the approach to moni- tor, assess and follow-up are also reviewed regularly by Group Management to ensure that they are up to date and adapted to Electrolux strategy. Risks are categorized based on two dimensions: their poten- tial consequences on Electrolux operations and the operation’s vulnerability to them. Key risks are those deemed to have an extreme or high impact on the Group’s financial result if material- ized, but also emerging risks or risks not sufficiently understood with potential high impact are included. More information regarding the ERM process can be found in the Corporate governance report. Electrolux identified strategic, external and internal key risks are presented below. Financial risks are presented in more detail in Note 2, Financial risk management. Risks related to sustainability are detailed in the Sustainability reporting. Climate-related risks are discussed in the section on Climate- Related Financial Disclosures. Strategic risks Major shifts in the industry As the society is becoming more digital consumer behavior changes, leading to structural shifts in many industries, including consumer goods. This shift has accelerated as a consequence of the coronavirus pandemic. Electrolux sees many opportuni- ties deriving from the development but also prepares for risks. One potential emerging risk is that the company fails to reach strategic goals due to a lack of business agility and an inability to anticipate external developments. The Group is carefully monitoring the evolving competitive landscape including new operators and business models, changes in alliances and increased competition. Innovation capability Electrolux ability to invest in growth and innovation, including new markets and segments, is crucial for its strategy. Not exe- cuting on the Group’s strategic priorities in a timely manner may affect the Group’s delivery of sustainable consumer experience innovation and profitable growth. Therefore, portfolio manage- ment is essential for Electrolux, ensuring the right allocation of resources for relevant innovation in the product and service categories. Digital transformation Digital transformation through automation, modularization and digital manufacturing is part of Electrolux ambition to drive operational excellence. It is crucial for the Group to execute on its re-engineering programs within operations to adapt to the rapidly changing industry and consumer needs and to continue to be cost efficient. An inability to follow through on the initia- tives may lead to lower performance, delays or higher costs. Digitalization and automation in manufacturing and supply chain processes also results in an emerging risk related to the inability to attract and train personnel for the new skills required. Electrolux therefore closely monitors its re-engineering projects, continuously evaluates their impact on the business and refines its recruitment processes and training programs. External risks Geopolitical risks Electrolux closely monitors events which may have negative impact on the macroeconomic or geopolitical factors affecting its markets. Political instability has increased during the last year, due to events such as Brexit in Europe, Hong Kong in Asia, the trade war between the U.S. and China and the South China Sea disputes. The development may lead to economic downturn and changed consumer behaviors impacting the Group’s sales negatively. Instabilities and emerging new geopolitical areas of concern can also affect Electrolux costs for raw material and transporta- tion as well as currency exchange rate development, which in turn affect the financial result of the Group. Electrolux continu- ously works on business continuity plans based on possible consequences of such events. Change +/- Pre-tax earnings impact -/+, sekm Sensitivity analysis year-end 2020 Risk Raw materials1) Carbon Steel Stainless Steel Plastics Currency2) and interest rates USD to EUR EUR to GBP USD to BRL USD to CAD EUR to CHF THB to AUD CNY to USD EUR to CZK EUR to RUB USD to VND Translation exposure to SEK3) 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 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. 400 200 350 390 230 230 220 200 140 140 100 90 90 670 80 RAW MATERIALS EXPOSURE 2020 Carbon steel, 38% Plastics, 32% Stainless steel, 17% Copper and aluminum, 12% Other, 1% In 2020, Electrolux, continuing operations, purchased raw materials for approximately SEK 12bn. Purchases of steel accounted for the largest part. ELECTROLUX ANNUAL REPORT 2020 Board of Directors’ report and financial statements 29 key risk that Electrolux is monitoring is the inability to transport finished goods from Electrolux plants to warehouses. A global pandemic like the coronavirus, natural catastrophes, politi- cal unrest or large fires impact global suppliers and the sup- ply chain. This causes manufacturing and delivery disruptions which may impact customers significantly as well as increase costs associated with layoffs, manufacturing adaptation, etc. Electrolux builds and adapts its business continuity plans to address these key risks and also collaborates with selected major suppliers to also monitor some of their major risks. IT and cyber risks The digital transformation of the global economy, and of Electrolux more specifically, leads to great opportunities. As Electrolux uses technology to speed up the transfer of informa- tion, it also creates greater potential risks. Electrolux continu- ously prepares for attacks by assessing its cyber risk profile, remediates where recommended and proactively manages its defence. The coronavirus increased the cyber risks, with most of the Group’s employees working from home. Cyber security con- trol failures have become an emerging risk closely monitored by Electrolux. Specific trainings have been performed to improve awareness. IT failures, for example in key applications or hard- ware, may also have significant impacts on delivery, produc- tion, sales and other critical systems and functions. Electrolux IT constantly monitors these risks. Compliance related risks Electrolux is exposed to sustainability factors such as human rights, employment conditions and corruption. Violation of anti- corruption legislation could lead to large fines or administrative, civil or criminal sanctions. To mitigate these risks, Electrolux has extensive internal governance documents and policies and conducts training for employees. Key people and talents Evolving industry trends and new technologies require new talents in key areas. The inability to attract competences for the future, or a lack of strong succession planning, may impact Electrolux position in the market negatively. An emerging risk for Electrolux is also the inability to attract talents, by not being able to accomodate their post-pandemic work preferences. The Group builds and continuously reviews its talent pipeline and adapt its work conditions to mitigate these risks. 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. Regulatory risks Electrolux is subject to a vast range of regulations, laws and industry standards. As the regulatory landscape evolves, it is important to monitor and mitigate risks related to legal and product regulatory compliance, antitrust, trade rules, contrac- tual risks, protection of IP/Patents, confidential information, Personal Data Protection, insider information etc. Non-com- pliance could lead to sanctions, fines, higher costs or inability to continue manufacturing some products. In addition, the development regarding sustainability ambitions can result in new regulatory requirements. To mitigate these risks, Electrolux has inhouse lawyers, in all business areas as well as centrally, to monitor regulation changes and to attend to compliance mat- ters. Regular training for employees is among the most impor- tant actions. Market risks A financial crisis and an economic downturn may affect con- sumers’ purchasing power and behavior, resulting in a lower market demand that could impact Electrolux sales. Major changes in society, for instance resulting from pandemics, can lead to emerging risks such as changes in consumer behav- ior. To mitigate these risks, Electrolux closely follows market and sales developments and changes in consumer behavior. Electrolux also focuses on an agile manufacturing set-up for fast adaptation to changes in demand. In times of strong market demand, it is also 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. Electrolux markets are also subject to 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. Raw material impact Materials account for a large share of the Group’s costs. Electrolux purchases raw materials and components for approximately SEK 43bn, of which approximately SEK 12bn referred to raw materials in 2020. Fluctuations in commodity prices impact the Group’s input costs and, therefore, its profit- ability. In order to mitigate increases in raw material prices, Electrolux raises prices of its products, improves cost efficiency and negotiates more favorable purchasing contracts for com- modities such as steel and chemicals. Internal risks Supply chain risks The availability of many components depends on suppliers. Their potential interruption or lack of capacity would affect deliveries. Equally important, suppliers of finished goods might affect the Group’s financial result and market shares negatively in case of shortfall in delivery or quality related issues. Another ELECTROLUX ANNUAL REPORT 2020 30 Board of Directors’ report and financial statements The historical development of the Electrolux share has been adjusted to take into account the distribution of Electrolux Professional AB to Electrolux shareholders on March 23, 2020. Share information and ownership According to Monitor by Modular Finance AB, there were 59,401 shareholders in AB Electrolux as of December 31, 2020. Investor AB is the largest shareholder, owning 16.4% of the share capital and 28.4% of the voting rights. Information 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 3.5 3.8 0.7 92.0 100 54,247 4,670 152 332 59,401 91.3 7.9 0.3 0.5 100 Source: Monitor by Modular Finance AB. Compiled and processed data from various sources, including Euroclear, Morningstar and the Swedish Financial Supervisory Authority ( Finansinspektionen) as of December 31, 2020. 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 1% in 2020, underperforming the broader Swedish market index, OMX Stockholm, which increased by 13% during the same period. The opening price for the Electrolux B share in 2020 was SEK 189.64. The highest closing price was SEK 215.30 on November 3, while the lowest closing price was SEK 105.05 on March 23. The closing price for the B share at year-end 2020 was SEK 191.35. Total shareholder return during the year was 4%. Over the past ten years, the average total return on an investment in Electrolux B shares has been 6% annually. The corresponding performance for the OMX Stockholm Return Index was 10%. Share capital and ownership structure As of December 31, 2020, 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 2020. 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 Handelsbanken Funds BlackRock, Inc. Nordea Funds Vanguard AMF Insurance & Funds Didner & Gerge Funds Norges Bank Investment Management Share capital, % Voting rights, % 16.4 28.4 5.8 4.5 3.7 2.6 2.4 2.1 1.9 1.8 1.7 5.9 3.7 3.0 2.1 2.0 1.7 3.9 1.4 1.4 Total, ten largest shareholders 42.9 53.5 Source: Monitor by Modular Finance AB. Compiled and processed data from various sources, including Euroclear, Morningstar and the Swedish Financial Supervisory Authority (Finansinspektionen) as of December 31, 2020. OWNERSHIP STRUCTURE Swedish institutions and mutual funds, 60% Foreign investors, 33% Swedish private investors, 7% At year-end, about 33% of the total share capital was owned by foreign investors. Source: Monitor by Modular Finance AB. Compiled and processed data from various sources, including Euroclear, Morningstar and the Swedish Financial Supervisory Authority (Finansinspektionen) as of December 31, 2020. ELECTROLUX ANNUAL REPORT 2020 Board of Directors’ report and financial statements 31 Distribution of funds to shareholders Distribution of Electrolux Professional In March, 2020, Electrolux Professional AB was distributed to AB Electrolux shareholders and listed on Nasdaq Stockholm. On February 21, 2020, an Extraordinary General Meeting (EGM) decided to distribute all the shares in Electrolux Professional to Electrolux shareholders. Prior to the EGM an information brochure presenting the background and reasons for the proposed split of the Electrolux Group as well as a description of Electrolux Professional’s business was published on the Group’s website on January 31, 2020. On March 10, 2020, a prospectus was published on the Group’s website. Investors, financial analysts and media representatives were invited to Electrolux Professional’s Investor Day, held on March 11, 2020. The last day for trading in shares of Electrolux including the right to receive shares in Electrolux Professional was March 17, 2020. Electrolux shareholders received shares in Electrolux Professional in proportion to their existing shareholding in Electrolux. Each share of series A in Electrolux entitled to one share of series A in Electrolux Professional and each share of series B in Electrolux entitled to one share of series B in Electrolux Professional. Listing and the first day of trading in the shares of Electrolux Professional on Nasdaq Stockholm was March 23, 2020. Dividend 2019 The Board withdrew the dividend proposal ahead of the Annual General Meeting (AGM) in March 2020 due to the situation with the coronavirus . However, after assessing the company's financial postition and the impact of the pandemic, the Board announced in September its proposal to reinstate a dividend for the financial year 2019 of SEK 7.00 per share. This was resolved upon by an Extraordinary General Meeting in November, 2020, and paid in one installment on November 10, 2020. Proposed dividend The Board of Directors proposes a dividend for 2020 of SEK 8.00 (7.00) per share, for a total dividend payment of approximately SEK 2,299m (2,012). The proposed dividend corresponds to approximately 58% of income for the period, continuing opera- tions. Last year's dividend corresponded to approximately 80% of income for the period, total Group (including discontinued operations). The dividend is proposed to be paid in two equal installments, the first with record date March 29, 2021, and the second with record date September 29, 2021. The first installment is esti- mated to be paid on April 1, 2021, and the second installment on October 4, 2021. The Group’s policy is for the dividend to correspond to at least 30% of income for the period. Historically, the Electrolux dividend 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 2021 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. As of December 31, 2020, Electrolux held 21,522,858 B shares in Electrolux, corresponding to approximately 7.0% of the total number of shares in the company. Number of shares Number of shares as of January 1, 2020 8,192,539 300,727,769 308,920,308 21,522,858 287,397,450 Total number of shares as of December 31, 2020 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 8,000 6,000 4,000 2,000 0 Electrolux has a long tradition of high total distribu- tion to share holders. In 2020, Electrolux Professional AB was distributed to AB Electrolux share- holders and listed on Nasdaq Stockholm. 08 09 10 11 12 13 14 15 16 17 18 19 20 Dividend Distribution of Electrolux Professional AB ELECTROLUX ANNUAL REPORT 2020 32 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 2020 to 47,543 (48,652), of whom 1,414 (1,341) were in Sweden. Salaries and remuneration in 2020 amounted to SEK 15,666m (16,318), of which SEK 1,074m (1,339) refers to Sweden. Remuneration guidelines for Group Management The following guidelines were approved by the Annual General Meeting 2020 and apply until the Annual General Meeting 2024 unless any changes are proposed. The guidelines applies to the 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 addi- tion to the board assignment. The Group Management currently comprises ten 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 recommenda- EMPLOYEES1) EMPLOYEES SEKM 60,000 55,000 50,000 45,000 40,000 Average number of employees Net sales per employee The average number of employees decreased to 47,543 (48,652) in 2020. 2.60 2.45 2.30 2.15 2.00 16 17 18 19 20 1) The figures for 2018, 2019 and 2020 are for continuing operations, exclusive of Electrolux Professional. tion of the Remuneration Committee. Remuneration for other members of Group Management is resolved upon by the Remu- neration Committee and reported to the Board of Directors. The Remuneration Committee shall also monitor and evaluate pro- grams 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 pro- grams 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. ELECTROLUX ANNUAL REPORT 2020 Board of Directors’ report and financial statements 33 Following the ‘pay for performance’ principle, variable compen- sation shall represent a significant portion of the total compen- sation opportunity for Group Management. Variable compen- sation 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 install- 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 installment. 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 ELECTROLUX ANNUAL REPORT 2020 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 components of the remuneration and increase and growth rate over time, in the Remuneration Committee’s and the Board of Directors’ basis of decision when evaluating whether the guide- lines and the limitations set out herein are reasonable. 34 Board of Directors’ report and financial statements Remuneration guidelines for Group Management cont. 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 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. 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 sustainability leader in the household durables industry. In 2020, 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. Sustainability reporting 2020 The Group’s sustainability framework – For the Better – comprises of three areas: Better Solutions, Better Company and Better Living. For more sustainability related information, please see the section Sustainability Reporting on page 86–94. The Sustainability Reporting has been prepared in accordance with disclosure requirements set out in the Swedish Annual Accounts Act, chapter 6, paragraph 11. Events after year-end 2020 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 2020. 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. February 1. Electrolux Nomination Committee's proposal for election of board members In preparation for the Electrolux Annual General Meeting on March 25, Electrolux Nomination Committee has decided to propose the re-election of all board members except Kai Wärn, who has declined re-election. Staffan Bohman is proposed to be re-elected as Chairman of the Board of Directors, and Petra Hedengran, Henrik Henriksson, Ulla Litzén, Karin Overbeck, Fredrik Person, David Porter and Jonas Samuelson as Board Members. For more information, visit www.electroluxgroup.com ELECTROLUX ANNUAL REPORT 2020 Board of Directors’ report and financial statements 35 Parent Company income statement Income statement sekm Net sales Cost of goods sold Gross operating income Selling expenses Administrative expenses 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 4 6 9 9 21 10 2020 40,621 –34,106 6,515 –3,582 –2,096 –382 455 7,248 –1,066 6,182 6,637 –36 6,601 –137 6,464 2020 6,464 –85 –1 0 –86 6,378 2019 40,594 –35,020 5,574 –3,314 –2,276 –487 –503 5,424 –888 4,536 4,033 –682 3,351 6 3,357 2019 3,357 11 0 0 11 3,368 The Parent Company comprises 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 2020 amounted to SEK 40,621m (40,594) of which SEK 33,349m (33,113) referred to sales to Group companies and SEK 7,272m (7,481) to external customers. Income after financial items was SEK 6,637m (4,033), including dividends from subsidiar- ies amounting to SEK 6,782m (4,396). Income for the period amounted to SEK 6,464m (3,357). 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 935m (658). Liquid funds at the end of the period amounted to SEK 15,049m, compared to SEK 6,084m at the start of the year. Undistributed earnings in the Parent Company at the end of the period amounted to SEK 19,453m, compared to SEK 22,894m at the start of the year. Dividend payments to shareholders for 2019 amounted to SEK 2,012m. Dividend distri- bution to shareholders of the shares in Electrolux Professional AB amounted to SEK 7,749m corresponding to the book value of the shares at the time of the distribution. 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 2020 36 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, 2020 December 31, 2019 13 12 14 15 17 20 21 22 23 18 18 18 24 1,834 243 545 31,052 33,674 2,502 18,211 1,154 154 135 293 340 — 15,049 37,838 71,512 1,545 3,017 1,162 5,724 12,989 6,464 19,453 25,177 547 440 1,110 1,550 69 13,634 425 14,128 25,415 1,752 489 248 146 259 1,801 30,110 45,788 71,512 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 ELECTROLUX ANNUAL REPORT 2020 Board of Directors’ report and financial statements 37 Parent Company change in equity sekm Opening balance, January 1, 2019 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 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, 2020 Restricted equity Non-restricted equity Statutory reserve Development reserve Fair value reserve Retained earnings Share capital 1,545 — — — — — — — — — — 3,017 875 — — — — — — — — — — — — — — — — — 160 — 160 1,545 3,017 1,035 — — — — — — — — — — — — — — — — — — — — — — — — — — — 127 — 127 1,545 3,017 1,162 60 — 11 0 0 11 11 — — — — 71 — –85 –1 0 –86 –86 — — — — –15 22,018 3,357 — — — — 3,357 51 –160 –2,443 –2,552 22,823 6,464 — — — — 6,464 69 –127 –9,7611) –9,819 19,468 Total equity 27,515 3,357 11 0 0 11 3,368 51 — –2,443 –2,392 28,491 6,464 –85 –1 0 –86 6,378 69 — –9,761 –9,692 25,177 1) Dividend payment to shareholders SEK 2,012m and distribution of Electrolux Professional AB SEK 7,749m. ELECTROLUX ANNUAL REPORT 2020 38 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 2020 2019 6,637 401 760 69 82 –103 7,846 536 –602 4,619 58 605 5,216 13,062 –40 –575 –360 115 –860 12,202 — –566 –5,855 9,785 –4,503 –2,012 –3,151 9,051 6,084 –86 15,049 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 ELECTROLUX ANNUAL REPORT 2020 Notes 40 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 Leases Note 9 Financial income and financial expenses Note 10 Taxes Note 11 Other comprehensive income Note 12 Property, plant and equipment, owned 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 Note 18 Financial instruments Note 19 Assets pledged for liabilities to credit institutions 57 61 Note 20 Share capital, number of shares and earnings per share 62 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 62 63 67 67 68 69 71 74 74 75 76 77 78 41 43 45 47 48 49 49 50 51 51 52 53 54 55 56 56 56 AB Electrolux (publ), 556009-4178 ELECTROLUX ANNUAL REPORT 2020 Notes 41 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 17, 2021. The balance sheets and income statements are subject to approval by the Annual General Meeting of shareholders on March 25, 2021. 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 com- panies 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, any retained interest in the entity is remeasured at its fair value, with the change in carrying amount recognized in profit or loss. At year-end 2020, the Group consisted of 133 (187) companies with 184 (264) operating units. ELECTROLUX ANNUAL REPORT 2020 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 measured at year-end exchange rates and any exchange-rate differ- ences are included in income for the period, except when deferred in other comprehensive 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 average 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 2020 2019 Average 0.1320 6.34 1.81 6.84 9.77 End of period 0.0973 6.28 1.58 6.41 9.26 Average 0.2010 6.57 2.40 7.10 9.50 End of period 0.1558 6.53 2.31 7.14 9.60 0.0116 0.0115 0.0133 0.0125 1.33 10.48 11.83 0.0298 0.4317 0.1275 0.2938 9.18 1.25 10.06 11.14 0.0276 0.4126 0.1095 0.2735 8.19 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 New or amended accounting standards applied in 2020 The following new, amended or improved accounting standards were applicable from January 1, 2020: IFRS 3 Business Combinations (endorsed by the EU April 21, 2020); IAS 1 and IAS 8: Definition of material (endorsed by the EU on November 29, 2019); and IFRS 16 Leases (endorsed by the EU on October 9, 2020). Amendments to IFRS 9, IAS 39 and IFRS 7 under the Interest Rate Benchmark Reform (endorsed by the EU on January 15, 2020 ) were early adopted by the Group from 2019. The new, amended or improved standards did not have any material impact on Electrolux financial statements. New or amended accounting standards to be applied after 2020 The following new, amended or improved accounting standards have been published but are not mandatory for 2020 and have not been early adopted by Electrolux: IFRS 17 Insurance Contracts; IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current ; IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets; Annual Improve- ments 2018-2020; IFRS 4 Insurance Contracts – deferral of IFRS9 (endorsed by the EU on December 15, 2020); Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 (endorsed by the EU on January 13, 2021). 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. 42 Notes All amounts in SEKm unless otherwise stated Cont. Note 1 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, being the higher of fair value less costs of disposal and value in use. Impairment charges are recorded when the information shows that the carrying amount of an asset is not recoverable. In many cases, market value is not 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 may result 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, 15 years for 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 2020 amounted to SEK 20,452m. The carrying amount for goodwill at year-end 2020 amounted to SEK 6,369m. 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, 2020, Electrolux had a net amount of SEK 6,064m recognized as deferred tax assets in excess of deferred tax liabilities. As of December 31, 2020, the Group had tax loss carry-forwards and other deductible temporary differences of SEK 4,305m, which have not been included in the computation of deferred tax assets. Current taxes Electrolux estimates regarding 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 pos- sible 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. A sensitivity analysis is presented in Note 17. At year-end 2020, trade receivables, net of provisions for expected credit losses, amounted to SEK 19,944m. The total provision for expected credit losses at year-end 2020 was SEK 698m. 