Electrolux Boardroom Paper1

8/2/2019 Electrolux Boardroom Paper1

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Boardroom Exercise

Electrolux board meeting document-2012

Group-Member Names:

Archan Thakur AlokAmarnath

Gunel Farajova Ella Danta

Abimbola Olaifa Kapil Gupta


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Contents

Meeting Details ................................................................................................................................................ 3

Executive Report-............................................................................................................................................ 4

Electrolux Performance review for the year 2011 .................................................................................. 4

Trend Analysis: Market size and Electrolux market share-> change in growth:............................ 5

Competition Analysis (Global) ............................................................................................................... 7

Finance Report- ....................................................................................................................................... 7

Strategy for 2012 ......................................................................................................................................... 8

Growth plan for India and Russia ............................................................................................................. 8

India Market Analysis: ................................................................................................................................ 8

Strategy Proposal: ...................................................................................................................................... 9

Russia Market Analysis: .............................................................................................................................. 9

Strategy Proposal: ...................................................................................................................................... 9

Appendices:.................................................................................................................................................... 10

Business Environment Analysis: ............................................................................................................. 10

Market Share/ Growth Matrix : ................................................................................................................ 12

Competition Analysis: Five forces model............................................................................................... 12

Strategic Capabilities ................................................................................................................................ 13

Corporate Level strategy proposal ......................................................................................................... 14Region wise strategy proposal ................................................................................................................ 14

Strategy for North America .................................................................................................................. 14

Strategy for APAC- India China .......................................................................................................... 15

Strategy for EMEA-CIS, Egypt, Africa................................................................................................ 16

Strategy for LA ....................................................................................................................................... 19

Strategy for Professional products...................................................................................................... 19

Business Strategy/ Department Level Strategy.................................................................................... 20

Marketing+ Brand Management/Product portfolio ........................................................................... 20

Product Management/ Innovation ....................................................................................................... 20

HR............................................................................................................................................................ 20

Evaluation of strategy ............................................................................................................................... 21

Strategy Implementation .......................................................................................................................... 21


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Meeting Details

Date: Friday 16 th March

Time: 9.30 am to 12.15 pm

Meeting Description: Electrolux AB, Board meeting

Meeting Facilitator: Gunel Farajova, CEO

Invitees:

Emma Palmer - Chairman

Chris Lyons - Non-Executive Directors

Alan Ross - Non-Executive Directors

Archan Thakur - Global Director for Marketing and Sales

Kapil Gupta - Business Development Director

Alok Amarnath - Global Director for Supply Chain and Operations, also IT

Ella Danta - Regional Director for CIS countries

Abi Olaifa - CFO

Agenda:

2011 Performance Summary

Strategy for 2012

Growth plan for India and Russia

Minutes from Last meeting:

Open Issues: N/A

New Business:

Board members have agreed to focus on growth plan for India and Russia


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Executive Report-

Introduction

AB Electrolux is facing increasing competition in the global market and in 2011 we see a

fall in all major performance indicators of business. This report focuses on major strategic

issues faced by the company and introduces some strategic options which may consider

implementing.

Electrolux Performance review for the year 2011

In 2011, though company has shown strong growth of sales in Latin America,Middle East and Asia, matured market like Europe and North America have seendecrease in sales.

32

30

6

9

19

4

Electrolux Sales 2011 per market %

Western Europe

North America

Australia,

NewZealand,Japan

Africa ,Middle

East,Eastern Europe

Latin America

South East Asia,China

5917

2

8

10 4

Electrolux sales 2011 per product %

Kitchen

Laundry

Professional Laundry

Small Appliances

Other

Professional products


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Year on year Electrolux AB's revenues fell 4.45% from 106.33bn to 101.60bn. It has been

increased marginally in comparable currencies by 1.9 %. This along with an increase in

the cost of goods sold expense has contributed to a reduction in net income from 4.00bn

to 2.06bn, a 48.36% decrease.

Net sales operating margin excluding items affecting comparability and non-recurring costamounted to 3.9 %. This is a reduction from 6% in 2010.

Weak demand in Electrolux main markets, lower sales prices and as earlier predicted,

increased costs for raw materials had an adverse impact on operating income for 2011.

Changes in exchange rates also had a negative impact on net sales by6.3%.

Other expenses that have impacted the operating margin include non-recurring costsamounting to SEK 825m which was spent on improving cost efficiency activities such asactivities to reduce staffing levels in all regions.

Trend Analysis: Market size and Electrolux market share-> change in growth:


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It is clear from the above diagrams that pain area for Electrolux is in APAC regionand in East Europe (Mainly Russian market as per our analysis). They need to

design strategy to grow in those regions. We can also see growth in market share in

Latin America after CTI acquisition and in Middle East after the acquisition of

Olympic group in 2010.