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 dis- count rates, mortality rates, as well as future salary and pension increases. The calculation of the pension obligation also depends on the discount rate. Changes in assumptions directly affect the defined benefit obligation, service cost, interest income and expense. The discount rate used for the calculation of expenses during 2020 was 1.87% in average, which was the same rate used to estimate liabilities at the end of 2019. 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 2020 was SEK 1,486m. 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, 2020, Electrolux had a provision for warranty commitments amounting to SEK 2,039m. 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 that shall or can 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. 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 Accounts Act. One of the companies operating on a commission basis for AB Electrolux has euro as its functional currency. 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. ELECTROLUX ANNUAL REPORT 2020 Notes 43 All amounts in SEKm unless otherwise stated 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 in accordance with the exemption in RFR2, i.e. right-of-use assets and lease liabilities are not reported in the balance sheet. The leasing fee is recog- nized as an expense on a straight-line basis over the lease period. Critical judgements and uncertainties Valuation of shares in subsidiaries is an area involving judgement and/or uncertainties for the Parent Company, in addition to the applicable critical accounting policies and key sources of estimation presented for the Group. 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. Cont. Note 1 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 the exemption in RFR2. According to RFR2, 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 statements recognize a development reserve in compliance with the 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. 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: • Liquidity risk from the Group’s liquidity requirements • 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 Comparative information regarding risks described and quantified in this note are for total Group, including discontinued operations, unless other- wise 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. The Group seeks to minimize the effects of these risks by using derivatives to hedge the exposures. The Group’s Financial Policy governs the use of financial derivatives and provide principles for the management of 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. Policy compliance is reported on a monthly basis by Group Treasury to the Board of Directors. Liquidity risk Liquidity risk is defined as the risk of the Group not being able to meet its payment obligations due to lack of liquidity or due to the inability to convert assets into liquidity without incurring a loss. Liquid funds as defined by the Group consist of cash and cash equiva- lents, short-term investments, financial derivative assets, prepaid inter- est expenses and accrued interest income. Electrolux Financial Policy stipulates that the level of liquid funds including unutilized committed credit facilities shall correspond to at least 2.5% of annualized net sales, at year- end 2020 this level was 40.6% (18.4). 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. At year-end 2020 the Group had net liquid funds of SEK 18,864m (7,569), well above target. Liquid funds shall be deposited in bank accounts or invested in instruments with high liquidity and issued by creditworthy issuers. See separate section “Credit risk in financial activities” within this note. The liquidity risk is considered low at the end of 2020 given the size of liquid funds available. 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. Interest-rate risk in liquid funds Liquidity is either deposited in bank accounts or invested in 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 inter- est income by approximately SEK 194m (113). For more information, see Note 18. Interest-rate risk in 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. 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 changing the interest from fixed to floating or vice versa. For those derivatives Electrolux practice hedge accounting, which have affected other comprehensive income by SEK –2m (–0) during 2020. On the basis of 2020 long-term interest-bearing borrowings with an average interest fixing period of 1.6 years (1.5), a one percentage point shift in interest rates would impact the Group’s interest expenses by approximately SEK +/–78m (69). This calculation is based on a parallel shift of all yield curves simultaneously by one percentage point. 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. The Group’s exposure to the reform of IBOR-rates is limited. At year-end 2020, the Group had one floating rate loan denominated in USD maturing after the indicated USD LIBOR cessation date, see Note 18. 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, 2020, the Group’s capital amounted to SEK 18,709m (22,574). The Group’s objective is to have a capi- tal structure resulting in an efficient weighted cost of capital and sufficient ELECTROLUX ANNUAL REPORT 2020 44 Notes All amounts in SEKm unless otherwise stated Cont. Note 2 credit worthiness where operating needs and the needs for potential acqui- sitions 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 rating within a safe margin from a non-investment grade. In December 2020, S&P Global Ratings confirmed the Group’s rating as shown in the table below. Rating Long-term debt Outlook Short- term debt Short-term debt, Nordic 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 +/– 580m (420), as a static calculation. The model assumes the distribu- tion of earnings and costs effective at year-end 2020 and does not include any dynamic effects, such as changes in competitiveness or consumer behavior arising from such changes in exchange rates. S&P Global Ratings A- Stable A–2 K–1 Sensitivity analysis of major currencies When monitoring the capital structure, the Group uses different key figures, which are consistent with methodologies used by rating agencies and banks. The Group manages the capital structure and makes adjustments to adapt to changes in economic conditions. In order to maintain or adjust the capital structure, the Electrolux Board of Directors may propose to adjust dividends paid to shareholders, return capital to shareholders, buy back own shares, 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 even spread of maturities. The average time to maturity shall be at least 2 years and a maximum of SEK 5,000m of the long-term borrowings may mature during a 12-month period. In March 2020, to ensure financial flexibility and to mitigate the potential impact from the coronavirus pan- demic, the Board of Directors approved a temporary exception from the long-term borrowing limits. 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 hedges these risks within the framework of the Financial Policy. Electrolux uses external loans denominated in foreign currencies as well as various derivatives to facilitate internal lending and to manage the foregn exchange exposure for the Group. 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 is, in most cases, 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 33m (–9) during 2020. 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 deriva- tives. 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. 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, Risk Currency AUD/SEK BRL/SEK GBP/SEK CAD/SEK CHF/SEK RUB/SEK THB/SEK CNY/SEK EUR/SEK USD/SEK Change Profit or loss impact 2020 Profit or loss impact 2019 –10% –10% –10% –10% –10% –10% –10% –10% –10% –10% –356 –334 –242 –242 –207 –131 185 199 471 866 –309 –582 –285 –272 –206 –164 178 261 410 1,248 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 –104m (–1) during 2020. 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 +/– 2,864m (3,719), as a static calculation at year-end 2020. There were no outstanding net investment hedges at year-end 2020, why a similar valuation of outstanding net investment hedges in 2020, would have an effect on the Group’s equity of approximately SEK +/– 0m (261). 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 +/– 600m (850) and in plastics with approximately SEK +/– 350m (650), based on volumes in 2020. 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 allowable 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. S&P Global Ratings 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 counterparts 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 credit risk from external financial activities is not material. ELECTROLUX ANNUAL REPORT 2020 Notes 45 All amounts in SEKm unless otherwise stated Credit risk in trade receivables Electrolux sells to a substantial number of customers in the form of large retailers, buying groups and independent stores. 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 performed 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 creditrisk 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 geographical areas. However, there is a concentration 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 coun- terparty did not exceed 8.4% (6.4) 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. Europe North America Latin America Asia-Pacific, Middle East and Africa Net sales Operating income 2020 2019 46,038 45,420 38,219 38,954 16,915 19,653 14,788 14,954 115,960 118,981 2020 3,643 1,215 666 1,038 6,562 2019 2,493 –516 1,821 446 4,244 Group Common costs — — –783 –1,055 Total Financial items, net Income after financial items 115,960 118,981 — — — — 5,778 –681 5,096 3,189 –733 2,456 Inter-segment sales exist with the following split: Europe North America Latin America Asia-Pacific, Middle East and Africa Eliminations 2020 2019 1,256 1,270 267 627 1 1 1,205 818 2,729 2,716 Cont. Note 2 Impact from netting agreements on gross exposure from derivatives Gross amount Impact of netting agreements Net position Change December 31, 2020 Interest and currency risk derivatives reported as assets Interest and currency risk derivatives reported as liabilities December 31, 2019 Interest and currency risk derivatives reported as assets Interest and currency risk derivatives reported as liabilities 135 –111 24 83% 332 –111 221 33% 193 –132 61 68% 293 –132 161 45% However, since Group Treasury manage a majority of the subsidiary financ- ing through internal loans from the Parent Company, there is a material credit risk originating from internal loans. The Parent Company calculates expected credit losses (ECL) from net lending to its subsidiaries. The model defines if it is the entity, or the country where the entity is situated, that accounts for the primary source of credit risk. The credit risk is translated into a probability of default factor based on S&P Global Ratings historic values. The net lending exposure is multiplied by the probability of default and a loss given default to result in the ECL of the subsidiary. The model allows for a management overlay to adjust the ECL provision, if management possesses information that qualifies for such an adjustment. Management overlay takes forward looking factors into consideration. The opening expected credit loss provision in the Parent Company for 2020 amounted to SEK 86m (72) primarily originating from internal loans to Latin America. The closing expected credit loss provision in the Parent Company amounted to SEK 128m (86), mainly due to increased provision for loans to Argentina. ECL provision for loans made to companes with a minority shareholding amounted to SEK 9m (0). To reduce the settlement risk in foreign exchange transactions done with banks, Group Treasury uses Continuous Linked Settlement (CLS). CLS elimi- nates temporary settlement risk since both legs of a transaction are settled simultaneously. Note 3 Segment information Reportable segments – Business areas The Group’s operations are divided into four reportable segments: Europe; North America; Latin America and Asia-Pacific, Middle East and Africa. The Professional Products business area was classified as discontinued opera- tions as of December 5, 2019 and is presented in Note 26. 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 cleaners 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 management activities typically required to run the Electrolux Group. Sales between segments are made on market conditions with arm’s- length principles. ELECTROLUX ANNUAL REPORT 2020 46 Notes All amounts in SEKm unless otherwise stated Cont. Note 3 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 Other1) Continuing operations Discontinued operations Liquid funds Total borrowings Lease liabilities Pension assets and liabilities Equity Total Group 1) Includes common functions, tax items. Europe North America Latin America Asia-Pacific, Middle East and Africa Other3) Acquisitions/Divestments Financial items paid Taxes paid Continuing operations Discontinued operations Total Group 1) Depreciation related to right-of-use assets: SEK 876m (876). 2) Cash flow from operations and investments. 3) Includes Group functions. 2020 25,796 20,667 11,190 11,414 8,798 77,865 — 20,467 — — 1,272 — 2019 28,032 22,917 14,064 12,351 9,175 86,540 8,034 11,189 — — 1,043 — 99,604 106,808 Depreciation and amortization1) 2020 1,595 1,363 533 738 358 — — — 4,587 — 4,587 2019 1,693 1,391 694 751 291 — — — 4,821 283 5,104 2020 24,390 14,582 6,663 7,418 4,546 57,599 — — 2019 26,604 16,421 7,020 6,289 4,033 60,368 3,951 — 15,727 11,856 2,618 4,951 18,709 99,604 3,150 4,909 22,574 106,808 2020 1,406 6,086 4,526 3,996 4,252 2019 1,429 6,496 7,044 6,062 5,142 20,265 26,172 — — — — — — — Capital expenditure Cash flow2) 2020 2,155 1,772 665 562 183 — — — 5,338 — 5,338 2019 2,399 2,573 956 456 290 — — — 6,674 257 6,931 2020 3,551 965 1,577 2,551 –92 –8 –596 –1,132 6,816 — 6,816 — — — — — — — 2019 2,716 –1,795 961 1,035 –638 –27 –656 –1,277 321 431 751 Tangible and intangible fixed assets located in the Group’s country of domi- cile, Sweden, amounted to SEK 2,164m (2,277). Tangible and non-tangible fixed assets located in all other countries amounted to SEK 30,488m (33,224). Individually, material countries in this aspect are Italy with SEK 3,707m (4,104), USA with SEK 9,164m (10,749) and Poland with SEK 2,508m (2,717), respectively. No single customer of the Group represents 10% or more of the external revenue. Geographical information USA Brazil Germany Australia France Sweden (country of domicile) United Kingdom Canada Italy Switzerland Other Total Net sales1) 2020 2019 35,001 35,920 12,133 14,154 6,105 5,461 4,058 4,031 3,708 3,343 3,202 3,192 6,056 4,785 3,995 3,968 3,928 3,227 3,702 2,869 35,726 36,377 115,960 118,981 1) Revenues attributable to countries on the basis of customer location. ELECTROLUX ANNUAL REPORT 2020 Notes 47 All amounts in SEKm unless otherwise stated 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 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 115,960m (118,981) dur- ing the year consisted of product sales. Revenue from service activities amounted to SEK 1,797m (1,954). The Group’s net sales in Sweden amounted to SEK 4,031m (3,968). Exports from Sweden during the year amounted to SEK 37,099m (35,419), of which SEK 33,045m (32,488) were to Group subsidiaries. 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. Note 4 Revenue recognition Revenue recognition Electrolux manufactures and sells appliances mainly in the whole- sale market to customers being retailers. Electrolux products include refrigerators, dishwashers, washing machines, cookers, vacuum cleaners, air conditioners and small domestic appliances. 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 satisfied. In general, types of performance obligations that may occur are products, spare parts, installation, service and support and education. 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. ELECTROLUX ANNUAL REPORT 2020 48 Notes All amounts in SEKm unless otherwise stated Cont. Note 4 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. Electrolux has four business areas with focus on the consumer market. Sales of services are not material in relation to Electrolux total net sales. Geography and product category are considered important attributes when disaggregating Electrolux revenue. The business areas, also being the Group’s segments, are based on geography: Europe, North America, Latin America and Asia-Pacific, Middle East and Africa. In addition, the table below presents net sales by product area Taste (cooking appliances), Care (dish and laundry appliances) and Wellbeing (e.g. cleaning appliances and small domestic appliances). Disaggregation of revenue 2020 2019 2020 2019 Group Parent Company Product Areas Taste Care Wellbeing Total 70,593 72,424 20,870 20,958 34,298 34,593 16,591 16,602 11,069 11,964 3,160 3,034 115,960 118,981 40,621 40,594 The table below presents the opening and closing balances of contract liabilities as well as movements during the years. 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 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 Closing balance, December 31, 2020 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 1,394 — –1,307 –5 6 3 –17 139 4,656 23,907 –22,747 — –463 — –26 152 –54 5,425 19,911 –18,438 — –444 5 –192 –572 5,696 184 289 — –227 –4 3 — 7 –35 217 223 — –204 –9 — –5 –22 200 139 273 — –7 –3 — — 3 –107 298 59 — –2 –9 — –6 –21 319 5,093 25,743 –22,747 –1,447 –475 3 –26 166 –305 6,005 21,588 –18,438 –1,513 –467 11 –200 –632 6,354 For the Parent Company contract liabilities amounted to SEK 248m (285). 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 Total 2020 2019 41,740 16,082 4,587 50,092 14,615 4,821 19,075 28,699 19,756 26,508 110,183 115,792 Operating expenses Cost of goods sold includes direct material and components amounting to SEK 41,740m (50,092) and sourced products amounting to SEK 16,082m (14,615). The depreciation and amortization charge for the year amounted to SEK 4,587m (4,821). Costs for research and development amounted to SEK 3,575m (3,462). Government grants relating to expenses have been deducted in the related expenses by SEK 267m (82). The increase for the year is mainly related to measures due to the coronavirus. 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 2020, amounted to SEK 651m (828). The Group’s operating income includes net exchange-rate differences in the amount of SEK –160m (–12). The Group’s Swedish factories accounted for 0.2% (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. ELECTROLUX ANNUAL REPORT 2020 Notes 49 All amounts in SEKm unless otherwise stated Note 6 Other operating income and expenses Note 7 Material profit or loss items in operating income Other operating income 2020 2019 2020 2019 Group Parent Company Gain on sale of property, plant and equipment Pension plan amendment Recovery of overpaid sales tax Reversal of restructuring provision Other Total 78 — 73 — 148 299 98 98 1,403 150 275 2,024 — — — — — — — — — — 0 0 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 Group Parent Company No material items have been identified in 2020. Other operating expenses 2020 2019 2020 2019 Loss on sale of property, plant and equipment Asbestos litigation Electrolux Professional separation project & listing costs Loss on sale of operations and shares Legal expenses Impairment Other Total — –20 –68 –142 –22 –190 — –259 –108 –197 –606 — –197 — –371 –968 –7 — — — — — — — –37 — –375 –450 — — –382 –487 Other operating income and expenses, net –307 1,057 –382 –487 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 common cost, a legal settlement in the U.S. and recovery of overpaid sales tax in Brazil. Material profit or loss items Restructuring charge Recovery of overpaid sales tax Legal settlement U.S. Total Effect from material profit or loss items by function Cost of goods sold Selling expenses Administration expenses Other operating income and expenses Total 2020 2019 — –2,550 — — 1,403 –197 — –1,344 2020 2019 — –1,938 — — — –69 –543 1,206 — –1,344 ELECTROLUX ANNUAL REPORT 2020 50 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 liabilities 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 exer- cise of a purchase option, in which case the lease liability is remeasured 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 arrange- ment. In determining the lease term, extension options are only included if it is determined as reasonably certain to extend, being subject to continuous re-assessment. 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 circum- stances 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 Group 2020 6 –13 –49 –189 –876 20191) 5 –56 –55 –173 –876 Total lease expenses in operating income –1,127 –1,159 Lease liability interest expense –108 –124 1) 2019 adjusted due to discontinued operations. Total cash outflow for lease contracts amounts to SEK 1,270m (1,278) for the year. The calculated average lease interest rate for the year was 3.7% (3.8). Lease commitments related to leases not yet commenced per December 31 amount to SEK 36m (111). Maturity profile of lease liabilities is presented in Note 18. For the Parent Company, lease expenses for the year amounted to SEK 118m (116) and future lease payment obligations at year end amount to SEK 502m (539). The most relevant lease agreement for the Parent company is the office rental agreement regarding Electrolux headquarters in Stockholm. ELECTROLUX ANNUAL REPORT 2020 Cont. Note 8 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 Acquisition of operations Additions Cancellations Depreciation Exchange rate differences Closing balance, December 31, 2020 Notes 51 All amounts in SEKm unless otherwise stated Land Buildings Machinery Other equipment 6 — 0 0 –1 0 –0 5 — 4 — –1 –1 7 2,571 29 589 –126 –678 86 –182 2,289 12 384 8 –622 –208 1,864 41 — 42 –7 –22 1 –12 42 — 15 0 –15 –2 40 511 2 254 –11 –253 15 –43 476 — 246 –7 –238 –36 440 Total 3,128 30 885 –144 –953 102 –238 2,811 12 649 0 –876 –246 2,351 Note 9 Financial income and financial expenses Note 10 Taxes Financial income Interest income from subsidiaries from others Dividends from subsidiaries Other financial income Total 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 items, net Group Parent Company 2020 2019 2020 2019 — 74 — — 74 — –363 –108 –41 –70 –173 –755 –681 — 69 — — 69 442 1,013 3 0 6,782 4,396 21 15 7,248 5,424 — –367 –124 –41 –72 –198 –802 –733 –96 –313 –307 –251 — — –472 –185 –1,066 — — –151 –179 –888 6,182 4,536 Interest expenses to others, for the Group and Parent Company, include gains and losses on derivatives used for managing the Group’s interest fixing. For information on financial instruments, see Note 18. For more information on post-employment benefits, see Note 22. 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 2020 2019 2020 –1,283 –1,017 175 382 –1,108 –636 — 2 –314 27 0 –22 –22 — 0 –1,106 –923 –22 2019 –121 127 6 — — 6 Deferred taxes 2020 include an effect of SEK –11m (–11) due to changes in tax rates. The consolidated accounts include deferred tax liabilities of SEK 113m (89) related to untaxed reserves in the Parent Company. Theoretical and actual tax rates Group Parent Company % 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 2020 24.7 2019 31.1 2020 21.4 2019 21.4 –0.8 2.2 –20.5 –23.5 1.1 0.9 –1.6 –0.9 –4.3 1.9 0.7 21.7 –7.0 5.3 –5.7 25.9 — — 0.1 1.6 –0.4 2.1 — — 0.3 2.0 –0,5 –0.2 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. Non-taxable/non-deductible items in the Parent Company are mainly related to dividends from subsidiaries. Non-recognized deductible temporary differences As of December 31, 2020, the Group had tax loss carry-forwards and other deductible temporary differences of SEK 4,305m (4,971), 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. ELECTROLUX ANNUAL REPORT 2020 52 Notes All amounts in SEKm unless otherwise stated Cont. Note 10 The non-recognized deductible temporary differences will expire as follows: 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: Group 2020 2019 29 189 –46 172 129 –103 3 29 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 –18 –1 33 14 –8 –14 4 –18 Exchange differences on translation of foreign operations Opening balance, January 1 Net investment hedge Translation differences Transferred to profit and loss, discontinued operations Closing balance, December 31 –104 –3,150 –72 –1,261 –2,291 –1 1,030 — –4,588 –1,261 Income tax relating to items that may be reclassified Opening balance, January 1 Cash flow hedges Net investment hedges Closing balance, December 31 Non-controlling interests, translation differences –68 –7 55 –19 0 Other comprehensive income, net of tax –3,102 –91 2 22 –68 0 944 Income taxes affecting other comprehensive income during the year amounted to a total of SEK 2m (26) of which SEK –46m (3) related to remeasurement of provisions for post-employment benefits and SEK 48m (24) related to financial instruments for hedging. Non-recognized temporary differences 2020 2021 2022 2023 2024 2025 And thereafter Without time limit Total December 31 2020 n/a 26 31 34 90 56 813 3,255 4,305 2019 56 61 31 12 120 n/a 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 Tax credits 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 2020 2019 333 913 270 780 95 452 521 2,760 1,431 340 861 308 734 94 587 1,148 2,512 1,556 8,140 7,554 –1,490 –1,522 6,618 6,064 949 84 250 684 890 78 327 676 1,971 1,967 –1,490 –1,410 561 476 Deferred tax assets and liabilities, net 5,588 6,057 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 operations Recognized in other comprehensive income Acquisitions of operations Exchange rate differences Discontinued operations 2020 2019 6,057 5,580 — 90 6,057 5,670 175 382 — –25 35 –654 100 3 –14 122 — –206 Deferred tax assets and liabilities, net closing balance 5,588 6,057 As per December 31, the Parent Company reported deferred tax assets amounting to SEK 545m (579) which mainly relate to unused tax losses carried forward, pensions and restructuring provisions. ELECTROLUX ANNUAL REPORT 2020 Notes 53 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 • Land improvements • Buildings • Machinery and technical installations • Other equipment No depreciation 0–15 years 10–40 years 3–15 years 3–10 years Group Acquisition costs Opening balance, January 1, 2019 Acquired during the year Acquisition of operations Transfers and reclassifications Sales, scrapping, etc. Exchange–rate differences Discontinued operations Closing balance, December 31, 2019 Acquired during the year Acquisition of operations Transfers and reclassifications Sales, scrapping, etc. Exchange-rate differences Closing balance, December 31, 2020 Accumulated depreciation Opening balance, January 1, 2019 Depreciation for the year Transfers and reclassifications Sales, scrapping, etc. Impairment Exchange-rate differences Discontinued operations Closing balance, December 31, 2019 Depreciation for the year Transfers and reclassifications Sales, scrapping, etc. Impairment Exchange-rate differences Closing balance, December 31, 2020 Net carrying amount, December 31, 2019 Net carrying amount, December 31, 2020 Land and land improvements Buildings Machinery and technical installations Other equipment Plants under construction and advances Total 1,532 59 3 37 –40 58 –142 1,506 1 — 43 –71 –146 1,334 303 29 11 –39 4 10 –11 307 27 0 –12 — –37 284 1,200 1,050 11,114 208 3 136 –318 385 –844 10,683 217 8 887 –102 –1,279 10,414 5,325 366 –11 –285 278 168 –337 5,504 360 82 –93 –2 –594 5,257 5,179 5,158 41,156 1,250 6 2,331 –2,143 1,076 –1,903 41,774 963 0 1,999 –1,867 –4,894 37,974 32,032 2,579 –24 –2,019 557 799 –1,516 32,409 2,213 –69 –1,760 –51 –3,643 29,098 9,365 8,876 3,161 255 2 99 –432 78 –235 2,927 184 0 160 –213 –261 2,797 2,536 297 18 –242 –152 58 –179 2,336 287 –13 –200 — –200 2,210 591 587 4,752 3,789 0 –2,605 –82 127 –134 5,847 2,959 — –3,001 –7 –679 5,119 431 0 4 0 –74 19 –1 379 0 0 1 3 –45 338 5,468 4,781 61,715 5,562 13 –3 –3,016 1,724 –3,258 62,737 4,325 9 88 –2,260 –7,259 57,639 40,627 3,271 –2 –2,585 613 1,054 –2,044 40,935 2,886 0 –2,064 –50 –4,520 37,187 21,803 20,452 Total net impairment in 2020 was SEK –2m (282) on buildings and land, and SEK –51m (405) on machinery and other equipment and SEK 3m (–74) on plants under construction. The majority of the impairment relates to the business areas Europe, North America and Latin America. Parent Company Acquisition costs Opening balance, January 1, 2019 Acquired during the year Transfer of work in progress and advances Sales, scrapping, discontinued operations etc. Exchange-rate differences Closing balance, December 31, 2019 Acquired during the year Transfer of work in progress and advances Sales, scrapping, etc. Exchange-rate differences Closing balance, December 31, 2020 Accumulated depreciation Opening balance, January 1, 2019 Depreciation for the year Sales, scrapping, discontinued operations etc. Exchange-rate differences Closing balance, December 31, 2019 Depreciation for the year Sales, scrapping, etc. Exchange-rate differences Closing balance, December 31, 2020 Net carrying amount, December 31, 2019 Net carrying amount, December 31, 2020 ELECTROLUX ANNUAL REPORT 2020 Land and land improvements Buildings Machinery and technical installations Other equipment Plants under construction and advances 1 — — — — 1 — — — — 1 1 — — — 1 — — — 1 0 0 1 — — — — 1 — — — — 1 1 — — — 1 — — — 1 0 0 68 0 9 — 1 78 297 28 –187 –3 213 63 5 — 1 69 38 –5 –3 99 9 114 462 5 14 –43 1 439 15 33 –4 –3 480 354 27 –37 1 345 30 0 –2 373 94 107 31 35 –23 –5 0 38 48 –61 –2 –1 22 0 — — — 0 — — — 0 38 22 Total 563 40 0 –48 2 557 360 0 –193 –7 717 419 32 –37 2 416 68 –5 –5 474 141 243 54 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 accumulated 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, 2020, had a total carrying value of SEK 6,369m. 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 of 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 sales growth and gross margin. These figures are set in relation to historic figures and external reports on market development. 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 2020 were within a range of 9.5% (8.9) to 14.8% (14.0). 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 7.5 to 12.8%. 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 forecasted 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 Total 2020 2019 Goodwill Electrolux trademark Discount rate, % Goodwill Electrolux trademark Discount rate, % 434 1,458 978 3,499 6,369 — 410 — — 410 9.5 9.7 14.8 11.3 449 1,662 1,093 3,867 7,071 — 410 — — 410 9.1 8.9 14.0 10.8 ELECTROLUX ANNUAL REPORT 2020 Cont. Note 13 Goodwill and other intangible assets Acquisition costs Opening balance, January 1, 2019 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 Acquired during the year Acquisition of operations Internally developed Reclassification Fully amortized Sales, scrapping etc. Exchange-rate differences Closing balance, December 31, 2020 Accumulated amortization Opening balance, January 1, 2019 Amortization for the year Reclassification Fully amortized Impairment Sales, scrapping etc. Exchange-rate differences Discontinued operations Closing balance, December 31, 2019 Amortization for the year Reclassification Fully amortized Impairment Sales, scrapping etc. Exchange-rate differences Closing balance, December 31, 2020 Carrying amount, December 31, 2019 Carrying amount, December 31, 2020 Notes 55 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. 8,239 — 3841) — — — — 269 –1,821 7,071 — 13 — — — — –715 6,369 — — — — — — — — — — — — — — — — 7,071 6,369 3,574 3,418 2,734 9,726 3,810 — — 797 –2 –103 –138 75 –107 4,096 — — 563 –40 –1,719 –62 –395 2,443 2,548 392 — –103 56 –61 46 –60 2,818 339 –6 –1,719 — –58 –225 1,149 1,278 1,294 363 — 208 5 –308 –248 47 –10 3,475 177 — 272 –48 –743 –130 –255 2,748 2,118 248 2 –308 1 –69 25 –5 2,012 319 6 –743 –1 –61 –123 1,409 1,463 1,339 — 35 — — — — 37 –454 2,352 1 — — — –7 — –179 2,167 1,141 240 — — 13 — — –118 1,276 167 — –7 — — –116 1,320 1,076 847 363 35 1,005 3 –411 –386 159 –571 9,923 178 — 835 –88 –2,469 –192 –829 7,358 5,807 880 2 –411 70 –130 71 –183 6,106 825 0 –2,469 –1 –119 –464 3,878 3,817 3,480 140 — 538 — –216 –545 19 — 3,746 — — 575 — –604 –194 –51 3,472 2,096 270 — –216 — –182 6 — 1,974 333 — –604 — –41 –24 1,638 1,772 1,834 1) Including adjustments of provisional values within the measurement period related to acquisitions with a value of SEK 8m for 2019. Included in the item Other are trademarks of SEK 610m (690) and customer relationships etc. amounting to SEK 237m (386). Amortization of intangible assets is included within Cost of goods sold with SEK 330m (454), Administrative expenses with SEK 272m (123) and Selling expenses with SEK 223m (237) in the income statement. For discontinued operations amortization of intangible assets is included with SEK 0m (66) in the income statement. Electrolux did not capitalize any borrowing costs during 2020 or 2019. Note 14 Other non-current assets Group December 31 Parent Company December 31 2020 2019 2020 2019 — — — — — — 878 878 1,486 1,486 29,401 37,515 256 241 1,367 1,480 28 32 31,052 39,268 Shares in subsidiaries Participations in other companies Long-term receivables in subsidiaries Other receivables Total ELECTROLUX ANNUAL REPORT 2020 For Group, ‘Other receivables’ include mainly recoverable import duties and long-term operational tax credits. See Note 29 for information on the major subsidiaries held by the Par- ent Company. A detailed specification of the Parent Company’s shares in subsidiaries has been submitted to the Swedish Companies Registration Office and is available upon request from AB Electrolux Investor relations. Write-downs due to obsolescence amounted to SEK 60m (303) for the Provision, January 1 56 Notes All amounts in SEKm unless otherwise stated Note 15 Inventories Raw materials Products in progress Finished products Advances to suppliers Total Group December 31 Parent Company December 31 2020 2019 2020 2019 2,894 3,032 299 289 — — — — 9,994 12,854 2,502 3,038 26 19 — — 13,213 16,194 2,502 3,038 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. The cost of inventories recognized as expense and included in Cost of goods sold amounted to SEK 79,156m (87,649) for the Group and SEK 34,106m (35,020m) for the Parent Company. Group and SEK 0m (48m) for the Parent Company. Reversals of previous write-downs, due to inventories either scrapped or sold, amounted to SEK 161m (200) for the Group and SEK 47m (0m) for the Parent Company. The amounts have been included in the item Cost of goods sold in the income statements. 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 Group December 31 2020 950 198 2019 1,012 946 1,776 1,530 –85 989 –97 1,057 18 17 Note 17 Trade receivables Group Parent Company 2020 2019 2020 2019 Trade receivables 20,642 21,729 1,171 Provision for expected credit losses –698 –882 –17 Trade receivables, net 19,944 20,847 1,154 574 –22 552 income statement within selling expenses. The expected loss calculation is based on historical data and is adjusted through a management overlay which considers forward looking analysis, including macroeconomic fac- tors impacting the different customer segments and more specific factors such as signs of bankruptcy, 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 receiv- ables 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%. The percentages for ECL are under continuous reassessment. There is no significant impact on provisions from changes in the forward looking factors. If the expected credit loss rates on trade receivables between 16 and 60 days past due had been 10% higher/lower as of December 2020, the loss allow- ance on trade receivables would have increased/decreased SEK 2.3m (0.9). If the expected credit loss rates on trade receivables between 61 and 180 days past due had been 10% higher/lower as of December 2020, the loss allowance on trade receivables would have increased/decreased SEK 4.1m (3.9). Provision for accounts receivable Acquisition of operations New/released provisions Receivables written off against provision Exchange-rate differences and other changes Discontinued operations Provision, December 31 Group Parent Company 2020 –882 — –341 2019 –935 –1 –50 426 65 99 — –27 66 2020 –22 — 4 1 0 — 2019 –38 — 14 2 — — –698 –882 –17 –22 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 Amer- ica and Europe. Receivables concentrated to customers with credit limits amounting to SEK 300m or more represent 40.7% (33,5) of the total trade receivables. The creation and usage of provisions for impaired receivables have been included in selling expenses in the income statement. Timing analysis of trade receivables past due Group Parent Company 2020 20191) 2020 Total trade receivables past due, whereof: 1,203 1,753 Past due 1 - 15 days Past due 16 - 60 days Past due 2 – 6 months Past due 6 –12 months Past due more than 1 year Provision on expected credit loss 491 253 265 194 0 698 411 595 486 135 126 882 21 21 0 0 0 0 17 Total trade receivables 20,642 21,729 1,171 Past due, in relation to trade receivables, % 9.2 12.1 3.2 3.8 2019 552 0 0 0 0 0 0 22 574 Total 3,846 4,465 Trade receivables not past due 18,741 19,094 1,133 Provisions in relation to trade receivables, % 3.4 4.1 1,5 3.8 1) 2019 has been updated due to reclassification. Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less pro- vision for expected credit losses (ECL). The Group applies the simplified approach for trade receivables and uses a matrix to estimate the expected credit losses. The change in amount of the provision is recognized in the ELECTROLUX ANNUAL REPORT 2020 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 instru- ments of Electrolux in more detail. Note 17, Trade receivables, de scribes the trade receivables and related credit risks. The information in this note highlights and describes the principal financial 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 recognized 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 operat- ing 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 conditions. For trade receivables, the group applies the ‘simplified approach’, which means that the provision for bad debts will equal the lifetime expected loss. To ELECTROLUX ANNUAL REPORT 2020 Notes 57 All amounts in SEKm unless otherwise stated 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 considerations, the provision is extended to cover the extra anticipated losses. Derecognition 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. Derecognition 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 transactions are highly effective in offsetting changes in fair values or cash flows of hedged items based on the following hedge effectiveness require- ments: • 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 58 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 2020, the Group’s financial net cash position amounted to SEK 4,741m (net debt position of 667). 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 facility1) December 31 2020 1,012 277 40 2019 1,307 1,446 602 1,329 3,354 210 233 64 1,603 14,123 33 3,620 8,236 15,727 11,856 20,196 10,807 172 81 18 190 176 16 20,467 11,189 –4,741 667 2,618 3,150 3,679 1,556 3,866 7,683 23,057 10,440 1) For details on the Group’s committed revolving credit facilities, see below under “Liquid funds”. 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. 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 31 for definition. December 31 2020 2019 20,196 10,807 172 81 190 176 18 16 20,467 11,189 40.6 18.4 18,864 7,569 17 0.5 12 0.8 For 2020, liquid funds, including unused committed revolving credit facilities amounted to 40.6% (18.4) of annualized net sales, well above the Financial Policy target of 2.5%. Net liquidity is calculated by deducting short-term bor- rowings from liquid funds. Unused committed revolving credit facilities as per December 31, 2020 consists of multi-currency facility of EUR 1,000m (1,000), maturing 2023, SEK 3,000m (0), maturing 2021 and SEK 10,000m (0), maturing 2025. 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 2020, SEK 4,555m (2,412) of long-term borrowings matured or were amortized. These maturities were partly refinanced to the amount of SEK 9,793m (3,810). At year-end 2020, the Group’s total interest-bearing liabilities amounted to SEK 15,412m (10,989), of which SEK 14,400m (9,682) referred to long- term borrowings including maturities within 12 months. Long-term bor- rowings with maturities within 12 months amounted to SEK 277m (1,446). 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 14,307m (9,546), is raised at Parent Company level. Electrolux also has unused committed revolving credit facil- ities of SEK 23,057m (10,440) (details stated above under “Liquid funds”). 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 2020, the average interest-fixing period for long-term borrowings was 1.6 years (1.5). The calculation of the average interest- fixing period includes the effect of interest-rate swaps used to manage the interest-rate risk of the debt portfolio. The average interest rate for the total borrowings was 1.6% (1.6) at year-end. The fair value of the interest-bearing borrowings was SEK 14,674m (9,575). The fair value including swap transactions used to manage the inter- est fixing was approximately SEK 14,667m (9,577). Cash Flow Non Cash flow Opening Balance Amorti- zation New debt Net cash change Acqui- sitions Reclassi- fications Additions /Cancel- lations Exchange rate differences Discon- tinued operations Closing Balance 2020 Long-term borrowings (including short-term part of long-term) Short-term borrowings (excluding short-term part of long-term) Lease liabilities Total 2019 9,682 –4,555 9,793 — 1,909 3,150 — –911 — — 14,740 –5,466 9,793 –567 — –567 Long-term borrowings (including short-term part of long-term) Short-term borrowings (excluding short-term part of long-term) Lease liabilities Total 8,553 –2,412 3,810 1,597 3,4651) 13,615 — –942 — — –3,354 3,810 — 303 — 303 1) Opening balance adjustment as of January 1, 2019. — — — — 33 5 31 69 9 –9 — — –411 — — –411 — — 656 656 — — 729 729 –528 –282 –278 –1,085 111 8 110 229 — — — — 14,400 1,052 2,618 18,069 –3 –4 –243 –250 9,682 1,909 3,150 14,740 ELECTROLUX ANNUAL REPORT 2020 The table below sets out the carrying amount of the Group’s borrowings. Notes 59 All amounts in SEKm unless otherwise stated Borrowings Issue/maturity date Bond loans 2017–2024 2018–2023 2018–2023 2018–2025 2019–2024 2019–2022 2019–2024 2019–2024 2020-2022 2020-2022 2020-2023 2020-2023 2020-2025 2020-2027 Total bond loans4) Other long-term loans 2013–20214) 2015–20214) 2017–20264) Total other long-term loans Long-term borrowings Short-term part of long-term loans5) 2013–20204) 2013–20204) 2013–20214) 2017–20264) 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) 2020 2019 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 Euro MTN Program Euro MTN Program Euro MTN Program Euro MTN Program Floating1) 2) 1.125 Stibor 3M + 0.58 Fixed1) 1.103 Stibor 3M + 0.75 0.885 Stibor 3M + 0.75 Stibor 3M + 0.60 0.405 Stibor 3M + 1.85 1.995 Fixed1) 3) Fixed1) Amortizing bank loan Nordic Investment Bank, long-term part Bank loan European Investment Bank Amortizing bank loan Nordic Investment Bank, long-term part Other long-term loans Floating Floating Floating Euro MTN Program Euro MTN Program Amortizing bank loan Nordic Investment Bank, short-term part Amortizing bank loan Nordic Investment Bank, short-term part Other short-term part of long-term loans Fixed1) Floating1) Floating Floating 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 SEK SEK SEK USD SEK SEK SEK SEK SEK SEK SEK SEK NOK USD SEK USD USD SEK SEK SEK USD EGP BRL THB CLP 350 200 800 73 1,000 1,250 750 750 2,550 250 1,700 1,700 500 150 154 170 63 170 830 154 12 39 325 300 13,311 350 200 803 598 1,000 1,256 750 755 2,564 250 1,700 1,700 480 1,228 13,634 0 0 425 64 489 14,123 350 200 804 681 1,000 1,260 750 757 0 0 0 0 0 0 5,802 154 1,582 592 106 2,434 8,236 0 0 170 830 154 308 94 108 29 277 30 1,446 20 513 82 153 126 372 135 171 244 1,012 40 1,329 503 1,307 601 3,354 15,452 11,590 210 233 64 33 15,727 11,856 1) Private placement 2) The interest-rate fixing profile of nominal amount SEK 100m has been adjusted with an interest-rate swap, where floating rate is swapped for fixed interest rate. The Group applies hedge accounting of cash flows on the relation, and the net effect on the income statement from this hedge for 2020 was SEK 1m (0). 3) The interest-rate fixing profile of the loan has been adjusted with an interest-rate swap, where fixed interest rate is swapped for floating interest rate. The Group applies hedge accounting of fair value on the relation, and the net effect on the income statement from this hedge for 2020 was SEK 3m (0) . 4) Loans raised on Parent Company level amount to a total of SEK 14,307m (9,546). 5) Long-term borrowings with maturities within 12 months are classified as short-term borrowings in the Group’s balance sheet ELECTROLUX ANNUAL REPORT 2020 60 Notes All amounts in SEKm unless otherwise stated Cont. Note 18 Other short-term loans 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 2.8 years (3.0), at the end of 2020. The table below presents the repayment schedule of long-term borrowings. Repayment schedule of long-term borrowings, December 31 Debenture and bond loans Bank and other loans Short-term part of long-term loans Total 2021 — — 277 277 2022 4,070 159 — 4,229 2023 4,403 95 — 2024 2,855 94 — 2025 1,078 94 — 2026— 1,228 47 — Total 13,634 489 277 4,498 2,949 1,172 1,275 14,400 Commercial flows The table below shows the forecasted transaction flows, imports and exports, for the 12-month period of 2021 and hedges at year-end 2020. 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 2020 amounted to SEK –57m (–111). At year-end 2020, the unrealized fair value of forward contracts for hedging of forecasted transaction flows amounted to SEK 33m (–9). Nominal amount of forecasted transacion flows hedged as per December 31, 2020, was SEK 1,368m (441). The hedge accounting relations have an average maturity period of 6 months (7). Forecasted transaction flows and hedges Inflow of currency, long position Outflow of currency, short position Gross transaction flow Hedges Net transaction flow AUD 3,327 –175 3,152 –846 2,306 BRL 3,090 –305 2,785 –864 1,922 CAD 2,213 0 2,213 –284 1,929 CHF 2,265 –241 2,025 –278 1,746 CLP 860 –71 789 –165 624 CNY 212 EUR GBP THB USD Other Total 1,811 3,015 2,216 4,376 12,126 35,512 –2,240 –8,862 –681 –4,387 –13,768 –4,777 –35,507 –2,028 –7,051 2,335 –2,171 –9,392 7,349 1,437 –372 –661 –80 1,971 142 –590 –7,423 1,673 –2,251 –7,421 7,491 5 0 5 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 unused committed revolving credit facilities of SEK 23,057m (10,440), see details stated above under ‘Liquid funds’. 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 –1,280 8 –486 –230 –25,286 25,056 –31,306 –893 –34,187 –88 –6 –438 36 –800 836 — — –4,382 –10,207 1 –673 0 –2 2 — — 4 –916 — — — — — — — –360 — — — — — –15,957 7 –2,873 –194 –26,088 25,894 –31,306 –893 –496 –5,054 –11,119 –360 –51,216 Net gain/loss, fair value and carrying amount on financial instruments The tables below and overleaf 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 2020 2019 Gain/loss in profit and loss Gain/loss in OCI Interest income Interest expense Gain/loss in profit and loss Gain/loss in OCI Interest income Interest expense 9 –176 –167 –73 — — –73 33 — 33 — — –161 –161 — — — — 74 — 74 — — — –67 — –470 –537 –115 99 –16 84 — –155 –71 –9 — –9 –1 — –100 –101 — — — — 69 — 69 — — — –141 — –424 –565 ELECTROLUX ANNUAL REPORT 2020 Fair value and carrying amount on financial assets and liabilities Financial assets Financial assets at fair value through profit or loss Whereof short-term investments Whereof other financial assets Financial assets at amortized cost Whereof trade receivables Whereof short-term investments Whereof cash and cash equivalents Derivatives Whereof derivatives at fair value through profit or loss Whereof derivatives in hedge relations Total financial assets Financial liabilities Financial liabilities at amortized cost Whereof long-term borrowings Whereof short-term borrowings Whereof accounts payable Derivatives Whereof derivatives at fair value through profit or loss Whereof derivatives in hedge relations Total financial liabilities 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 Swedish krona. For instruments where no reliable price is avail- able 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. Note 19 Assets pledged for liabilities to credit institutions Pledged assets Total Notes 61 All amounts in SEKm unless otherwise stated 2020 2019 Fair value hierarchy level Fair value Carrying amount Fair value Carrying amount 1 3 2 2 2 2 225 160 65 40,152 19,944 12 225 160 65 40,152 19,944 12 269 176 93 31,668 20,847 14 269 176 93 31,668 20,847 14 20,196 20,196 10,807 10,807 135 89 46 135 89 46 192 114 78 192 114 78 40,512 40,512 32,129 32,129 47,123 14,484 1,333 31,306 332 329 3 46,758 14,123 1,329 31,306 332 329 3 45,515 8,262 3,361 33,892 293 291 2 45,482 8,236 3,354 33,892 293 291 293 47,455 47,090 45,808 45,775 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 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. Level 2: Inputs other than quoted prices included in level 1 that are observable for assets or liabilities either directly or indirectly. Level 3: Inputs for the assets or liabilities that are not entirely based on observable market data. Group December 31 Parent Company December 31 2020 2019 2020 2019 — — 6 6 — — — — ELECTROLUX ANNUAL REPORT 2020 62 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, 2019 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, 2020 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, 2019 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, 2020 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, 2020 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 2020 2019 6,584 2,509 13.88 9.03 22.91 13.86 9.02 22.88 6.33 2.40 8.73 6.30 2.38 8.69 287.4 287.7 287.4 288.8 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 287,719,454 (288,824,237). December 31, 2020 Appropriations December 31, 2019 379 0 144 0 24 547 15 — 112 — –10 117 –81 36 364 0 32 0 34 430 ELECTROLUX ANNUAL REPORT 2020 Notes 63 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 important of those are in France, Italy and Canada. The pension plans in France and Italy are mainly unfunded. In Canada there are both funded and unfunded pension plans. A mix of final salary and career average exists in these coun- tries. 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 invest- ments. Some plans combine the promise to make periodic payments with a promise 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 2020 64 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, 2020 Amounts included in the balance sheet Present value of funded and unfunded obligations 7,635 1,837 7,165 4,644 4,136 2,674 783 28,874 Fair value of plan assets (after change in asset ceiling) –8,316 –1,828 –6,978 –2,523 –2,755 –2,611 –184 –25,195 USA Medical USA UK Sweden Germany Switzer– land Other Total 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 cost 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, years1) Male Female Inflation, %2) Discount rate, % –681 — — 109 9.9 7 –1 –371 –365 — — 29 20.7 22.6 3.00 2.30 9 — — 100 9.8 — 5 –126 –121 27 — — 20.7 22.3 5.00 2.30 187 2,121 1,381 — — 97 — — 54 — — 67 63 — — 98 15.5 18.7 14.6 13.2 15 1 167 183 30 — — 20.8 23.6 3.00 1.50 182 21 135 338 — –83 115 23.0 24.8 1.75 1.10 23 12 156 191 — — 165 20.4 23.8 1.80 0.70 47 0 –131 –84 30 — — 22.7 24.8 1.00 0.10 599 3,679 — — 23 — 4 4 –19 –11 1 — 34 — — — — 1,272 4,951 87 13.7 277 41 –189 129 600 88 –83 342 21.2 23.6 2.37 1.44 Information by country December 31, 2019 (including discontinued operations) 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 cost5) 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, years1) Male Female Inflation, %2) Discount rate, % 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 — — — — 1,0563) 5,1164) 87 13.6 93 44 103 240 636 93 –437 361 21.2 23.7 2.36 1.82 1) Expressed as the average life expectancy of a 65-year-old person in number of years. 2) General inflation impacting salary and pensions increase. For USA Medical, the number refers to the inflation of healthcare benefits. 3) Whereof pension plan assets amount to SEK 1,043m for continuing operations and SEK13m for discontinued operations. 4) Whereof provisions for post-employment benefit plans amount to SEK 4,909m for continuing operations and SEK 208m for discontinued operations. 5) Includes a gain of SEK 200m due to plan amendment in France and settlement in Sweden and Norway. ELECTROLUX ANNUAL REPORT 2020 Notes 65 All amounts in SEKm unless otherwise stated Risks There are mainly three categories of risks related to defined benefit obli- gations 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 pay- ments 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 valuation 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, 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, obligations1) Closing balance, December 31 1) 2019 updated with gross effects for discontinued operations. 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 assets2) Closing balance, December 31 1) The actual return on plan assets amounts to SEK 2,009m (4,174). 2) 2019 updated with gross effects for discontinued operations. 