0.0

100,000.0

200,000.0

300,000.0

400,000.0

500,000.0

600,000.0

700,000.0

800,000.0

900,000.0

1,000,000.0

2006 2007 2008 2009 2010 2011

Market Size Asia Pacific

Market Size Australasia

Market size Eastern

Europe

Market size Latin

America

Market size Middle East

and Africa

Market size North

America

Market Size Western

Europe

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2006 2007 2008 2009 2010 2011

Market share Asia

Pacific

Market Share

Australasia

Market share Eastern

Europe

Market share Latin

America

Market share MiddleEast and Africa

Market share North

America

Market share Western

Europe


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Competition Analysis (Global)

Source: Euromonitor

In 2011, Electrolux has lost 2nd position in global market to Chinese competitor

Haier group. Tougher competition is expected in future.

Finance Report-

1. Cashflow

In 2011, cash reserves at Electrolux AB fell by 3.42bn. The company also earned5.40bn from its operation - a reduction of almost 2.3bn compared to 2010. Inaddition the company generated 1.32bn cash from financing while 10.05bn wasspent on investments in manufacturing for new products and production capacity.The total consideration paid for the acquired shares in CTI group is SEK 3,804m,

which was paid in cash in October 2011 while the total consideration for theacquired shares in Olympic Group is SEK 2,556m, which was paid in cash at thebeginning of September 2011.More importantly, long-term borrowings in the amount of approximately SEK4,100m will mature in 2012 and 2013.

2. Leverage

The companys total debt to equity has risen astronomically to 67%.Playing a hugepart is the issued SEK 3,500m in bond loans under the EMTN program during2011 while the acquisitions of Olympic Group and CTI have also impacted net debt.


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However at 13 times interest coverage, the company is conveniently able to pay itsinterest on its loans.

3. Access to Finance

The Groups loan-maturity profile for 2012 and 2013 represents maturities ofapproximately SEK 4,100m in long-term borrowings.In addition, Electrolux has two unutilized back-up credit facilities. In 2011, Electroluxreplaced an existing committed revolving credit facility with a new EUR 500m multi-currency revolving credit facility maturing in 2016, with extension options for up totwo more years. Electrolux also has an additional committed credit facility of SEK3,400m maturing 2017.

Strategy for 2012

Increase share of sales in growth markets from 35% in 2011 to 50% in 2015 Operating Margin 6% Capital turnover rate >4 Return on Net Assets of at least 25% Average annual growth of 4% or more

In order to achieve the 2015 target of the company to increase share of sales to

50% from growth market board is proposing an ambitious growth plan for India and

Russia.

Growth plan for India and Russia

India Market Analysis:

Production, Marketing etc. is outsourced to Videocon Industries.

Marketing / Brand management is weak.

By giving total control of distribution and branding of the company in the hands of

Videocon, increased competition and increase in raw material cost has led to decrease

in market share.

Electrolux need to focus on the distribution networks as the availability of their product

is less. They need to increase number of distributors and also come up standalone

retail stores to show the life style of all Electrolux products under one roof.

As India is moving towards a western lifestyle and the spending power of people is

increasing at a rapid pace, it is important to utilize this opportunity to position their

product appropriately and increase their market share.

They also need to focus on their service centres to provide appropriate service tocustomer to gain loyalty and increase market share.


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Strategy Proposal:

Board proposes an investment of 300 USD for setting up a complete subsidiary

again for India.

Competition analysis and position of Electrolux in India market:

Source : Euromonitor

Russia Market Analysis:

In Russia, Electrolux can try to be no.1 in major appliances market.

Requires more marketing communication of premium brands like AEG.

So far Electrolux is focused in some segments only on price with Zanusi brand.

More effort is required to link marketing and innovation for Russia specific

requirements. Focusing only on price will not keep you as a global market player,we need to focus on innovation.

Strategy Proposal:

Board proposes an investment of 300 USD for setting up a complete Design

labs/Manufacturing Unit and a Marketing Communication unit in Russia.


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Competition analysis and position of Electrolux in Russia market:

Appendices:

Business Environment Analysis:

AB Electrolux is one of the leading producers of consumer durables and professional

products. The consumer durable range of products from Electrolux can be classified into

kitchen (e.g. Refrigerator, Dish washer), laundry(Eg. Washing Machine) and floor care

products (E.g Vacuum Cleaner). Electrolux also have products for professional laundry

and kitchens.

Market for consumer durables is linked very closely with the economic performance. In the

world market now we can see that many major markets (North America and Europe) aregoing through economic crisis and some countries are showing growth (Brazil, India China

etc.). We need to analyse strategic position of Electrolux in this context. We can start by

looking at the world market size of consumer durables and professional products and

distribution of the market region wise:


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Market Analysis

Data in SEK Billions

Driving

Force

EMEA North

America

Latin

America

APAC Proff. Prod.