2020 2019 30,834 28,646 248 6 540 246 –96 808 1,485 3,379 –222 –112 35 –63 206 50 –1,676 –1,808 –2,299 1,106 34 –643 28,874 31,831 — –997 28,874 30,834 2020 2019 26,938 24,832 499 764 1,510 3,410 –170 5 35 14 –344 50 –1,334 –1,447 –2,312 1,096 23 –604 25,195 27,771 — –833 25,195 26,938 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 290 0 –690 898 USA Medical UK Sweden Germany 115 94 –167 195 333 317 –1,011 1,299 169 441 –725 955 103 289 –555 707 Switzer- land 92 27 –330 456 Other 6 16 –63 74 Total 1,107 1,185 –3,541 4,584 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 304m in contributions to the pension funds and as payments of benefits directly to the employees. MARKET VALUE OF PLAN ASSETS BY CATEGORY 2020 2019 Fixed income, SEK 12,558m Equity, SEK 6,815m Hedge funds, SEK 1,887m Real estate, SEK 2,328m Infrastructure, SEK 426m Private equity, SEK 173m Cash, SEK 1,008m 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 ELECTROLUX ANNUAL REPORT 2020 66 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 2020 1,052 2,328 426 173 2019 915 2,631 500 136 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 sepa- rate fund or recorded as a liability in the balance sheet. The accounting principles 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 2020 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, 2019 Actual return on plan assets Contributions and compensation to/from the fund Closing balance, December 31, 2019 Actual return on plan assets Contributions and compensation to/from the fund Closing balance, December 31, 2020 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, 2019 1,722 442 2,164 Funded Unfunded Total Current service cost Interest cost Benefits paid 48 70 –81 Closing balance, December 31, 2019 1,759 Current service cost Interest cost Benefits paid 70 71 –85 Closing balance, December 31, 2020 1,815 7 18 –30 437 15 18 –30 440 55 88 –111 2,196 85 89 –115 2,255 Funded 2,351 320 –133 2,538 108 –83 2,563 December 31 2020 2019 –2,255 –2,196 2,563 2,538 308 342 –748 –440 –440 –779 –437 –437 2020 2019 85 89 174 112 112 34 3 323 –83 240 55 88 143 157 157 31 2 333 –133 200 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, 2020, to SEK 2,563m (2,551m) and the pension commitments to SEK 1,815m (1,759). The Swedish Group companies recorded a liability to the pension fund as per December 31, 2020, in the amount of SEK 0m (0). Contributions to the pension foundation during 2020 amounted to SEK 0m (0). Contributions from the pension foundation during 2020 amounted to SEK 83m (585). ELECTROLUX ANNUAL REPORT 2020 Provisions for restructuring Warranty commitments Claims 2,095 1,397 Notes 67 All amounts in SEKm unless otherwise stated Group Parent Company Other 2,863 — Total 7,565 5 1,733 5,658 — 421 –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 5 2,178 –1,984 –31 68 –245 2,086 1,015 1,071 2,086 1,377 2,991 8,183 10 2,407 –2,273 –26 — –164 2,039 1,004 1,035 — 415 –497 — — –142 1,153 246 907 — 10 2,083 5,380 –863 –424 –11 –370 3,406 637 2,769 –4,236 –572 128 –809 8,083 2,515 5,568 Provisions for restructuring Warranty commitments Other 174 — 471 –87 –23 –1 0 534 187 347 534 — 297 –250 –16 — –14 551 370 181 473 — 370 –396 — 5 — 452 120 332 452 — 68 — — — –13 507 133 374 44 — 8 –14 — — 0 38 — 38 38 — 42 –25 –2 — –1 52 — 52 Total 691 — 849 –497 –23 4 0 1,024 307 717 1,024 — 407 –275 –18 — –28 1,110 503 607 1,210 — 1,326 –564 –179 22 –86 1,729 755 973 1,729 — 475 –602 –122 139 –133 1,486 629 857 Note 23 Other 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 Opening balance, January 1, 2020 Acquisitions of operations Provisions made Provisions used Unused amounts reversed Reclassifications Exchange-rate differences Closing balance, December 31, 2020 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, 2020, will be consumed in 2021 and 2022. Provisions for claims refer to the Group’s captive insurance companies. Other provisions include mainly provisions for tax, environmental 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 2020 950 2019 928 Other accrued payroll costs 2,038 1,597 Accrued interest expenses Contract liabilities1) Other accrued expenses Prepaid income grants Other prepaid income VAT liabilities Personnel related liabilities 64 6,354 3,778 651 134 937 876 33 6,005 3,387 828 124 957 836 Other operating liabilities 1,332 2,126 2020 2019 268 570 61 — 717 — 185 — — — 223 261 29 — 525 — 210 — — — Total 17,114 16,821 1,801 1,248 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 2020 68 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 Total Group December 31 Parent Company December 31 2020 2019 2020 2019 — — — 0 893 893 939 939 927 927 1,015 1,015 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 substantially identi- cal allegations against other defendants who are not part of the Electrolux Group. As of December 31, 2020, the Group had a total of 3,403 (3,897) cases pending, representing approximately 3,440 (approximately 3,933) plaintiffs. During 2020, 930 new cases with 931 plaintiffs were filed and 1,424 pending cases with approximately 1,424 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 and a Panel of arbitrators appointed by the NAFTA Secretariat will review and decide on the matter. A hearing was held in November 2020 but the Panel has not yet rendered its 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, as Electrolux believes that the company has a strong legal case and that success is more likely than not, a provision related to this potential cost has not been made. No assurances can however be given that the outcome will be successful, as appealing administrative determinations is inherently challenging. In 2019 an order was issued by the Italian Environmental Authorities for certain remediation actions connected to contamination at Electrolux sub- sidiary 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 contaminated groundwater in the region. Sarinox has objected to the order by appealing to the admin- istrative court of Trieste. In 2020, the administrative court ruled in favor of Sarinox. It is still possible to appeal the court ruling but so far the ruling has not been appealed. 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 filed a motion to join the proceedings to protect its interests. No provi- sion related to this matter has been set. ELECTROLUX ANNUAL REPORT 2020 Notes 69 All amounts in SEKm unless otherwise stated 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 business area’s operating income. 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 decision was taken by an Extraordinary General Meeting on February 21, 2020, and Electrolux Professional AB was listed on Nasdaq Stockholm on March 23, 2020. Electrolux Professional was classified as held for distribution to owners as per December 2019 and accounted for under the applicable principles for assets held for sale and discontinued operations IFRS 5 ‘Non-current assets held for sale and discontinued operations’ and IFRIC 17 ‘Distribution of non-cash assets to owners’. All related effects are referred to as ‘Discontinued operations’. As per December 2019, Electrolux Professional was reported as discon- tinued operations in the consolidated statement of comprehensive income. The consolidated statement of comprehensive income for comparative periods were restated accordingly. The Electrolux Professional results were excluded from the individual lines of the consolidated income statement with the total net reported as ‘Income for the period, discontinued opera- tions’, in full attributable to equity holders of the Parent Company. The consolidated cash flow statements include a full cash flow statement for continuing operations and total cash flow for discontinued operations. In the balance sheet as per December 31, 2019, assets and liabilities of Electrolux Professional were classified as ‘Discontinued operations, assets held for distribution’ and ‘Discontinued operations, liabilities held for distri- bution’ respectively. The distribution of Electrolux Professional resulted in a settlement gain, calculated as the difference between the carrying amount of the assets distributed and the carrying amount of the dividend payable, measured at the fair market value of Electrolux Professional at listing. Details on income statement, balance sheet and cash flow for discon- tinued operations are presented below. The financial information consists of Electrolux Professional’s contribution to Electrolux Group consolidated financial information up until the separation on March 23, 2020. Income statement, discontinued 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, discontinued operations 2020 2019 1,884 9,281 –1,191 –6,040 693 3,241 –349 –1,699 –161 –584 2 185 –1 184 –40 144 32 991 12 1,003 –314 688 Note 26 Acquired, divested and discontinued operations 2020 2019 Acquired operations Total Sydney Appliance Installations UNIC Total Consideration: Cash paid for acquisitions made during the year Fair value of holding Deferred consideration Total consideration Recognized amounts of assets acquired and liabilities assumed: Total net assets acquired Assumed net debt / cash Goodwill Total 73 48 — 121 55 54 12 121 26 — 13 39 0 0 39 39 410 — 0 410 143 –69 336 410 436 — 13 449 143 –69 375 449 Payments for acquisitions: 2020 2019 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 73 –66 0 0 8 436 –4 35 0 467 Acquisitions in 2020 Guangdong De Yi Jie Appliances In August, 2020, Electrolux acquired 60% of the shares in the Chinese com- pany Guangdong De Yi Jie Appliances Co., LTD, a company that sells AEG household appliances in China. Before the acquisition, Electrolux held 40% of the shares in the company. The acquired company is accounted for as a fully owned subsidiary as from August 31, 2020. The transaction has resulted in a preliminary goodwill of SEK 12m. The net cash flow effect from the acquisition is SEK –7m. . The operations are included in business area Asia-Pacific, Middle East and Africa. 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, approximately SEK 21m and SEK 3.3m respectively. The acquired business contributed 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 ELECTROLUX ANNUAL REPORT 2020 70 Notes All amounts in SEKm unless otherwise stated Cont. Note 26 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 2020 — — — — — — — — — — — — — — — — — — — — — 2019 1,214 238 1,821 388 397 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 2020 68 –87 1,195 1,177 2019 1,120 –689 –134 297 ELECTROLUX ANNUAL REPORT 2020 Notes 71 All amounts in SEKm unless otherwise stated Note 27 Employees and remuneration Employees and employee benefits In 2020, the average number of employees was 47,543 (48,652), of which 29,644 (29,747) were men and 17,899 (18,905) were women. A detailed specification of the average number of employees by country 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. Average number of employees, by geographical area Europe North America Latin America Asia-Pacific, Middle East and Africa Total Group 2020 2019 18,727 18,909 6,752 6,640 14,113 14,844 7,951 8,259 47,543 48,652 Salaries, other remuneration and employer contributions Parent Company whereof pension costs1) Subsidiaries whereof pension costs Total whereof pension costs 2020 Salaries and remuneration Employer contributions 1,050 — 14,616 — 15,666 — 624 294 2,785 583 3,409 877 1) Includes SEK 10m (8) refering to the President’s predecessors according to local GAAP. Salaries and remuneration for Board members, senior managers and other employees Parent Company Other Total Board mem- bers and senior managers1) 75 326 401 2020 Other employees 975 14,290 15,265 1) According to the definition of Senior managers in the Swedish Annual Accounts Act. 2019 Salaries and remuneration Employer contributions 1,063 — 15,255 — 16,318 — 577 243 2,861 493 3,438 736 Total 1,640 243 18,116 493 19,756 736 2019 Board mem- bers and senior managers1) 59 338 397 Other employees 1,004 14,917 15,921 Total 1,063 15,255 16,318 Total 1,674 294 17,401 583 19,075 877 Total 1,050 14,616 15,666 Of the Board members in Group companies, 80 (91) were men and 15 (14) women, of whom 5 (6) men and 3 (3) 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 182 (178) men and 78 (75) women, of whom 7 (6) 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 29m (33). Compensation to Board members ´000 SEK Staffan Bohman, Chairman Petra Hedengran Henrik Henriksson (from AGM 2020) Hasse Johansson (up to AGM 2020) Ulla Litzén Bert Nordberg (up to AGM 2019) Karin Overbeck (from AGM 2020) Fredrik Persson David Porter Jonas Samuelson, President Ulrika Saxon (up to AGM 2020) Kai Wärn Ulf Carlsson (up to AGM 2020) Mina Billing (from AGM 2020) Viveca Brinkenfeldt Lever Peter Ferm Total compensation 2020 2019 Ordinary compen sation Compen sation for committee work Total compen sation Ordinary compen sation Compen sation for committee work Total compen sation 2,200 640 480 160 640 — 480 640 640 — 160 640 — — — — 260 310 — — 280 — — 160 — — — 100 — — — — 2,460 2 ,187 950 480 160 920 — 480 800 640 — 160 740 — — — — 630 — 630 630 150 — 630 630 — 630 630 — — — — 260 310 — 1601) 280 — — 160 — — 100 — — — — — 2,447 940 — 790 910 150 — 790 630 — 730 630 — — — — 6,680 1,110 7,790 6,747 1,270 8,017 1) Includes compensation for work relating to investments, modularization and quality. ELECTROLUX ANNUAL REPORT 2020 72 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 2020 refers to one fourth of the compensation authorized by the AGM in 2019 and three fourths of the compensation authorized by the AGM in 2020. Total compensation paid in cash in 2020 amounted to SEK 7.8m, of which SEK 6.7m referred to ordinary compensation and SEK 1.1m to committee work. Remuneration Committee For information on the Remuneration Committee, see the Corporate Governance Report on page 107. Remuneration guidelines for Group Management The current remuneration guidelines were approved by the AGM in 2020. The guidelines apply until the AGM 2024 and are described below. The detailed guidelines can be found on page 32 in the Annual Report. Electrolux has a clear strategy to deliver profitable growth and create shareholder value. A prerequisite for the successful implementation of the Company’s business strategy and safeguarding 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 remuneration in relation to the country or region of employ- ment of each Group Management member. These guidelines enable the Company to offer the Group Management a competitive total remunera- tion. The total remuneration for the Group Management shall be in line with market practice and may comprise the following components: fixed com- pensation, variable compensation, pension benefits and other benefits. Following the ‘pay for performance’ principle, variable compensation shall represent a significant portion of the total compensation opportunity for Group Management. Variable compensation shall always be measured against pre-defined targets and have a maximum above which no pay- out shall be made. Variable compensation shall mainly relate to financial performance 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. Since 2004, Electrolux has offered long-term performance share pro- grams for senior managers of the Group. The alignment of Electrolux top management incentives with the interest of shareholders is a longstand- ing 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 2020 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 2020 has been set at SEK 11.5m. The variable salary is based on annual financial and non-financial tar- gets 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. 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 2020, prior Presidents, and survivors is SEK 206m (221), whereof SEK 36m (30) relates to the current President. Remuneration and terms of employment for other members of Group Management in 2020 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 2020 was 5.0% (2.93). Variable salary in 2020 is based on financial and non-financial targets on business area and Group level. Variable salary for business area heads and heads of Group 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 vari- able 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. 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 40 % of pensionable salary, between 7.5 and 30 income base amounts. The con- tribution to the supplementary plan is 35% of pensionable salary above 20 income base amounts. Accrued capital is subject to a real rate of return of 3.5% per year. The retirement age (60) 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. 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 3.0 years (2.7 for 2019 and 2018 programs). At each balance sheet date, the Group revises the estimates to the number of shares that are expected to vest. ELECTROLUX ANNUAL REPORT 2020 Notes 73 All amounts in SEKm unless otherwise stated Cont. Note 27 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 2018, 2019 and 2020 The Extraordinary General Meeting on November 3, 2020, approved a long-term incentive program for 2020. 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 man- agers. Electrolux shareholders benefit from this program since it facilitates recruitment and retention of competent executives and aligns manage- ment 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 General Meetings of Electrolux has also approved long-term incentive programs for 2018 and 2019. The allocation of shares in the 2018 and 2019 programs is determined by the position level and the outcome of three financial objectives; (1) 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 was determined by the Board after the expiry of the one-year performance period. The allocation of shares in the 2020 program is deter- mined by the position level and the outcome of three objectives; (1) earn- ings per share, (2) return on net assets and (3) CO2 reduction. Performance outcome of (1) and (2) is determined by the Board after the expiry of the one-year performance period and (3) after the expiry of the three-year performance period. For the 2018, 2019 and 2020 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 pro- gram 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, disabil- ity, retirement or the divestiture of the participant’s employing company, a participant could be entitled to reduced benefits under the program. Each of the 2018, 2019 and 2020 program covers 253 to 282 senior man- agers and key employees in almost 30 countries. Participants in the 2020 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 financial targets in the share program for 2020 was 100%. The outcome of the CO2 target in the share program for 2020 will be determined after the expiry of the three year performance period. For 2020, LTI programs resulted in a cost of SEK 65m (including a cost of SEK 13m in employer contribution) compared to a cost of SEK 77m in 2019 (including a cost of SEK 19m in employer contribution). The total provision for employer contribution in the balance sheet amounted to SEK 17m (53). Repurchased shares for LTI programs The Annual General Meeting in 2019 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 2017 pro- gram, but this mandate has not been used by the company. Allocation of shares for the 2017 program The 2017 performance-share program met 90% of the maximum performance and performance shares were allocated during 2020 to the partici pants according to the terms and conditions of the 2017 share program. Remuneration to Group Management ’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 11,553 10,378 4,151 9 3,993 4,328 11,591 2,213 5,676 1,911 3,993 4,942 2020 2019 Other members of Group Management5) Total 41,129 52,682 31,959 42,337 9,832 13,983 12,757 12,766 12,117 16,110 11,178 15,506 43,994 55,585 11,180 13,393 17,057 22,733 5,725 7,636 13,235 17,228 12,327 17,269 1) The annual fixed salary includes vacation salary, paid vacation days and salary deductions for company car. 2) For 2020: variable salary earned 2020 and to be paid in 2021, and for 2019: variable salary earned 2019 and paid in 2020. 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, and costs for extraordinary arrangements. 5) Other members of Group Management comprised of 9 people at the end of 2020, and of 10 people at the end of 2019. 2019 numbers have been adjusted for discontinued operations. 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 5 Group 6 Maximum number of B shares1) Maximum value, SEK2) 2020 63,262 19,211 11,424 6,716 4,830 3,274 2019 53,543 17,928 11,189 6,132 4,297 2,967 2018 2020 2019 2018 47,605 11,693,460 11,408,250 11,130,000 17,032 10,032 5,126 3,728 2,444 3,551,120 3,820,000 3,982,000 2,111,712 2,384,000 2,345,000 1,241,534 1,306,000 1,198,000 892,922 605,219 916,000 632,000 871,000 571,000 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. At maximum performance the aggregated value is con- verted to the average number of shares and average value per participant in respective category. The calculation is based on a share price of SEK 233.80 for 2018, SEK 213.07 for 2019, and SEK 184,84 for 2020 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 par- ticipate in the program, adjusted for net present value of dividends for the period until shares are allocated. 2) The share allocation for the 2018 program will be at 1.5% of maximum. For the 2019 program there will be no allocation as the outcome was 0. For the 2020 program the outcome of the financial targets was 100% resulting in 1,140,782 shares, 285,196 shares are still subject to the CO2 reduction target. Decision on final outcome and allocation of shares under the 2020 program will be made after the expiry of the three year performance period for the CO2 reduction target. Performance-share program 2020 CO2 Reduction, %1) Earnings per share, SEK Return on net assets, % Total allocation 1) Measured over 2020 – 2022, outcome will be presented in the 2022 annual report. 2) Including adjustments for acquisitions and divestments. ELECTROLUX ANNUAL REPORT 2020 Financial objectives Allocation of shares Minimum Maximum Actual Outcome, % Weight, % Allocation, % 0 9.0 12.0 100 12.5 20.0 TBD 13.92) 22.72) TBD 100 100 20 60 20 TBD 60 20 80 74 Notes All amounts in SEKm unless otherwise stated Note 28 Fees to auditors At the 2020 Annual General Meeting Deloitte was appointed auditor for the period until the end of the 2021 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 2020 2019 2020 2019 63 2 4 0 69 0 69 47 10 1 1 59 — 59 10 0 — — 10 — 10 9 9 0 1 19 — 19 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 0m pertains to Deloitte Sweden, of tax fees, no amount pertains to Deloitte Sweden and of all other fees, no amount 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 company 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. SYR Africa is currently not trading. Llitha 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 August 2020 Electrolux acquired the remaining 60% of the Chinese company Guangdong De Yi Jie Appliances Co., LTD. The company sells AEG household appliances. 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 Next-Tech BVBA/SPRL, Belgium Guangdong De Yi Jie Appliances Co., LTD, China Vitality Ventures Group, Hong Kong Tradeplace B.V., The Netherlands Total 2020 2019 Holding, % Carrying amount Net income1) Holding, % Carrying amount Net income1) 50 50 49 49 n/a 22 20 201 — 22 44 n/a 7 0 274 15 — 0 –50 –5 –4 0 –44 50 50 49 49 40 22 20 201 53 4 98 56 12 0 424 16 2 1 –14 –22 — 0 –17 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. Regarding Guangdong De Yi Jie Appliances Co.,LTD net income refers to the Group's share up until August 2020. ELECTROLUX ANNUAL REPORT 2020 Cont. Note 29 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. Notes 75 All amounts in SEKm unless otherwise stated Subsidiaries Major Group companies Argentina Australia Austria Belgium Brazil Canada Chile China Denmark Egypt Finland France Germany Hungary Italy Mexico Electrolux Argentina S.A. Electrolux Home Products 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 Electrolux (China) Home Appliance Co. Ltd Guangdong De Yi Jie Appliances 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 Deutschland GmbH Electrolux Rothenburg GmbH Factory and Development Electrolux Lehel Kft Electrolux Appliances S.p.A. Electrolux Italia S.p.A. Electrolux de Mexico, S.A. de C.V. The Netherlands Electrolux Associated Company B.V. Norway Poland Romania Russia Singapore Spain Sweden Switzerland Thailand Ukraine United Kingdom USA 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 HemProdukter AB Electrolux Appliances AB Electrolux AG Electrolux Thailand Co. Ltd. DC Electrolux LLC Electrolux Plc Electrolux Home Products, Inc. Electrolux North America, Inc. 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 Group Parent company 2020 2019 2020 2019 67 14 1 2 12 27 122 12 35 15 56 — — 2 12 11 — 3 3 — ELECTROLUX ANNUAL REPORT 2020 Holding, % 100 100 100 100 100 100 99.88 100 100 100 100 99.97 100 100 100 100 100 100 100 100 100 100 100 100 100 99.83 100 100 100 100 100 100 100 100 100 100 100 The Group’s related parties are its associated companies, joint ventures, the Parent company’s largest shareholder Investor AB, Board members of AB Electrolux and Group Management members. Commercial terms and market prices apply to all transactions with related parties. Investment details in associated companies are disclosed in Note 29. Transactions and balances with associated companies are disclosed in the table to the left. Investor AB controls approximately 28% (28) of the voting rights in AB Electrolux. The Group has not had any transactions with Investor AB dur- ing the year, other than dividends declared, and there are no outstanding balances with Investor AB. Investor AB has controlling or significant influ- ence over companies with which Electrolux may have transactions within the normal course of business. Commercial terms and market prices apply to any such transactions. Remuneration to members of the Board of Directors and Group manage- ment are disclosed in Note 27. 76 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 divestment 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 58. 2) See Note 7 for more information. ELECTROLUX ANNUAL REPORT 2020 Notes 77 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 SEK 8.00 per share1), totaling To be carried forward Total 1) Calculated on the number of outstanding shares as per February 17, 2021. ‘000 SEK 19,452,947 2,299,180 17,153,767 19,452,947 The Board of Directors has proposed that the Annual General Meeting 2021 resolves on a dividend to the shareholders of SEK 8.00 per share to be paid in two installments. The record date for the first installment of SEK 4.00 per share is proposed to be Monday March 29, 2021 and the record date for the second installment of SEK 4.00 per share is proposed to be Wednesday September 29, 2021. 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. 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 17,081 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 17, 2021 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 Henrik Henriksson Board member Ulla Litzén Board member Karin Overbeck Board member Fredrik Persson Board member David Porter Board member Kai Wärn Board member Mina Billing Board member, employee representative Viveca Brinkenfeldt Lever Board member, employee representative Peter Ferm Board member, employee representative Our audit report was submitted on February 17, 2021 Deloitte AB Jan Berntsson Authorized Public Accountant ELECTROLUX ANNUAL REPORT 2020 78 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 2020. The annual accounts and consolidated accounts of the company are included on pages 14-77 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 2020 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 2020 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 share- holders adopts the income statement and balance sheet for the parent company and the group. Our opinions in this report on the annual accounts and 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) 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 accordance with professional ethics for accountants in Swe- den 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) Article 5.1 have been provided 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 2020 to 115,960 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 recognition and its compliance with IFRS, • audit of the internal control environment regarding revenue recognition and test of identified key controls, including IT controls • 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, • detailed testing on a sample basis against customer state- ments alternatively cash receipts or shipping documents 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 2020 Auditor's report 79 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 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 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 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 ISAs 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.revisorsinspektionen. 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 ITsys- tems, • 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 consolidated accounts and is found on pages 1–13 and 81–124. The Board of Directors and the Managing Director are responsible for this other information. Our opinion on the annual accounts and 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 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 informa- tion, conclude that there is a material misstatement of this other information, we are required to report that fact. We have noth- ing to report in this regard. ELECTROLUX ANNUAL REPORT 2020 80 Auditor's report Report on other legal and regulatory requirements Opinions In addition to our audit of the annual accounts and 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 2020 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 and the group’s financial situation and ensuring that the company's organization is designed so that the account- ing, 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 matters take measures that are necessary to fulfill the company’s accounting in accordance with law and handle the management 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 auditor of AB Electrolux (publ) by the general meeting of the shareholders on the 2020-03-31 and has been the company’s auditor since 2018-04-05. Stockholm, February 17, 2021 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 2020 82 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 2010 2011 2012 1) 2013 2014 2015 2016 20171) 2018 20187) 2019 2020 5 years 10 years Compound annual growth rate, % 106,326 101,598 109,994 109,151 112,143 123,511 121,093 120,771 124,129 115,463 118,981 115,960 –1.3 0.9 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 –709 6,367 7.25 73 6.50 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 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 6.50 109.70 170.50 168.50 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 –2,385 –2,443 1.2 3,981 –1,343 4,176 3,754 2,854 — — — — — 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 4,821 –1,344 3,189 2,456 1,820 7,314 –6,994 –5,320 321 348 4.5 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 7.00 229.90 11.4 12.0 22.3 17.7 13.8 0.34 2.57 10.8 48,652 16,318 50,544 287.4 287.4 3.2 4,587 — 5,778 5,096 3,988 11,932 –5,115 –4,325 6,816 6,824 –2,012 3.7 5.0 4.4 99,604 20,265 –19,191 19,944 13,213 31,306 18,709 15,412 3,679 1,556 13.88 65.10 8.00 191.35 34.1 22.6 22.0 18.6 12.3 0.08 5.04 10.8 47,543 15,666 59,401 287.4 287.4 16.1 19.4 20.5 7.6 7.0 3.6 –1.1 2.4 –1.4 3.4 4.5 3.3 –4.0 –14.5 20.6 4.5 4.2 –1.4 –4.0 –0.2 5.5 0.6 –0.4 0.0 4.5 7.8 3.1 0.2 0.3 1.7 6.1 –1.0 2.5 –0.1 –1.0 2.1 0.0 –0.8 2.1 0.4 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) 2020: 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 2020 2010 2011 2012 1) 2013 2014 2015 2016 20171) 2018 20187) 2019 2020 5 years 10 years Compound annual growth rate, % 106,326 101,598 109,994 109,151 112,143 123,511 121,093 120,771 124,129 115,463 118,981 115,960 –1.3 0.9 Eleven-year review 83 All amounts in SEKm unless otherwise stated –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 — — — — — –1.0 4,821 –1,344 3,189 2,456 1,820 7,314 –6,994 –5,320 321 348 –2,385 –2,443 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 4.5 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 7.00 229.90 11.4 12.0 22.3 17.7 13.8 0.34 2.57 10.8 48,652 16,318 50,544 287.4 287.4 3.2 4,587 — 5,778 5,096 3,988 11,932 –5,115 –4,325 6,816 6,824 –2,012 3.7 5.0 4.4 99,604 20,265 –19,191 19,944 13,213 31,306 18,709 15,412 3,679 1,556 13.88 65.10 8.00 191.35 34.1 22.6 22.0 18.6 12.3 0.08 5.04 10.8 47,543 15,666 59,401 287.4 287.4 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 ELECTROLUX ANNUAL REPORT 2020 16.1 19.4 20.5 7.6 7.0 3.6 –1.1 2.4 –1.4 3.4 4.5 3.3 –4.0 –14.5 20.6 4.5 4.2 –1.4 –4.0 –0.2 5.5 0.6 –0.4 0.0 4.5 7.8 3.1 0.2 0.3 1.7 6.1 –1.0 2.5 –0.1 –1.0 2.1 0.0 –0.8 2.1 0.4 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 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 –709 6,367 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 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. 5) Annualized net sales, calculated at end of period exchange rates, 2019: 117,519 (restated 2018: 115,733). 4) 2020: Proposed by the Board. 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. 84 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 2016 20171) 2018 20192) 20202) 39,097 2,794 7.1 44,914 2,657 5.9 16,384 –111 – 0.7 13,833 673 4.9 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 13,457 1,077 8.0 14,375 14,954 979 6.8 446 3.0 46,038 3,643 7.9 38,219 1,215 3.2 16,915 666 3.9 14,788 1,038 7.0 Operating income, common Group costs, etc. –693 –775 –527 –1,055 –783 Total, continuing operations Net sales Operating income Margin, % 114,228 113,048 115,463 118,981 115,960 5,320 4.7 6,353 5.6 4,176 3.6 3,189 2.7 5,778 5.0 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 2016 2017 — — — — — — — — — — — — 20182) –747 –596 — — — –1,343 20193) –752 –1,071 1,101 –398 –224 –1,344 2020 — — — — — — 1) For more information, see Note 7. 2) 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. 3) 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 2020 Quarterly information Quarterly information 85 All amounts in SEKm unless otherwise stated Net sales and income by business area per quarter 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 2020 Q2 2020 Q3 2020 Q4 2020 Full year 2020 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Full year 2019 10,908 8,888 12,317 13,925 46,038 10,553 10,479 11,036 13,352 45,420 558 5.1 244 2.8 1,522 12.4 1,319 3,643 9.5 7.9 686 6.5 576 5.5 93 0.8 1,138 2,493 8.5 5.5 8,409 8,537 10,993 10,281 38,219 9,099 10,255 10,880 8,719 38,954 –299 –3.6 –173 –2.0 990 9.0 697 6.8 1,215 3.2 –482 –5.3 504 4.9 –20 –0.2 –519 –5.9 –516 –1.3 3,826 2,822 4,779 5,488 16,915 4,312 4,816 –15 –0.4 –183 –6.5 440 9.2 424 7.7 666 3.9 –223 –5.2 164 3.4 4,613 1,539 33.4 5,913 19,653 340 5.8 1,821 9.3 3,434 3,230 3,916 4,209 14,788 3,445 3,682 3,801 4,027 14,954 44 1.3 159 4.9 459 11.7 376 8.9 1,038 7.0 110 3.2 171 4.7 –150 –4.0 315 7.8 446 3.0 Operating income, common group costs, etc. –165 –109 –191 –318 –783 –143 –197 –400 –315 –1,055 Total, continuing operations Net sales Operating income Operating margin, % 26,578 23,476 32,004 33,902 115,960 27,408 29,232 30,330 32,011 118,981 122 0.5 –62 –0.3 3,220 10.1 2,498 5,778 7.4 5.0 –53 –0.2 1,219 1,063 4.2 3.5 960 3.0 3,189 2.7 Total Group, including discontinued operations Income for the period Earnings per share, SEK1) 2,509 8.73 –141 –0.49 2,356 1,860 8.20 6.47 6,584 22.91 79 0.28 1,132 3.94 739 2.57 559 1.94 2,509 8.73 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) Basic, based on average number of shares, excluding shares owned by Electrolux. Non-recurring items 1) Europe North America Latin America Asia-Pacific, Middle East and Africa Common Group cost Total, continuing operations Q1 2020 Q2 2020 Q3 2020 Q4 2020 Full year 2020 Q1 2019 2) Q2 2019 Q3 2019 3) Q4 2019 Full year 2019 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — –829 –225 — — –1,054 — — — — — — –752 –242 1,326 –398 –224 –290 — –752 — –1,071 — — — 1,101 –398 –224 — –1,344 1) For more information, see Note 7. 2) The non-recurring item of SEK –829m relates to the consolidation of U.S. cooking production and SEK –225m to the closure of a refrigeration production line in Latin America. The costs are included in Cost of goods sold and consists of write down of fixed assets, provision for severance cost and other cost related to the projects. 3) The non-recurring item of SEK –290m includes 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. The income from overpaid sales tax in Brazil and the cost for legal settlement in the U.S are included in other operating income/expenses, the costs for restructuring and outsourcing projects are included in the applicable functional lines of the income statement. ELECTROLUX ANNUAL REPORT 2020 86 Sustainability reporting Sustainability reporting 2020 Electrolux is a global leader in household appliances and sustainability is part of the company’s business model as a transformational driver. This section presents the Group’s sustainability work and the results in 2020. 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, Electrolux places the consumer at the heart of everything it does. Through the company’s brands, including Electrolux, AEG and Frigidaire, approximately 60 million house- hold products are sold in more than 120 markets every year. In 2020, Electrolux had sales of SEK 116 billion and employed approximately 48,000 people around the world. For more infor- mation, visit www.electroluxgroup.com. KEY RESULTS 2020 26/36% products with leading performance accounted for 26% of total units sold and 36% of gross profit for consumer products in 2020 88% share of electricity from renewable sources -19% absolute CO2 emissions in operations during 2020 compared to 2019 10,000 took part in the Electrolux Food Foundation’s activities aimed at educating kids, adults and professionals in sustainable cooking and UN’s 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. 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 is a part of the company’s sustainability framework towards 2030. ELECTROLUX ANNUAL REPORT 2020 Sustainability reporting 87 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 Electrolux – 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 are expressed in the Group’s sustainability framework – For the Better – as nine promises with defined 2030 sustainability goals, and supported by key performance indica- tors (KPIs). See page 88 or www.electroluxgroup.com/sustain- ability for more details about For the Better. 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 greatest carbon emission impacts in the Electrolux value chain occur from energy consumption when products are used. See page 89 for more on the company’s Climate Targets. 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 2020 88 Sustainability reporting For the Better In 2020, Electrolux launched its new Group sustainability framework – For the Better 2030. The outgoing sustainability framework – For the Better 2020 – was also completed during the year. See the separate Electrolux Sustainability Report 2020 for more on the company’s sustainability achievements between 2015 and 2020. FOR THE BETTER The Electrolux new sustainability framework comprises of three areas: Better Solutions, Better Company and Better Living, which are divided into nine promises to make a positive difference for the better. For the Better 2030 includes the company’s Climate Targets and overarching objectives to become climate neutral and more circular. Better Solutions Better Company Better Living Lead in energy- and resourceefficient solutions Be climate neutral and drive clean and resource-efficient operations Make sustainable eating the preferred choice Offer circular products and business solutions Act ethically, lead in diversity and respect human rights Make clothes last twice as long with half the environmental impact Eliminate harmful materials Drive supply chain sustainability Make homes healthier and more sustainable through smart solutions for air, water and fl oors Support the UN Sustainable Development Goals and Climate targets Better solutions Electrolux works to continuously improve its products and services to make them better for consumers and the planet, and to take leadership on global sustainability challenges with a scientific and long-term approach. Lead in energy and resource-efficient solutions Tackling climate change and the increasing demand for water are among the most urgent challenges facing society. Electrolux con- tributes by offering resource-efficient products that help consum- ers to live better lives, save money and reduce their environmental footprint. In 2020, the most efficient products in the Electrolux range represented 26% of products sold and 36% of gross profit. Offer circular products and business solutions Electrolux aims to contribute to the circular economy by inte- grating recycled materials into product platforms, promoting recyclability, using more sustainable packaging solutions, increasing the availability of spare parts to repair Electrolux products, and developing circular business solutions. Progress in 2020 included setting ambitious targets to incorporate recycled materials into Electrolux products. Several circular business models were further developed during the year, including pilot projects with municipal housing companies in Sweden to maintain washing machines and subscription-based business models, such as for the award-winning Pure i9 robotic vacuum. 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 stakeholder require- ments are used to update the Group’s Restricted Materials List. During the year, the global roll out of the Eco@web tool contin- ued and implementation in Asia-Pacific and Egypt was com- pleted, including two recently acquired cooker hood factories. In 2020, Electrolux submitted a plan to the UN Cool Coalition ini- tiative to accelerate the removal of F-gases from new Electrolux products by 2023 at the latest. OPERATIONAL RESOURCE EFFICIENCY ELECTROLUX –50% CLIMATE TARGET FOR 2020 INDEX 100 80 60 40 20 0 –39% 16 17 18 19 20 Energy per standard unit Energy consumption CO2 emissions Water consumption This target aimed to reduce climate impact by 50% focusing on product efficiency, and it encompassed main product categories. Sales volumes and emission factors were normalized to 2005. The Group’s 50% target was not reached mainly due to delays in legislation and product efficiency regulation in key markets. The 50% target was established in 2013, before the UN Paris agreement in 2015 and launch of the Science Based Target (SBT) initiative. The Electrolux SBT now replaces the 50% target. For more results see the separate Electrolux Sustainability Report online. ELECTROLUX ANNUAL REPORT 2020 Sustainability reporting 89 Better Company Electrolux aspires to demonstrate its sustainability leadership throughout the company and acknowledges the supply chain as part of its promise as a brand. Be climate neutral and drive clean and resource-efficient operations Electrolux will continue to reduce its environmental footprint by shifting to renewable energy and optimizing energy use and other resources throughout its operations. The ambition is to have climate neutral operations by 2030. In 2020, absolute CO2 emissions were reduced by 19% compared to previous year, and energy efficiency improved by 45% compared to 2005. By the end of 2020, 53% of the total energy used came from renewable sources. In addition, the Group has its own solar photovoltaic systems in seven countries. Act ethically, lead in diversity and respect human rights Electrolux will earn the trust of everyone impacted by its opera- tions, demonstrating its commitment to ethics, diversity and human rights through its words and actions. This includes work- ing to ensure the health and safety of Electrolux employees, and promoting societal benefit through community investment activities. The Group achieved its lowest recorded injury rate level reaching TCIR 0.5 for 2020. Better Living Electrolux uses its global reach and presence to drive and con- tribute to positive change, reaching beyond the company’s own products and footprint. Make sustainable eating the preferred choice Electrolux will promote sustainable eating by helping consum- ers to reduce food waste, adopt more plant-based eating, minimize nutrition loss in cooking, and enhance sustainable eating experiences. By offering new products, solutions and partnerships, Electrolux can promote more sustainable eating. In 2020, Electrolux raised awareness on sustainable food habits through website food storage advice, an app and Electrolux Food Foundation initiatives with partners Worldchefs, WWF and AIESEC. Make clothes last twice as long with half the environmental impact Electrolux has the objective to make clothes last longer and reduce the environmental impact of garment care while caring for all fabrics. By providing new products, solutions, campaigns Climate targets The greatest carbon emission impacts in the Electrolux value chain occur from energy consumption when products are used. Electrolux has a Science Based Target that aligns its business with the objective in the Paris Agreement to limit global warm- ing to well below 2°C. This involves reducing absolute carbon THE ELECTROLUX CLIMATE NEUTRALITY ROADMAP 80% carbon emissions reduction in operations 25% carbon emissions reduction in produce use 1 Climate neutral operations 2 Climate neutral across the value chain 2015 2020 2025 2030 1) Science based target (SBT) Scope 1, Scope 2 and Scope 3 2) Electrolux Better Living Program Company target ELECTROLUX ANNUAL REPORT 2020 3) United Nations Global Compact Business Pledge Work with local human rights impact assessments continued during 2020, although work was affected by the coronavirus pandemic and some activities were conducted digitally. E-learnings on the Anti-corruption and Workplace Policies were rolled out during the year. Drive supply chain sustainability Electrolux will take its sustainability leadership agenda into the supply chain by working with suppliers to comply with the Group’s high expectations, no matter where they are located, and the company drives and supports the transition to more sustainable practices. The Responsible Sourcing Program partially shifted to digital activities in 2020 due to the Covid-19 pandemic. The total number of audits, both physical and digital, was 261 in 2020. The Electrolux Supplier Awards were reinvented in 2020, with sustainability added as a new category, reflecting the need for suppliers to support all For the Better 2030 promises. Electrolux also secured the commitment from its top 192 suppliers to dis- close emissions and set targets through the CDP Supply Chain Program, which will play a key role in achieving the company’s target for zero net carbon emissions throughout its supply chain by 2050. and partnerships Electrolux can promote more sustainable gar- ment care. In 2020, Electrolux inspired consumers to better care for their clothes and reduce water use through the global Make it last campaign. It also launched the 50L Home partnership with global brands and NGOs to re-imagining the use of water in homes and address water efficiency. Make homes healthier and more sustainable through smart solutions for air, water and floors Electrolux will inspire more sustainable habits in caring for homes, pioneer knowledge and new standards for a healthier home environment, and enable wellbeing at home with reduced environmental impact. By providing new products, solutions and partnerships, Electrolux can make the indoor environment healthier and more sustainable. In 2020, Electrolux signed the UN Cool Coalition initiative – as part of the initiative, we will replace all high-impact greenhouse gases in all of our appli- ances with more sustainable alternatives by 2023 at the latest. dioxide emissions from operations by 80% and emissions from products by 25% by 2025 compared to 2015, and has been verified by the Science Based Targets Initiative to be in line with a 1.5°C climate scenario. Electrolux has also committed to becoming carbon neutral in its operations by 2030, and through the UNGC’s Business Ambition for 1.5°C to have net zero emis- sions throughout its value chain by 2050. 1. Science Based Target (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 3 2050 90 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, 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. 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 electronic 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; Group 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. 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. • Electrolux Group Management makes decisions about sus- tainability priorities and monitors progress. • 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. • Sourcing Boards within Purchasing and Product Sourcing are responsible for monitoring supplier compliance, with the sup- port of the Responsible 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 Supplier Workplace Standard and the Workplace Directive. Compliance is mandatory when evaluating potential and exist- ing suppliers. The Group’s strategic suppliers of components and finished products must take energy efficiency measures, and report on energy and water. Some have also been included in the WWF Water Risk Filter assessment. Electrolux responds to the annual CDP Climate and Water questionnaires. In 2020, Electrolux achieved A both in CDP Climate and CDP Water. The Group’s proactive approach aims to develop and pro- mote sales of products with lower environmental impact. Readi- ness for more stringent product legislation, for example, can lead to increased sales. For many years, products with superior envi- ronmental performance have delivered higher profit margins. ELECTROLUX ANNUAL REPORT 2020 Sustainability reporting 91 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. The main environmental risks are related to regulatory and customer requirements (see pages 92 - 93). 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 Target 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 invest- ments contributing to reduced environmental impacts from the company’s products and operations. The proceeds are used to finance projects identified within environmental sections in the Electrolux sustainability framework For the Better. To increase the internal focus on actions to reduce climate change, a performance target linked to the Groups Science Based Target, within the long-term share-related incentive programs for senior managers, was implemented 2020. Please see Electrolux Green Bond Framework and Green Bond Impact Report: https://www.electroluxgroup.com/en/green-bond- framework-29317/ 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 rights, health, safety and environment within Electrolux and suppliers. Electrolux monitors performance and manages risks through internal and external audits, an annual self-assess- ment process for manufacturing units, local human rights assessments, education, 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 and the Conflict Minerals program Human rights procedures engage many functions through- out the organization, from Human Resources to Purchasing and Group Operations. Accountability for the ethics program and the oversight of human rights lies with the Ethics & Human Rights Steering Group, which comprises of senior management repre- sentatives 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 2020, the focus was on following up on the actions from the assessments conducted in Egypt, Thailand and Ukraine in 2017 and 2018. 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 2020, 258 (215) reports were received, out of which 16 (19) reports in the area of business integrity were investigated. Business integrity includes allegations related to corruption, fraud, theft, internal control and anti-trust. ELECTROLUX ANNUAL REPORT 2020 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 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. >16,000 employees completed the e-learning on the Anti-Corruption Policy during 2020 92 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 UN’s United for Efficiency program. 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 - High Ability to influence - Medium Generating value Products with leading envi- ronmental performance deliver customer value in line with the business strategy, while reducing negative impact on the environment. 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 35 finished goods factories and 5 factories mak- ing parts and accessories, and sales in 120 markets, with approximately 48,000 employ- ees. The main focus areas are to reduce the environmental footprint, maintain high ethical standards and working condi- tions, as well as to have a posi- tive 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 • Implement and maintain systems for environment, resource efficiency, and health and safety. • Governance systems and training to enforce sustainabil- ity policies. • Assess the climate impact on operations. • Conduct human rights impact assessments.Support local community programs. Ability to influence - High Generating value Electrolux creates commu- nity benefit by providing jobs, knowledge transfer and eco- nomic opportunities. Positive employee relationships pro- mote competence develop- ment, employee wellbeing and job satisfaction. Local commu- nity engagement creates good stakeholder relations, improves employee pride and enhances brand reputation. ELECTROLUX ANNUAL REPORT 2020 Sustainability reporting 93 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 product 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. • Disruptions caused by severe weather as a result of climate change. 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 2020 94 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 according to 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 potentially can affect Group performance for calendar year 2020. 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 17, 2021 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 2020 on pages 86-94 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 17, 2021 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 2020, 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, includ- ing SAM, OEKOM, CDP and UN Global Compact Top 100. ELECTROLUX ANNUAL REPORT 2020 Climate-Related Financial Disclosures 95 Climate-Related Financial Disclosures About this Report This is the first Electrolux climate report based on the Task Force on Climate-related Financial Disclosure (TCFD) recom- mendations. The purpose of the report is to assess how climate change could affect Electrolux in the long term, but also the role Electrolux plays in mitigating climate change. In accordance with the TCFD recommendations, this report is based on two potential future climate scenarios and how these could impact climate-related risks and opportunities for Electrolux in the future. The scenarios have been selected to represent two possible future developments paths, where each scenario is character- ized by different societal impacts. For each scenario long-term perspectives of 10 and 30 years have been used to assess climate-related risks and possibilities based on what the Group considers to be best available knowledge. The climate report describes the Group’s continuous assessment of climate-related risks and opportunities based on the development of stake- holder expectations, scientific findings, regulatory requirements and frameworks for company reporting. Electrolux is committed to annually publish a climate report based on the TCFD rec- ommendations and the company plans to further develop its reporting going forward, as climate science and more extensive analyses evolve. This report is structured around the four TCFD elements describing how organizations operate: governance, strategy, risk management, and metrics and targets. All these elements are related to climate-related risks and opportunities Governance Strategy Disclose the organization’s governance around climate-related risks and opportunities. Disclose the actual and potential impacts of climate- related risks and opportuni- ties on the organization’s businesses, strategy, and financial planning where such information is material. Risk Management Disclose how the organization identifies, assesses, and manages climate-related risks. Metrics and Targets Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. About TCFD The international Task Force on Climate-related Financial Disclosure (TCFD) was formed in 2015 by the Financial Stability Board and tasked with correcting the shortage of information regarding companies’ work with, and management of, climate change. In 2017, the TCFD released climate-related financial disclosure recommendations designed to help companies promote more informed investment, credit and underwriting decisions and enable stakeholders to better understand the financial system’s exposure to climate-related risks. Governance Electrolux has governance structures to effectively manage climate-related risks and opportunities. Climate change management The Electrolux climate change strategy is managed by Group Sustainability Affairs (GSA) in close cooperation with other Group staff functions and the Business Areas. The Head of GSA reports to the Chief Experience Officer (CXO) and has regular meetings with the Sustainability Board and Group Management. The CEO reports climate-related progress to the Board, which oversees the overall company strategy. The Electrolux Sustainability Board, chaired by the CEO, is a forum to raise sus- tainability topics and review the implementation of the different sustainability programs. Other members of the Sustainability Board are the Chief Financial Officer (CFO), Chief Operations Officer, CXO, Head ELECTROLUX ANNUAL REPORT 2020 of HR & Communications, General Counsel and Head of GSA. The Sustainability Board gives recommendations to Electrolux Group Management, which makes decisions about sustainabil- ity and climate-related issues. Group Risk Management manages the Electrolux Enterprise Risk Management (ERM) program. This program is governed by the ERM board, which consists of the CEO, CFO, General Counsel, Head of Group Internal Audit, and Head of Group Risk Management. The ERM program manages risks related to direct climate impacts and covers both identified and emerging risks, and with a time-horizon of around three years. To increase the internal focus on actions to reduce climate change, a performance target linked to the Group’s Science Based Target, within the long-term share-related incentive pro- grams for senior managers, was implemented 2020 (“LTI 2020”). 96 Climate-Related Financial Disclosures Strategy Climate change is a core element of the Electrolux Group sustainability framework, which includes the company’s climate targets, various climate-related activities and work with its stakeholders. For the Better 2030 The Group’s sustainability framework – For the Better 2030 – consists of Better Solutions, Better Company and Better Living. It covers all the lifecycle stages of the company’s products – from raw materials and manufacturing to product use and how Electrolux can contribute to more sustainable living for consum- ers around the world. For the Better 2030 includes the company’s work with climate change and its climate targets through the Electrolux Climate Neutrality Roadmap (see below). Climate-related topics in the sustainability strategy include the objective to ‘Be climate neutral and drive clean, resource-efficient operations’ (scope 1 and 2 emissions) and the objective to ‘Lead in energy- and resource-efficient solutions’ (scope 3 emissions). Scope 1 and 3 are also addressed through the objective to ‘Eliminate harmful materials’, by phasing out hydrofluorocarbons (HFCs). See the Electrolux Annual Report 2020, Sustainability Report- ing on p. 88 for more details about For the Better 2030. The Electrolux Climate Neutrality Roadmap The company’s long-term ambition is to ensure that its entire value chain is climate neutral by 2050. This supports the United Nation’s Global Compact – Business Ambition for 1.5° C, which Electrolux President and CEO Jonas Samuelson has signed. Two shorter-term company targets act as stepping stones to its long-term ambition: • Science Based Target – aims to reduce company scope 1 and 2 emissions by 80% between 2015 and 2025, and the absolute scope 3 emissions from the use of sold products by 25% during the same time period. • For the Better 2030 sustainability framework target – aims to achieve climate neutral operations by 2030 (scope 1 and 2 emissions). Climate targets include increasing the amount of renewable electricity from 88% in 2020 to 100% by 2025. Initiatives to contribute toward the company’s strategy Electrolux has a variety of initiatives that are fundamental for driving its climate objectives forward. These include financial mechanisms and partner collaboration. Electrolux Green Bond Framework In 2019, Electrolux became the first company in its industry to launch a Green Bond Framework to fund climate investments and other environmental initiatives. Long-term Incentive program Within LTI 2020 a performance target linked to reducing climate impact in accordance the Group’s Science Based Target was introduced. Examples of Electrolux climate-related collaboration United for Efficiency (U4E) – Electrolux participates in the United Nations led initiative United for Efficiency to support develop- ing countries and emerging economies in setting up effective product performance and labelling systems to help facilitate a complete market transformation to energy-efficient cooling appliances. Currently, only 50% of the use phase emissions from products sold by Electrolux are covered by product efficiency standards. The Cool Coalition – The Cool Coalition was initiated by UNEP with the objective to improve the energy efficiency and to reduce the environmental impact of cooling appliances. Electrolux has made the commitment to phase out or replace high-impact greenhouse gases in all appliances with gases that have low global warming impact by 2023. THE ELECTROLUX CLIMATE NEUTRALITY ROADMAP 80% carbon emissions reduction in operations 25% carbon emissions reduction in produce use 1 Climate neutral operations 2 Climate neutral across the value chain 2015 2020 2025 2030 1) Science based target (SBT) Scope 1, Scope 2 and Scope 3 1. Science Based Target (SBT) Scope 1 + Scope 2 – 80% reduction and Scope 3 – 25% reduction by 2025 2) Electrolux Better Living Program Company target 2. Company target, Climate neutral operations (Scope 1 + Scope 2 = 0) by 2030 3) United Nations Global Compact Business Pledge 3. UNGC Business ambition for 1.5 °C – climate neutral value chain by 2050 3 2050 ELECTROLUX ANNUAL REPORT 2020 Climate-Related Financial Disclosures 97 The Electrolux climate scenarios Electrolux mainly uses two different climate scenarios based on data from the International Panel on Climate Change (IPCC) and the International Energy Agency (IEA) to assess the resil- ience of its business. This includes its potential medium- and long-term climate-related risks and opportunities throughout the appliance industry value chain. According to the TCFD Recommendations, companies should base their climate-related risks and opportunities on two differ- ent climate scenarios. In alignment with these recommenda- tions, the two scenarios Electrolux uses have different levels of projected emission reductions over the time horizons of 10 years and 30 years1). They are referred to as the Rapid Transition Scenario and the Changing Climate Scenario. The Rapid Transition Scenario This scenario would involve rapidly declining emissions in the coming decades, resulting in a global average tem- perature rise of between 0.3°C to 1.7°C by 2100. This ‘very stringent’ pathway would require transitional changes to achieve the UN Paris Climate Agreement, including a decline in emissions from 2020. Key climate implications • A mean global warming increase of approximately 1.0 °C between 2046 and 2065. • A mean sea level increase of approximately 0.24 m between 2046 and 2065. Implications for the appliance industry • Stringent product energy legislation – will impact on product development and sales. • Carbon taxes – will impact on suppliers, operations and sales. • Digitalization and smart demand-side management – will impact on product development and sales. The climate implications in this scenario are based on the IPCC Scenario RCP 2.6 and the IEA SDS Scenario2). The Changing Climate Scenario This scenario would involve slowly declining emissions resulting in a temperature increase of approximately 1.4°C to 3.1°C by 2100. This ‘intermediate’ pathway would follow the current emission path to peak in 2040 with long- term physical risks as a result of climate change. Key climate implications • A mean global warming increase of approximately 1.4 °C between 2046 and 2065. • A mean sea level increase of approximately 0.26 m between 2046 and 2065. Implications for the appliance industry • Greater acute physical risks due to more frequent and/ or more severe weather systems, such as hurricanes and floods – will impact on suppliers, operations and trans- port in the appliance industry. • Greater chronic physical risks from changing climate conditions, such as droughts and sea level rise – will impact on suppliers, operations and transport in the appliance industry. The climate implications in this scenario are based on the IPCC Scenario RCP 4.5 and the IEA STEPS Scenario3). 1) Electrolux has based its climate scenarios and impacts on two different Representative Concentration Pathways (RCPs) developed by the IPCC (IPCC, 2014: Climate Change 2014: Synthesis Report). An RCP describes a greenhouse gas (GHG) concentration trajectory resulting in different climate futures, and ultimately results in different risks and opportunities for Electrolux based on this forecast. 2) See the Reporting Principles on page 99 for more technical detail on the Rapid Transition Scenario. 3) See the Reporting Principles on page 99 for more technical detail on the Changing Climate Scenario. Major scenario impacts on the Electrolux value chain The Rapid Transition and Changing Climate scenarios would both have material impact on the entire Electrolux value chain. However, their major impacts on the value chain would differ slightly (see the illustration below). MAJOR IMPACTS FROM THE TWO SCENARIOS ALONG THE VALUE CHAIN Rapid Transition Scenario Product development Suppliers Electrolux operations Transport Sales Consumer use End-of-Life Climate Change Scenario ELECTROLUX ANNUAL REPORT 2020 98 Climate-Related Financial Disclosures Risk management Electrolux has a thorough risk mapping and decision-making process that manages all risks for the Group. The two different climate scenarios result in a variety of risks and opportunities for Electrolux throughout its value chain. Enterprise Risk Management The Electrolux Enterprise Risk Management (ERM) framework and related processes identify, mitigate, communicate and report risks that can significantly affect the business. Electrolux follows a risk mapping process for the collection and incorpora- tion of risk information into decision making and governance processes. The ERM includes climate-related risks and the objective is to align the Climate Related Financial Disclosure with the ERM. Climate-related risks usually have a longer time- horizon than usual ERM-risk, with a shorter time-horizon. The Rapid Transition Scenario As a sustainability leader in its industry, Electrolux is well- positioned to meet the demands for stringent product energy legislation, carbon taxes and digitalization in the near future – to continue to create long-term shareholder value. As approximately 85% of an appliance’s climate footprint is in its use phase, Electrolux can play a role in meeting the need for energy efficient appliances that help mitigate the impact of climate change. Primary rapid transition risks • Increased costs related to designing resource-efficient prod- ucts – Electrolux has product development roadmaps with the objective to meet forthcoming energy labelling standards, such as the EU new labelling standards and stricter minimum energy performance standards (MEPS) to be implemented between 2021 and 2023. • Carbon taxes – Electrolux is well prepared to meet the risks of higher carbon taxes by driving resource and energy efficiency throughout the value chain. Carbon taxes on finished goods could also increase carbon import duties, such as the EU ‘ carbon border adjustment mechanism’. Opportunities • Industrial shift to renewable energy – Electrolux is already well on its way to carbon neutral operations by 2030. According to the projections in a study by Bloomberg New Energy Finance¹, Electrolux will not be negatively affected in its operations by the shift from fossil-based to renewable electricity. An industry shift to renewable energy could therefore provide Electrolux with a competitive advantage. • Product efficiency – More stringent product legislation and higher energy prices could drive the demand for energy efficient Electrolux products in the market. The International Monetary Fund (IMF) has concluded that a carbon tax of USD 75 per ton of CO2 would increase the average electricity price across G20 countries by 43% . • A growing market – The growing middle class, in particular in Asia and Africa, will continue to expand the market for house- hold appliances. • Electrification – The IEA estimates that there is potential for 2.6 billion people to shift from wood burning stoves to using clean cooking appliances. Electrolux can help meet this demand for clean and efficient appliances. The Changing Climate Scenario In this scenario, Electrolux must adapt to a changing climate in terms of more frequent and/or more severe weather systems and greater chronic physical risks from changing climate condi- tions. Electrolux has started to include “The Changing Climate Scenario” in its loss prevention program - Blue Risk program - to improve resilience of its own operations, supply chain and trans- port systems, and plans to make more detailed assessments in the coming years. Action on this insight will enable Electrolux to continue to create long-term shareholder value. Primary acute and chronic physical risks • Electrolux operations – Recent internal assessments have not found that Electrolux factories have significant risks related to greater acute and chronic physical risks due to more frequent and severe weather systems and changing climate conditions. However, more detailed analyses will be conducted based on reputable external sources, such as the IPCC: -Acute physical risks – IPCC predict that the scenario will result in greater acute physical risks, such as more frequent hur- ricanes. -Chronic physical risks – IPCC does not predict a significant increase in chronic physical risks due to this scenario in the next 30 years, although uncertainty is high. • Electrolux suppliers – Significant risks exist among Electrolux suppliers, although the company has a large amount of flexibility in its supply chain, which will adapt to the changing conditions to meet market needs as more resilient suppliers survive and thrive. • Transport systems – The global logistical systems Electrolux relies on for the movement of its raw materials, components and finished goods are thought to be resilient to acute and chronic physical risks as alternative logistical arrangements can always be made. However, more investigation is required. Opportunities • Consumer demand – the need for air conditioning is expected to grow in a warmer world, particularly in Asia and Africa with a growing middle class. Electrolux can meet this growing market demand. • A growing market – The growing middle class, in particular in Asia and Africa, will continue to expand the market for house- hold appliances. • Electrification – The IEA estimates that there is potential for 2.6 billion people to shift from wood burning stoves to using clean cooking appliances. Electrolux can help meet this demand for clean and efficient appliances. Future development Electrolux will continue to develop its climate scenario analy- ses and assess the potential impacts on its operations. Future development includes: • Integrating climate risks in the Group’s ERM • Define climate risks for specific factory locations • Update the Electrolux water risk using the WWF Water Risk Filter for Electrolux factories 1) International Monetary Fund (2019). Fiscal Monitor, How to Mitigate Climate Change page 21. ELECTROLUX ANNUAL REPORT 2020 Climate-Related Financial Disclosures 99 CLIMATE-RELATED RISKS AND IMPACTS OF THE RAPID TRANSITION AND THE CHANGING CLIMATE SCENARIOS Scenario The Rapid Transition Scenario The Changing Climate Scenario Risk Area Product energy legislation Carbon dioxide price/tax Physical Risk – Acute Physical Risk – Chronic Potential impact on Electrolux Transformation investments Increase in price for raw materials Interruptions in manufacturing and supply chain Relocation of manufacturing Financial Impact Area Costs, Sales, Reputation Costs, Sales Costs, Sales Costs Risk (0-3 years) Emerging Risk (3-10 years) Long-term Risk (10- years) Metrics and Targets Electrolux has comprehensive reporting systems that include various metrics and targets to assess and manage relevant climate-related risks and opportunities. In 2020, Electrolux was included in the CDP climate A list for the fifth time. Electrolux also reports in accordance with the GRI Standards. The following climate related KPIs are reported in the sepa- • Greenhouse gas emissions intensity in ton CO2 per million SEK (GRI 305-4) • Reduction of GHG emissions (GRI 305-5) • Emissions of ozone-depleting substances (GRI 305-6) Science Based Target (Scope 1, 2, and 3) • Electrolux CDP report (www.cdp.net) rate Sustainability Report: • Energy consumption within the organization (GRI 302-1) • Direct and Indirect CO2 emissions, including fugitive emissions (GRI 305-1, 305-2) Details on the company’s overall climate performance are found on page 89 in the Annual Report and detailed perfor- mance is reported in the separate Electrolux Sustainability Report 2020. REPORTING PRINCIPLES This section provides some additional technical detail behind the scenarios and the report’s assumptions. Electrolux has based its climate scenarios and impacts on two different Representative Concentration Pathways (RCPs) devel- oped by the IPCC (IPCC, 2014: Climate Change 2014: Synthesis Report). An RCP describes a greenhouse gas (GHG) concentra- tion trajectory resulting in different climate futures, and ultimately results in different risks and opportunities for Electrolux based on this forecast. The Rapid Transition Scenario The Rapid Transition Scenario is based on RCP 2.6, which would involve rapidly declining emissions in the coming decades, resulting in a global average temperature rise of approximately between 0.3-1.7 °C by 2100. For this scenario, the IEA concludes that over- all CO2 emissions need to peak around 2020 and enter a steep decline thereafter to achieve a 75% reduction by 2050. The building sector, including appliances, will see a similar drop, mainly through energy efficiency, renewable energy technologies and a shift to low-carbon electricity. This means reducing carbon emissions by an average of 6% per year to one-eighth of current levels by 2050. At the same time, demand for electricity in the building sector is expected to increase as a result of a growing consumer base, as well as a rising demand for equipment such as air conditioners and the replacement of gas and wood-burning stoves with electric appliances. The IEA concludes : • Significant policy efforts are needed for cooling equipment and appliances to accelerate technological progress in these end uses, particularly with substantial growth in appliance and air conditioner (AC) ownership expected in the coming decade. • Digitalization and smart demand-side management will further reduce energy use. A combination of stringent product energy legislation as well as carbon dioxide taxes would be required, which would impact on product development, supply base, operations and sales in the appliance industry. Higher carbon dioxide taxes are recom- mended by the IEA and in the EU Green Deal framework. Carbon prices are expected to have an impact on energy intensive industries such as power generation, transport, steel, aluminum and plastics producers. Finished goods could also be impacted through carbon import duties, such as the EU ‘carbon border adjustment mechanism’. The World Bank has estimated that carbon prices of at least USD 40–80/tCO2 by 2020 and USD 50–100/tCO2 by 2030 are required to cost-effectively reduce emissions in line with the tem- perature goals of the Paris Agreement. In a report from the Interna- tional Monetary Fund (IMF) , it was concluded that a carbon tax of USD 50 per metric ton in advanced countries (G20) would lead to ELECTROLUX ANNUAL REPORT 2020 an average electricity price increase of 33%, while a carbon tax of USD 75 per metric ton would lead to an increase in price of 43%. Today, prices for renewable and fossil-based electricity are comparable, but prices are expected to decline for renewables by around 50% over the next 10 years, while fossil-based electricity will increase by 40% according to data from Bloomberg New Energy Finance. With a USD 75 per metric ton carbon tax, the price of natural gas, both for industry and households (mostly for heating and cooking) would rise significantly, by 70% on average. The Changing Climate Scenario The Changing Climate Scenario is based on RCP 4.5, which would involve slowly declining emissions resulting in approximatley between 1.4-3.1°C temperature increase by 2100. The IPCC has conducted risk assessments for each region, including the potential for risk reduction through adaptation and mitigation, as well as limits to adaptation. In the near term (2030–2040 or in 10 years), projected levels of global mean temperature increase are not expected to diverge substantially between different emission scenarios. However, the IPCC predicts that by the mid-century (in 30 years), climate change will impact human health, with more frequent hot and fewer cold temperature extremes over most land areas. It is also very likely that heat waves will occur with a higher frequency and longer duration. The average intensity of tropical cyclones, the proportion of Category 4 and 5 tropical cyclones and the associated average precipitation rates are projected to increase with a 2°C global temperature rise. Sea levels continue to rise at an increasing rate. Extreme sea level events that are historically rare (once per century in the recent past) are projected to occur frequently (at least once per year) in many locations by 2050. The Changing Climate Scenario will increase acute physical risks due to more frequent and/or more severe weather systems, such as hurricanes and floods. It will also increase chronic physical risks from changing climate conditions, such as droughts and sea level rise. These physical impacts pose risks for disruption in the appliance industry, due to the global nature of its operations and supply chain – particularly in the manufacturing of materials and components that are situated in parts of the world that are more likely to be affected by physical risks. World Energy Outlook The World Energy Outlook (WEO) , published annually by the International Energy Agency (IEA), includes critical analysis and descriptions of trends in energy demand and supply. It explores possible scenarios, how they could develop and some of the main uncertainties to predict the consequences of different choices and what they mean for energy security, environmental protection and economic development. The IEA defines two scenarios: • The Sustainable Development Scenario (SDS) – a deep decar- bonization scenario that considers how people should gain access to critical energy services while also meeting climate goals. • The Stated Policies Scenario (STEPS) – reflecting current policies and plans. The SDS Scenario is considered to reflect the Group’s Rapid Transi- tion Scenario, while the STEPS Scenario is more in line with the Changing Climate Scenario. The IEA report provides recommen- dations to policy makers regarding sectors and product categories in order to achieve the targets in the scenarios. Disclosure limitations and future development The following aspects have not been included in this TCFD Report: • Growing consumer demand – driven by a growing middle class, increasing global incomes, electricity access rates and owner- ship of appliances and air conditioners. • Price elasticity – consumer willingness to pay a higher price for more efficient appliances as a result of more stringent energy efficiency legislation. • Mitigable risks – chronic physical risks will develop over time and could be mitigated by taking action well before they have mate- rialized to minimize negative impact. Forward-looking statements This report contains ‘forward-looking’ statements that reflect the company’s current expectations. Although Electrolux believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations prove to be correct as they are subject to risks and uncertainties that could cause the actual results to differ materially due to a vari- ety of factors. These factors include, but are not limited to, changes in consumer demand, changes in economic, market and com- petitive conditions, supply and production constraints, currency fluctuations, developments in product liability litigation, changes in the regulatory environment and other government actions. Forward-looking statements are only accurate as of when they were formulated, and other than as required by applicable law, the company undertakes no obligation to update any of them in light of new information or future events. 1) IEA (2018). Perspectives for the Energy Transition: The Role of Energy Efficiency. 2) The World Bank Group (2020)), State and Trends of Carbon Pricing. 3) International Monetary Fund (2019). Fiscal Monitor, How to Mitigate Climate Change. p21 4) IEA, The World Energy Outlook (WEO) 2019 Corporate Governance Report 2020 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 The year marked a milestone in Electrolux history with the distri- bution of Electrolux Professional AB in March 2020, which was an important step in reshaping Electrolux into a focused consumer centric company well positioned to meet the current market and drive product innovation in order to further deliver on our profitable growth strategy. The coronavirus pandemic has imposed unprecedented challenges. However, the company has successfully mitigated these challenges by e.g. effective cost savings and reprioritizing capital expenditures. Both long-term and short-term actions have been guided by Electrolux strategy to become a sharp, consumer centric business enhancing consumer experiences. The long-term strategy has enabled the company to capture the change in consumer behavior induced by the pandemic such as the increased focus on digitalization and the growing online and e-commerce trend. Electrolux continued to execute on the re-engineering program during the year with extensive investments in automated and modularized manufacturing in Brazil and North America to further strengthen cost competitiveness and drive profitable growth. Although a significant part of the first half year 2020 was extremely challenging with an initial focus on securing access to liquidity if the markets would not recover quickly the overall out- come for the full year showed increased earnings and margins with a very strong cash flow. I am pleased that a dividend pay- ment could be made during the year and can also report that Electrolux in 2020, as one of the first companies listed on Nas- daq Stockholm, implemented a long-term incentive program for senior executives which includes a sustainability target. The pandemic has also affected the Board’s work, not allow- ing travel or physical meetings. However, by adapting the ways of working by, for example, the use of digital tools, the Board’s work has progressed well and the annual Board evaluation sup- ports this picture. 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 Electrolux employees for their exceptional work efforts during an exceptionally chal- lenging year. Staffan Bohman Chairman of the Board ELECTROLUX ANNUAL REPORT 2020 Corporate Governance Report 2020 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 130 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 Companies Act, Nasdaq Stockholm’s Nordic Main Market Rulebook for issuers of Shares ("Rulebook for Issuers") and the GOVERNANCE STRUCTURE Swedish Code of Corporate Governance (the “Code”), as well as other relevant Swedish and foreign laws and regulations. The Code is published on the website of the Swedish Cor- porate 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. Regarding deviations from the Code in 2020 see "Deviations from the Code" on page 111. 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 2020. Below is Electrolux formal 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. • Rulebook 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 2020, Electrolux had sales of SEK 116bn and employed 48,000 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 2020 Corporate governance report 103 Highlights 2020 • Re-election of Staffan Bohman as Chairman of the Board. • Election of two new Board members, Henrik Henriksson and Karin Overbeck. • Distribution of Electrolux Professional AB to the shareholders of Electrolux. • Performance-based, long-term incentive program for senior management with a new sustainability target. Shares and shareholders The Electrolux share is listed on Nasdaq Stockholm. At year- end 2020, Electrolux had approximately 59,400 shareholders according to Monitor by Modular Finance AB. Of the total share capital, 60% was owned by Swedish institutions and mutual funds, 33% by foreign investors and 7% by Swedish private inves- tors, see below. Investor AB is the largest shareholder, holding 16.4% of the share capital and 28.4% of the voting rights. The ten largest shareholders accounted for 48.3% of the share capital and 57.6% 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, 2020, 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%. Ahead of the Annual General Meeting (AGM) in March 2020 the Board withdrew the dividend proposal for the financial year 2019 due to the uncertain situation with the coronavirus pan- demic. However, in September 2020 the situation had improved significantly and the Board announced its proposal to reinstate a dividend for the finacial year 2019 of SEK 7.00 per share which was resolved upon by an Extraordinary General Meeting (EGM) in November, 2020. 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 requirements for participation apply to share holders with holdings in the form of American Depositary Receipts (ADR) or similar certificates. Hold- ers 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 nor- mally request the Electrolux Board to do so. The last date for making such a request for the respective meeting will be pub- lished 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 2020 The 2020 AGM was held at the Stockholm Waterfront Congress Centre in Stockholm, Sweden, on March 31, 2020. 693 share- holders representing a total of 50.6% of the share capital and 63.3% of the votes were represented at the AGM. In order to limit the risk for further spreading of the coronavirus a number of actions were taken to minimize the risk for those who were pre- sesent at the AGM and also to limit the number of participants physically present. For example the entire AGM was broad- casted live via the Group’s website www.electroluxgroup.com/corporate-governance. OWNERSHIP STRUCTURE ATTENDANCE AT AGMS 2016–2020 Swedish institutions and mutual funds, 60% Foreign investors, 33% Swedish private investors, 7% Source: Monitor by Modular Finance AB. Compiled and processed data from various sources, including Euroclear, Morningstar and the Swedish Financial Supervisory Authority (Finansinspektionen) as per December 31, 2020. The foreign ownership was 33% at year-end 2020 and 33% at year-end 2019. 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 2020 % 75 60 45 30 15 0 % of share capital % of votes Shareholders ATTENDANCE 1,200 1,000 800 600 400 200 16 17 18 19 20 693 shareholders representing a total of 50.6% of the share capital and 63.3% of the votes were present at the 2020 AGM. 104 Corporate governance report Decisions at the Annual General Meeting 2020 included: • Re-election of the Board members Staffan Bohman, Petra Hedengran, Ulla Litzén, Fredrik Persson, David Porter, Jonas Samuelson and Kai Wärn. Hasse Johansson and Ulrika Saxon declined re-election. • Election of Henrik Henriksson and Karin Overbeck as new Board members. • 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. • 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 2018. The meeting was held in Swedish, with simultaneous interpreta- tion into English. Due to the situation with the coronavirus pan- demic only a limited number of Board members were present together with the Group's auditor. Extraordinary General Meeting February 2020 An EGM of AB Electrolux was held on Friday, February 21, 2020, at AB Electrolux headquarter, S:t Göransgatan 143, Stockholm, Sweden. The EGM resolved to distribute all shares in Electrolux Professional AB to the shareholders of AB Electrolux. Extraordinary General Meeting November 2020 An EGM of AB Electrolux was held on Tuesday, November 3, 2020. The EGM was carried out by means of postal voting only without the possibility to participate physically. The meeting resolved on a dividend for the fiancial year 2019 of SEK 7.00 per share and on the implementation of a performance based long- term share program for 2020 which included a new sustainability target. The EGM also resolved on amendements to the articles of association. Annual General Meeting 2021 The next AGM of AB Electrolux will be held on Thursday, March 25, 2021. Due to the coronavirus pandemic, the Board of Direc- tors has decided that the AGM should be conducted without the physical presence of shareholders, representatives or third parties and that the shareholders before the meeting should be able to exercise their voting rights only by voting in advance, so-called postal voting. However, the shareholders will be able to ask questions in writing ahead of the meeting. For additional information on the next AGM and how to register attendance, see page 123. 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. • Remuneration Report. • Other important matters. 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 shareholders and their representatives shall be announced as soon as they have been appointed. If the 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 2020 The Nomination Committee for the AGM 2020 was comprised of six members. Johan Forssell of Investor AB led the Nomination Committee’s work. For the proposal for the AGM 2020, 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 Hasse Johansson and Ulrika Saxon who had declined re-election. The Nomination Committee also proposed Henrik Henriksson and Karin Overbeck as new Board members and re-election of Staffan Bohman as Chairman of the Board. After the election at the AGM 2020, three out of eight Board members elected at the shareholders’ 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 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 2020 Corporate governance report 105 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 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 to be held in conjunction with the publication of the Group’s full-year report and interim reports. One or two meetings are to be held in connection with visits to Group operations. Additional meetings, including telephone conferences, are held when necessary. of Deloitte AB as the company’s auditors for the period until the end of the AGM 2021. 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 2020. 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 2021 The Nomination Committee for the AGM 2021 is based on the owner ship structure as of August 31, 2020, and was announced in a press release on September 22, 2020. The Nomination Committee’s members are: • Johan Forssell, Investor AB, Chairman • Carina Silberg, Alecta • Marianne Nilsson, Swedbank Robur Funds • Tomas Risbecker, AMF - Försäkring och Fonder • Staffan Bohman, Chairman of Electrolux • Fredrik Persson, Board member of Electrolux 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. Two of the nine Board members, who are elected by the AGM, are not Swedish citizens. 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 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 2018–2020 (applicable as from the respective AGM) SEK 2020 2019 2018 Chairman of the Board 2,200,000 2,200,000 2,150,000 Board member Chairman of the Audit Committee 640,000 640,000 600,000 280,000 280,000 260,000 Member of the Audit Committee 160,000 160,000 140,000 Chairman of the Remuneration Committee Member of the Remuneration Committee 150,000 150,000 125,000 100,000 100,000 75,000 ELECTROLUX ANNUAL REPORT 2020 106 Corporate governance report Key focus areas for the Board during 2020 • Effects and impacts of the coronavirus pandemic. • Adapting Electrolux strategy and business model to global industry drivers such as increased consumer power, digitalization, sustainability, consolidation,and a growing middle class. • Dividend payment for the financial year 2019. • Continued focus on the new organizational structure focusing on consumer experiences. • The listing and distribution of Electrolux Professional AB. • Continued focus on the re-engineering program with investments in Brazil and North America. • Global streamlining measures to improve efficiency and sharpen the consumer experience organization. The Board’s work in 2020 During the year, the Board held twelve meetings. The attend- ance 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. 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. 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 2020, 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 remained unchanged during 2020, 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 2020 • Q4, Consolidated results. • Report by external auditors. • Dividend. • Proposals for the AGM. Statutory Board meeting: • Appointment of committee members. • Signatory powers. Ordinary Board meetings Audit Committee Remuneration Committee • • • Jan • Feb • • March • Q1 Quarterly financial statements. • • Apr May June July Aug Oct Nov Dec • • • • • • • • Sep • • • 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 2020 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 members of Group Management on proposal by the President. The Remuneration Committee shall also review the Board's report on remuneration pursuant to Chapter 8, Section 53 a of the Swedish Companies Act ("Remuneration Report") The Committee has consisted of the following three Board members: Petra Hedengran (Chairman), Staffan Bohman and Kai Wärn. At least two meetings are convened annually. Additional meetings are held as needed. In 2020, the Remuneration Committee held five 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, review of the Remuneration Report for 2020 and review and preparation of long-term incentive program and for 2021. 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 2020, the Audit Committee held eight meetings. The attend- ance 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 meetings regarding specific issues. The Group’s Chief Financial Officer and from time to time other senior management members 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. • To review the Remuneration Report 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 external auditors. • Rules of procedure of the Board. • Board work evaluation. • Q2 Quarterly financial statements. • Q3 Quarterly financial statements. Ordinary Board meetings Audit Committee Remuneration Committee • • • Jan • Feb • • March Apr May • • • June • • • July • • Sep Aug • • Oct Nov • • • Dec ELECTROLUX ANNUAL REPORT 2020 108 Corporate governance report External Audit External auditors The AGM in 2020 re-elected Deloitte AB (Deloitte) as the Group’s external auditors for one year, until the AGM in 2021. 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 2020 2019 2018 63 2 4 0 69 — 0 69 47 10 1 1 59 — — 59 42 1 1 1 45 4 — 49 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. 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 foun- dation of Operational Excellence and Talent, Teamship and Continuous Improvement, as well as three important transfor- mational drivers; Emerging markets acceleration, Digital trans- formation and Sustainable development. Electrolux objective is to grow with consistent profitability, see the financial targets on page 109. A sustainable business Sustainability leadership is crucial to realizing the Electrolux strategy for long-term profitable growth. In 2020, Electrolux most resource-efficient products represented 26% of products sold and 36% 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. Electrolux has a Code of Conduct, which sets out the framework of how Electrolux shall conduct its operations in ethical and sus- tainable 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. There is regular training and communication of the Code and Group Policies, and in 2020 online trainings in the Anti-corruption Policy and the Workplace Policy were rolled out to office based employees. At year end the completion rates were 79% and 66% for the Anti-corruption and Workplace trainings respectively. The Ethics Program encompasses a global whistleblowing system – Ethics Helpline – through which employees can report suspected misconduct in local languages. Reports may be sub- mitted anonymously if legally permitted. The largest categories of reports in 2020 related to workplace conduct, verbal abuse and other types of disrespectful behavior. 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 2020 Corporate governance report 109 disruptive events related to natural hazards. Annual risk surveys and visits are performed, and a consolidation of the results is reported to the ERM Board. ERM as part of the Group’s risk management Electrolux has implemented an Enterprise Risk Management (“ERM”) program which covers Electrolux business areas as well as global functions. It is overseen by Group Management and the ERM Board, which is also responsible for securing appropri- ate insurance coverage for insurable risks and assesses and facilitates the prioritization of the Group risks. The ERM framework includes processes aimed to identify and mitigate as well as communicate and report risks with a spe- cial focus on key risks that can significantly affect the business. Electrolux follows a risk mapping process which is a manage- ment tool for formal collection and incorporation of risk infor- mation into decision making and governance processes. The risk mappings are therefore a key part of Electrolux ERM and help to increase the understanding that risk management is a critical factor for decision making and for driving value. The core of the risk mapping process is to identify and evaluate existing and emerging risks, thus enabling the possibility of leveraging risk and risk management options that extract value. Risks are categorized in accordance with Electrolux Group Risk Universe which includes the following risk categories: strategic, external and internal risks. Strategic risks are risks that can jeopardize the execution of the Group’s strategy and are impacted by external factors such as industry shifts, macroe- conomic developments or political instabilities. External risks consist of natural hazards, geopolitical risks, market risks or regulations, which can negatively impact the Group’s perfor- mance. Internal risks mainly consist of operational risks such as sustainability risks, cyber security risks, supply chain risks and talent retention risks. Electrolux also monitor emerging risks. They can either develop from macro-level changes such as global warming, consumer behavior or the introduction of AI – artificial intel- ligence, or from risks that are closer to home (resulting from industry/sector prospects and trends etc.). The Group’s risk appetite is based on the impact on its strat- egy that a risk would have if it materializes. Key risks are linked to action plans to close risk management gaps and follow up how risks are evolving after implementation of risk reducing measures. Risk ownership for critical risks is assigned to business area executives or individuals formally appointed to work with ELECTROLUX TOTAL TAXES 2020 Employer tax & fees, 29.8 % Corporate tax, 13.3% Property tax, 1.4 % Customs, 24.5% Indirect tax, 25.3 % Environmental tax & fees, 5.6% 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%. 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 2020 a local impact assessment was conducted of the manufacturing operations in Romania. The Group’s sustainability performance strengthens relations with investors and Electrolux is recognized as a leader in the household durables industry. In 2020, 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. Read more about Electrolux sustainability work: www.electroluxgroup.com/sustainability Electrolux as a tax payer 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 48,000 employees with sales in more than 120 markets. Of Electrolux Group total tax contribution, as defined in the below chart, corporate tax represented approximately 13% in 2020. 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 2020 amounted to approximately SEK 8.3bn 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 1.1bn in 2020, repre- senting a global effective tax rate of the Group of 21.7%. For more information on Electrolux tax policy, see: www.electroluxgroup.com Risk management Active risk management is essential for Electrolux to drive successful operations. The Group is impacted by various types of risks. The Group’s risk management approach follows a decentral- ized structure, where all business areas are responsible for their risk management. However, the Board of Directors is ultimately responsible for Electrolux risk management. In addition to the business areas, the Group has established internal bodies that manage risk exposures on a regular basis. Examples of internal bodies are the Enterprise Risk Management (ERM) Board, the Ethics & Human Rights Steering Group, the Audit Board and the Tax Board. Insurance and loss prevention Electrolux transfers part of its risks via tailored insurance pro- grams. Insurable risks are continuously evaluated and moni- tored by the ERM Board. The Group also own two captives to ensure customized insurance solutions and costs efficiencies. Electrolux loss prevention strategy is also widely developed, to ensure that the Group assets have the right level of protection against risks such as natural hazards, which could lead to prop- erty losses and business interruption. The Group has established loss prevention procedures and standards to be applied by each Electrolux site. Business continuity plans are also elabo- rated and regularly reviewed to ensure successful response to ELECTROLUX ANNUAL REPORT 2020 110 Corporate governance report specific risks. The approach ultimately supports a risk culture that encourages engagement and accountability within the organization 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. Electrolux operations are organized into four geographically defined business areas. Six group staff functions supports the business areas: Finance, Legal Affairs, HR & Communications, Group IT, Group Operations and Global Consumer Experience organization. The Global Consumer Experience organization is globally responsible for areas such as marketing, design, R&D, product 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 Group Operations with the responsibility for purchasing, manufactur- ing and quality. President and Group Management President and Group Management Group Management currently includes the President, the four 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 six different national- ities. 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 during 2020. On March 16, 2020 it was announced that Adam Cich would replace Dan Arler as new head of the business area Asia-Pacific, Middle East and Africa with immediate effect. Adam Cich was also appointed Executive Vice President. On August 18, 2020 it was announced that Jan Brockmann would resign from his position as Chief Operations Officer on September 30, 2020. On September 16, 2020 it was announced that Carsten Franke had been appointed new Chief Operations Officer and Executive Vice President with effect from October 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 Key focus areas for the President and Group Management in 2020 • Responding to the volatile environment caused by the coronavirus pandemic. • Continuing to drive sustainable consumer experience innovation under sharpened brands. • Strengthening e-commerce capabilities. • Further developing the aftermarket business. • Executing on re-engineering investment program, pri- marily in North America and Latin America. • Launching and implementing new sustainability frame- work, For the better 2030. • Implementing price increases to mitigate currency headwinds, particularly in Latin America. • Appointment of new Group Management members. INTERNAL BODIES President and Group Management Internal bodies Insider & Disclosure Committee Enterprise Risk Management Board Ethics & Human Rights Steering Group Sustainability Board Tax Board Pension Board Sourcing Board Audit Board ELECTROLUX ANNUAL REPORT 2020 Corporate governance report 111 Deviation from the Code Deviation from the Code The Board of Directors proposed a performance-based, long-term incentive program for 2020 (LTI 2020) ahead of the AGM 2020. In light of the then prevailing uncertainties due to the coronavirus pan- demic the Board decided to withdraw the proposal for LTI 2020 together with the dividend proposal. The proposal for LTI 2020 was unilateraly withdrawn under exceptional circumstances. Given that these circumstances no longer applied the Board decided in September 2020 to convene an extraordinary gen- eral meeting to resolve upon the reinstated dividend proposal and the proposal for LTI 2020 corresponding to the proposal that was withdrawn ahead of the AGM 2020. The LTI program is a tool to align the interests of the senior executives and the inter- ests of the shareholders, it is also an important component in the executive remuneration. Furthermore, LTI 2020 includes a new performance measure which refers to reduction of CO2 in the Group’s business. By implementing the program the importance of prioritizing this area to the senior management members is also emphasized. In light of the above it was determined to be in the interest of the company and the shareholders to implement the program during 2020. The extraordinary general meeting held on November 3, 2020 resolved to approve the Board’s proposal for LTI 2020. The performance period for the financial targets are the financial year 2020 and for the sustainability target the three financial years 2020-2022 and any allocation of shares will take place in the first half of 2023. Although the performance periods started on January 1, 2020, the participants were not invited to the program until November 2020 following the general meeting’s decision. In the event this would mean that the duration of the program would be considered to be shorter than three years, the implementation of the program would constitute a devia- tion from the Code’s rule 9.7, the reasons for the deviation are referred to above. 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. 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 of Directors. 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 EGM in November 2020 decided on a long-term share program for 2020 ("LTI 2020") for up to 350 senior managers and key employees. LTI 2020 includes a new CO2 reduction perfor- mance target. 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 2020 2020 2021 2022 2023 Performance period CO2 reduction Performance period ﬁnancial targets Start 1 2 3 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, for the 2020 financial year, and (iii) CO2 reduc- tion for the financial years 2020-2022. Allotment of performance shares, if any, to the participants will be made in 2023. Invitations to participants in the program. Performance shares allotted. ELECTROLUX ANNUAL REPORT 2020 112 Corporate governance report Board of Directors and Auditors STAFFAN BOHMAN Chairman JONAS SAMUELSON President and CEO 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 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: 85,000 B-shares. 120,279 call options, issued by Investor AB entitling the right to purchase Electrolux B shares. Born 1968. Sweden. M.Sc. Econ. Elected 2016. Other assignments: Board Member of Polygon AB, Axel Johnson AB and Volvo Cars 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: 64,866 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. HENRIK HENRIKSSON ULLA LITZÉN Born 1970. Sweden. B.Sc. in Business Administration. Elected 2020. Other assignments: President and CEO of Scania AB. Board member of Hexagon AB and Scania AB Previous positions: Various senior positions within Scania including Export Director in Scania South Africa Pty Ltd in Johannesburg, South Africa. Holdings in AB Electrolux: 425 B-shares. 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 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. 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 Ellevio AB. Board Member of Hufvudstaden AB, ICA Gruppen AB, Interogo Holding AG 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: 5,000 B-shares. DAVID PORTER 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: 3,315 B-shares. KARIN OVERBECK Born 1966. Germany. M.Sc in Economics, Marketing and Finance. Elected 2020 Other assignments: CEO of Freudenberg Home and Cleaning Solutions GmbH. Previous positions: Various senior positions within the KAO Corporation as well as in L’Oréal, Tchibo and Unilever. Holdings in AB Electrolux: 1,120 B-shares. KAI WÄRN Born 1959. Sweden. M.Sc. in Mechanical Engineering. Elected 2017. Member of the Electrolux Remuneration Committee. Other assignments: Chairman of the Board of Electrolux Professional AB. Board mem- ber of Sandvik AB. Previous positions: President and CEO of Husqvarna AB. 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. ELECTROLUX ANNUAL REPORT 2020 EMPLOYEE REPRESENTATIVES MINA BILLING Born 1980. Representative of the Federation of Salaried Employees in Industry and Services Elected 2020. Board meeting attendance: 7/12 Holdings in AB Electrolux: 0 shares. VIVECA BRINKENFELDT LEVER Born 1960. Representative of the Federation of the Salaried Employees in Industry and Service. Elected 2018. Board meeting attendance: 12/12 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: 12/12 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: 7,839 B-shares. COMMITTEES OF THE BOARD OF DIRECTORS Remuneration Committee Petra Hedengran (Chairman), Staffan Bohman and Kai Wärn. 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: Boliden AB and Electrolux Professional AB. Holdings in AB Electrolux: 0 shares. At the Annual General Meeting in 2020, Deloitte AB was re-elected as auditors for a period of one year until the Annual General Meeting in 2021. EMPLOYEE REPRESENTATIVES, DEPUTY MEMBERS ULRIK DANESTAD Born 1969. Representative of the Federation of Salaried Employees in Industry and Services. Elected 2020. RICHARD DELLNER Born 1953. Representative of the Federation of Salaried Employees in Industry and Services. Elected 2013. Holdings in AB Electrolux: 20 B-shares. Holdings in AB Electrolux: 500 B-shares. WILSON QUISPE Born 1978. Representative of the Federation of Salaried Employees in Industry and Services. Elected 2020. Holdings in AB Electrolux: 500 B-shares. Holdings in AB Electrolux are stated as of December 31, 2020 and includes holdings of related natural and legal persons, when applicable. THE BOARD’S REMUNERATION DURING 2020, MEETING ATTENDANCE AND INDEPENDENCE Staffan Bohman Petra Hedengran Henrik Henriksson2) Hasse Johansson3) Ulla Litzén Karin Overbeck2) Fredrik Persson David Porter Jonas Samuelson Ulrika Saxon3) Kai Wärn Total remuneration 20 20, '000 SEK Board meeting attendance Remuneration Committee attendance Audit Committee attendance Indepen dence1) 2,460 950 480 160 920 480 800 640 — 160 740 12/12 12/12 8/12 4/12 10/12 8/12 12/12 11/12 12/12 4/12 11/12 5/5 5/5 1/5 4/5 8/8 8/8 7/8 7/8 Yes No Yes Yes Yes Yes Yes Yes No Yes Yes 1) For further information about the independence assessment, see page 105. 2) Henrik Henriksson and Karin Overbeck were elected at the Annual General Meeting in March 2020. 3) Hasse Johansson and Ulrika Saxon declined re-election and resigned from the Board following the Annual General Meeting in March 2020. ELECTROLUX ANNUAL REPORT 2020 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, Axel Johnson AB and Volvo Cars 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: 64,866 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: General Management at Franke in South America. 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: 11,705 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: 10,475 B-shares ADAM CICH Head Business Area Asia Pacific, Middle East and Africa, Executive Vice President — Born 1968. Poland. M.Sc. in Business Administartion. In Group Management since 2020 and employed since 1996. Previous positions: SVP Sales and Acting Head of Business Area Asia Pacific, Middle East and Africa. Head of Sales for Electrolux in Central and Eastern Europe. Other senior positions in Electrolux include leadership positions within sales, product line in Poland, Russia and CEE region. Holdings in AB Electrolux: 8,113 B-shares. CARSTEN FRANKE Chief Group Operations Officer, Executive Vice President — Born 1965. Germany. Engineer’s degree (Dipl.-Ing) in Mechanical Engineering. In Group Management since 2020 and employed since 2005. Previous positions: Various senior roles within Electrolux Business Area Europe including Chief Operations Officer, Vice President Supply Chain, Vice President Industrial Operations and Vice President Electrolux Lean Manufacturing System. Positions prior to Electrolux include manage- ment roles at Knorr-Bremse AG and Maschinenfabrik Reinhausen. Holdings in AB Electrolux: 5,000 B-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: Various senior positions within Electrolux including Head of the Home Care & SDA business area, Senior Vice President Product Line Laundry Major Appliances EMEA and President Small Appliances Asia Pacific. Holdings in AB Electrolux: 25,354 B-shares Holdings in AB Electrolux are stated as of December 31, 2020 and includes holdings of related natural and legal persons, when applicable. ELECTROLUX ANNUAL REPORT 2020 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 Atlas Copco AB. Previous positions: Chief Financial Officer of AB Electrolux. Other senior positions within Electrolux including CFO of Major Appliances EMEA and Head of Electrolux Corporate Control & Services. Chief Financial Officer of Kimoda. Various positions within PricewaterhouseCoopers. Holdings in AB Electrolux: 18,368 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: 7,047 B-shares. 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: 7,839 B-shares. LARS WORSØE PETERSEN CHRO & 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: CHRO, Senior Vice President at Husqvarna AB, 2005–2011. Various senior posi- tions 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: 26,787 B-shares. ELECTROLUX ANNUAL REPORT 2020 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. Anti- 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 employ- ees 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 u Q 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 2020 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 2020 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, an Insider & Disclosure 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 17, 2021 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 2020-01-01 – 2020-12-31 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 RevR 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 17, 2021 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 2020 Remuneration Report 2020 119 Remuneration Report 2020 Introduction This report describes how the guidelines for executive remuneration of AB Electrolux, adopted by the Annual General Meeting 2020, were implemented in 2020. The report also provides information on remuneration to the President & CEO and a summary of the company’s outstanding share-related incentive plans. The report has been prepared in accordance with the Swedish Companies Act and the Rules on Remuneration of the Board and Executive management and on Incentive Programmes issued by the Swedish Corporate Governance Board. Further information on executive remuneration is available in Note 27 on pages 71–73 in the Annual Report 2020. Information on the work of the remuneration committee in 2020 is set out in the Corporate Governance Report available on pages 101–118 in the Annual Report 2020. Remuneration of the Board of Directors is not covered by this report. Such remuneration is resolved annually by the Annual General Meeting and disclosed in Note 27 and in the Corporate Governance Report in the Annual Report 2020. Key developments 2020 The CEO summarizes the company’s overall performance in his statement on page 5–13 in the Annual Report 2020. Electrolux remuneration guidelines 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 remuneration in relation to the country or region of employ- ment of each Group Management member. The remuneration guidelines enable the company to offer the Group Manage- ment a competitive total remuneration. More information on the company’s strategy can be found on the company’s website. 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 the following components: fixed compensation, variable compensation, pen- sion benefits and other benefits. The guidelines are found on pages 32 in the Annual Report 2020. During 2020, the company has complied with the applica- ble remuneration guidelines adopted by the General Meeting. No deviations from the guidelines have been decided and no derogations from the procedure for implementation of the guidelines have been made. The auditor’s report regarding the company’s compliance with the guidelines is available on www.electroluxgroup.com. No remuneration has been reclaimed. In addition to remuneration covered by the remu- neration guidelines, the General Meetings of the company have resolved to implement long-term share-related incentive plans. Remuneration for the President & CEO, Jonas Samuelson in 2020 ('000 SEK unless otherwise stated)1) Fixed renumeration Variable renumeration Extraordinary items Pension expense6) Total renumeration Base salary2) 11,553 Other benefits3) One-year variable4) Multi-year variable5) 9 10,378 154 0 3,993 26,087 Proportion of fixed and variable renumeration Variable: 40% Fixed: 60% 1) Except for multi-year variable remuneration, the table reports remuneration earned in 2020. Multi-year variable remuneration is reported if vested in 2020. 2) Includes vacation salary and salary deductions for company car. 3) Includes other benefits such as travel allowance, health care benefit and mileage compensation.. 4) Variable salary earned 2020 and paid in 2021. 5) Calculated as number of shares in LTI 2018 that vested on December, 31, 2020 (804 shares) multiplied by the share price of Electrolux B shares onDecember 31, 2020 (SEK 191.35) 6) Pension is a defined contribution of 35% of annual base salary (excluding vacation salary and salary deductions for company car). Remuneration for the President & CEO, Jonas Samuelson in 2019 ('000 SEK unless otherwise stated)1) Fixed renumeration Variable renumeration Extraordinary items6) Pension expense7) Total renumeration Base salary2) 11,591 Other benefits3) One-year variable4) Multi-year variable5) 10 2,213 9,479 1,901 3,993 29,187 Proportion of fixed and variable renumeration Variable: 47% Fixed: 53% 1) Except for multi-year variable remuneration, the table reports remuneration earned in 2019. Multi-year variable remuneration is reported if vested in 2019. 2) Includes vacation salary and salary deductions for company car. 3) Includes other benefits such as travel allowance, health care benefit and mileage compensation. 4) Variable salary earned 2019 and paid in 2020. 5) Calculated as number of shares in LTI 2017 that vested on December, 31, 2019 (41,229 shares) multiplied by the share price of Electrolux B shares on December 31, 2019 (SEK 229.9). 6) Includes an extraordinary incentive related to the separation of Electrolux Professional AB. 7) Pension is a defined contribution of 35% of annual base salary (excluding vacation salary and salary deductions for company car). ELECTROLUX ANNUAL REPORT 2020 120 Remuneration Report 2020 Share-based remuneration Outstanding share-related incentive plans 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. The company had during 2020 three ongoing performance- share programs (2018, 2019 and 2020). The allocation of shares in the 2018 and 2019 programs is determined by the position level and the outcome of three financial objectives; (1) earnings per share, (2) return on net assets and (3) organic sales growth. Performance outcome of the three financial objectives has been determined by the Board after the expiry of the respective one- year performance period for these programs. The allocation of shares in the 2020 program is determined by the position level and the outcome of three objectives; (1) earnings per share, (2) return on net assets and (3) CO2 reduction. Performance outcome of (1) and (2) will be determined by the Board after the expiry of the one-year performance period and (3) after the expiry of the three-year performance period. For the 2018, 2019 and 2020 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 achievement of the objectives be below the maximum but above the minimum, a proportionate alloca- tion 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 dives- titure of the participant’s employing company, a participant could be entitled to reduced benefits under the program. Each of the 2018, 2019 and 2020 program covers 253 to 282 senior managers and key employees in almost 30 countries. Participants in the programs comprise six groups, i.e., the Presi- dent, other members of Group Management, and four groups of other senior managers. All programs comprise Class B shares. Additional information about the outstanding LTI programs can be found in Note 27 in the Annual Report 2020. Share award plans (for the President & CEO) The main conditions of share award plans Specification of plan Performance period Award date²) Vesting Date End of retention period LTI 2018³) LTI 2019⁵) LTI 2020⁶) TOTAL 2018 2019 2020-2022 18-04-19 19-05-28 20-11-11 20-12-31 21-12-31 22-12-31 20-12-31 21-12-31 22-12-31 Opening balance Share awards held at the beginning of the year 804 0 Information regarding the reported financial year¹) During the year Closing balance Awarded Vested Subject to a performance condition Awarded and unvested at year end Subject to a retention period 0 0 63,2627) 804⁴) 0 0 804 63,262 804 0 0 0 0 12,6538) 12,653 50,609⁹) 50,609 0 0 0 1) In 2020, LTI 2018 vested, resulting in 804 shares for the CEO that will be paid out in the first half of 2021. No changes occurred regarding LTI 2019. 2) Refers to the date when the share awards was awarded to the participant. 3) The maximum number of shares that could be awarded under LTI 2018 for the CEO was 47,605 shares, the outcome of LTI 2018 resulted in 804 shares for the CEO. The vested number of shares was adjusted for the distribution of Electrolux Professional AB. 4) Value at vesting Date: 154 thousand SEK, calculated as the market price per share multiplied by the number of vested shares. 5) The maximum number of shares that could be awarded under LTI 2019 for the CEO was 53,543 shares, the outcome of LTI 2019 resulted in 0 shares for the CEO. 6) The maximum number of shares that may be awarded under LTI 2020 is 63,262 for the CEO, the outcome with respect to the financial performance tagets resulted in 50,609 shares for the CEO. The outcome of the CO2-reduction target will be determined after the expiry of the three year performance period. 7) Value at Award Date: 13,026 thousand SEK, calculated as the market price per share multiplied by the number of awarded shares. 8) Shares subject to CO2 reduction performance target in LTI 2020. 9) Value at Award Date:10,420 thousand SEK calculated as the market price per share multiplied by the number of awarded shares. Application of performance criteria The performance measures for the CEO’s variable remunera- tion have been selected to deliver the company’s strategy and to encourage behaviour which is in the long-term interest of the company. In the selection of performance measures, the stra- tegic objectives and short- and long-term business priorities for 2020 have been taken into account. The non-financial perfor- mance measures further contribute to alignment with sustain- ability as well as the company values. ELECTROLUX ANNUAL REPORT 2020 Remuneration Report 2020 121 Performance of the President & CEO in the reported financial year: variable cash remuneration Description of the criteria related to the remuneration component Relative weighting of the performance criteria a) Measured performance and b) actual award/ remuneration outcome ('000 SEK) Group EBIT Absolute Growth (%) Year over year growth (%) in absolute operating income Group Net Operating Working Capital (%) NOWC divided by External Net Sales (12 months rolling) Group Contribution to Fixed Growth (%) Year over year growth (%) in absolute CTF (External Net Sales with Variable Costs deducted) . Group Consumer star rating The average rating of Electrolux products in consumer reviews on around 200 web sites, considering reviews written in the last 6 months of the calendar year, on a 0-5 scale. 1) Including adjustments for acquisitions and divestments. 50% 20% 20% 10% a) +38.3%1) b) 5,740 a) 5.0% b) 2,296 a) +5.2%1) b) 1,194 a) 4.55 b) 1,148 Performance of the President & CEO in the reported financial year: share-based incentives Name of plan Description of the criteria related to the remuneration component Relative weighting of the performance criteria a) Measured performance and b) actual award/ remuneration outcome ('000 SEK) LTI 20 20 Earnings Per Share Income for the period attributable to equity holders of the Parent Company divided by the average number of shares excluding shares held by Electrolux. Return On Net Assets Operating income (annualized) expressed as a percentage of average net assets CO2 Reduction Greenhouse gas reductions within the following three areas: (i) manufacturing, (ii) energy for product use, and (iii) use of hydrofluorocarbons (HFCs), measured on selected predefined product categories and regions. 60% 20% a) 13.91) b) 7,2632) a) 22.7%1) b) 2,4213) 20% a) To be determined at year end 2022 b) To be determined at year end 2022 1) Including adjustments for acquisitions and divestments. 2) Based on market price per share at December 31, 2020 (SEK 191.35) multiplied by the number of shares (37,956). The shares will not vest until the first half of 2023. 3) Based on market price per share at December 31, 2020 (SEK 191.35) multiplied by the number of shares (12,653). The shares will not vest until the first half of 2023. Comparative information on the change of remuneration and company performance Remuneration and company performance ('000 SEK)1) Annual change Jonas Samuelson, President & CEO Group Operating Income (EBIT) margin (%)3) Average remuneration on a full time equivalent basis of employees4) of AB Electrolux 1) Remuneration earned in the respective years. 2) Remuneration for President & CEO was 10.6% (3,100 thousand SEK) lower in 2020 compared with 2019. 3) The Group Operating Income margin (excluding non-recurring items) was 2.7% in 2019 vs 5.0% in 2020. 4) Excluding members of group management. 2020 vs. 2019 –3,100 (–10.6%)2) +2.3 percentage points –13 (–1.1%) 2020 26,087 5.0% 1,168 ELECTROLUX ANNUAL REPORT 2020 122 Events and reports Events and reports The Electrolux website www.electroluxgroup.com/ir contains additional and updated information about such items as business development, strategy and the Electrolux share, as well as a platform for financial statistics. Q4Results 2020 presentation Electrolux Interim Reports www.electroluxgroup.com/ir Electrolux Annual Report 2020 Electrolux Annual Report 2020 www.electroluxgroup.com/annualreport2020 Electrolux Capital Markets Update 2020 www.electroluxgroup.com/CMU Electrolux for investors www.electroluxgroup.com/ir/for-investors Electrolux Sustainability Report (GRI) 2020 www.electroluxgroup.com/sustainabilityreport2020 Financial reports and major events in 2021 2 Feb 25 Mar 28 Apr 20 Jul 27 Oct Consolidated report 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 2020 Events and reports 123 Annual General Meeting The Annual General Meeting will be on Thursday, March 25, 2021. Due to the coronavirus pandemic, the Board of Directors has decided that the Annual General Meeting should be conducted without the physical presence of shareholders, representatives or third parties and that the shareholders before the meeting should be able to exercise their voting rights only by voting in advance, so-called postal voting. However, the shareholders will be able to ask questions in writing ahead of the meeting. The questions and answers will be published on the group’s website www.electroluxgroup.com/agm2021 at least 5 days before the Annual General Meeting together with a webcast with the Chair- man and the CEO including their reflections on 2020. Participation A person who wishes to participate in the Annual General Meet- ing by postal voting must • be listed as a shareholder in the presentation of the share reg- ister prepared by Euroclear Sweden AB concerning the circum- stances on Wednesday, March 17, 2021, and • give notice of intent to participate no later than on Wednesday, March 24, 2021, by casting its postal votes in accordance with the instructions under the heading Postal voting below so that the postal voting form is received by Euroclear Sweden AB no later than that day. In order to be entitled to participate in the meeting, a share- holder whose shares are registered in the name of a nominee must, in addition to giving notice of participation in the Annual General Meeting by submitting its postal vote, register its shares in its own name so that the shareholder is listed in the presen- tation of the share register as of the record date Wednesday, March 17, 2021. Such re-registration may be temporary (so- called voting rights registration), and request for such voting rights registration shall be made to the nominee, in accordance with the nominee’s routines, at such time in advance as decided by the nominee. Voting rights registration that have been made by the nominee no later than Friday, March 19, 2021 will be taken into account in the presentation of the share register. Postal voting The Board of Directors has decided that shareholders should be able to exercise their voting rights only by postal voting in accor- dance with section 22 of the Act (2020:198) on temporary excep- tions to facilitate the execution of general meetings in companies and other associations. A special form must be used for the postal vote. The form for postal voting is available on the Group's website www.electroluxgroup.com/agm2021. Completed and signed forms for postal voting can be sent by mail to AB Electrolux (publ), c/o Euroclear Sweden, Box 191, SE-101 23 Stockholm, Sweden or by e-mail to GeneralMeetingServices@euroclear.com. Com- pleted forms must be received by Euroclear no later than March 24, 2021. Shareholders who are natural persons may also cast their votes electronically through verification with BankID via the Euroclear Sweden AB’s website https://anmalan.vpc.se/ EuroclearProxy. Such electronic votes must be submitted no later than March 24, 2021. The shareholders may not provide special instructions or conditions to the postal vote. If so, the entire postal vote is invalid. Further instructions and conditions can be found in the postal voting form and at https://anmalan.vpc.se/EuroclearProxy Powers of attorney If the shareholder submits its postal vote by proxy, a written and dated Power of Attorney signed by the shareholder must be attached to the postal voting form. Proxy forms are available on the Group's website www.electroluxgroup.com/agm2021. If the shareholder is a legal person, a registration certificate or other authorization document must be attached to the form. Dividend proposal The Board of Directors proposes a dividend for the fiscal year 2020 of SEK 8.00 (7.00) per share, for a total dividend payment of approximately SEK 2,299m (2,012). The proposed dividend corre- sponds to approximately 58% of income for the period, continuing operations. Last year’s dividend corresponded to approximately 80% of income for the period, total Group (including discontinued operations). The dividend is proposed to be paid in two equal installments, the first with the record date Monday, March 29, 2021, and the second with the record date Wednesday September 29, 2021. The first installment is estimated to be paid on Thursday, April 1, 2021 and the second installments on Monday, October 4, 2021. Proposal for election of board members The Nomination Committee has proposed re-election of Staffan Bohman, Petra Hedengran, Henrik Henriksson, Ulla Litzén, Karin Overbeck, Fredrik Persson, David Porter and Jonas Samuelson as board members. Kai Wärn has declined re-election. Staffan Bohman was proposed to be re-elected as Chairman of the Board of Directors. DATES REGARDING THE AGM 2021 2020 2021 September February March April September October 1 Estimated date for payment of first installment of dividend 29 Proposed record date for second installment of the dividend payment 4 Estimated date for payment of second installment of dividend 22 Nomination Committee appointed for AGM 2020 1 Proposals from Nomination Committee presented 15 Notice to AGM published 17 Deadline for registration in shareregister 24 Deadline for notice of intent to participate in AGM and registration in share register 25 AGM 2020 29 Proposed record date for the first installment of the dividend payment ELECTROLUX ANNUAL REPORT 2020 Creating value Sustainable consumer experience innovation is a key driver for long term profitable growth, enabling users to prepare great-tasting food, care for clothes so they stay new for longer and achieve healthy wellbeing at home. These innovations are offered under three main, well-established brands, Electrolux, AEG and Frigidaire. Profitable growth is also enabled by consistently increasing operational efficiency through digitalization, automation and modularization. Focus on sustainability is an integral part of Electrolux strategy. ELECTROLUX ANNUAL REPORT 2020 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

Continue reading text version or see original annual report in PDF format above