Value of

appliance

mkt

205 180 93 375 136

Percentage

of total

share

21% 18% 9% 38% 14%

Share of

Electrolux

38% 32% 16% 8% 6%

Source: Electrolux Annual Report 2010. P, 10,11

The figures clearly suggest that Electrolux is having a sizeable share of market in

EMEA and North America and is among the major players. Whereas the company

EMEA

21%

NA

18%

LA

9%

APAC

38%

Proffessional14%

World market volume and region wise distribution


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is doing very well in Latin America. But the sales is lacking in the Asia Pacific region

where the company has not been able to make a major impact despite being

present there for long time.

Market Share/ Growth Matrix :

Market Growth Rate Market ShareHigh LOW

High Latin America, Egypt India, China , Russia etc.Low North America , Western

European and AustraliaMarket

The above Matrix clearly shows that Electrolux needs to come up with a detailed

strategy plan for India, China and Russia market.

Competition Analysis: Five forces model

5 = strong 0= weak

Competitor Power: Very high. Tough competition in mature markets like Europe and North

America is forcing the players to reduce price.

012345

Competiti

on

Supplier

BuyerNew

Entrant

Substitute

Home appliance Industry

Home

appliance

Industry


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Buyer Power: When we consider individual buyers, then buyers are numerous with little

financial muscle. Consumer focus is on cost and quality. Brand awareness is very

important.

Power for buyers like large retailers and distributors are high. Overall we consider buyer

power is moderate.

Supplier power: Very high. There is huge pressure on the players due to rise in raw

material costs. Suppliers are many cases big companies.

New Entrant power: Overall power is moderate. A new entrant will gain from low customer

loyalty towards any brand. Many retailers also diversify into production of home

appliances.

Substitute product power: This depends largely on innovation and changing lifestyle of

people. As lifestyle of people changes there will be demand for new range of products.Overall the power of substitute product is moderate.

Strategic Capabilities

Strength:

a) A strong market position at the global level, presence in more than 150

countries.

b) A big product portfolio, to serve the need of a wide range of customers.

Weakness

a) Bias towards the developed world like NA, WE and Australia.b) Not closer to customers enough, though present in many countries (E.g :

India , Russia, China).

c) Poor Brand Management in some markets ( E.g India, Russia)

d) Poor management of product portfolio

Opportunities

a) Economic growth of Emerging markets. There is a huge untapped potential

Electrolux.

b) New Innovative product rangesThreats

a) Economic recession in key markets like NA and WE.

b) Threat from Asian competitors (like Heir) in NA and WE market.

c) Maintaining same product standard in low cost production facilities

d) Maintaining employee motivation after decision of retrenchment


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Corporate Level strategy proposal

Markets ProductsExisting New

Existing Development of Current position/Market Penetration

Electrolux AV- India, China,CIS, East Europe

Product DevelopmentProduct range ExtensionNew Product range

Development ofsustainableenvironmentfriendly productranges for WE,NA, Australia

New Market DevelopmentGeographic Expansion

Promoting premium AEG inbrand China/India

Launching professionalproducts in BRIC countries

Diversification Product

Innovation+Customer Insight+Design

A new range ofproducts outsideHome appliancesand professionalproducts

Region wise strategy proposal

With the increasing cost pressures the company has to work out a strategy where it

is able to strengthen the sales and to look upon increasing the numbers. We will

look in to market wise strategies as follows:

Strategy for North America

Market demand in North America for core appliances declined by 4% during theyear and as a result group sales for the year fell by 11%. Operating income for theyear fell by 3.8% to a very measly .9%. This was mainly due to lower sales volumesand reduced capacity utilization in production. In addition, increased costs for rawmaterials, sourced products and transportation also had a negative impact onoperating income.

North America: It is also a very mature market in terms of consumer behaviour; thecustomers buying patterns are almost similar. Electrolux is having a one third of


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market share but the major dependency is on big retailers which account for 60

percent of the companys sales. Here in this market the growth driver can be

replacement and new housing and the energy efficient and water efficient products.

Therefore the growth strategy here will also be to bring in built in products and

enhance the product offering through Innovation like sustainable energy efficient

products.

Strategy for APAC- India China

Asian/Pacific Market continued to grow and the groups sales in the region weresteady, although there was a slight decrease in operating margin. Similarly the

small appliances business also experienced steady sales in the year but alsosuffered a 3% reduction in operating margin mainly due to higher costs for sourcedproducts and lower sales prices.

APAC including Australia: Asia presents the biggest challenge before the company

as it has not been able to capture the sizeable share of the market. The miniscule

presence of the company in this region with the highest volume sales in the world

shows the scope of growth in this market. The Asian market is offering the growth

opportunities where as the sales in Australia are declining. Australia is also a

mature market like North America so here also the strategy for growth will be samefor America. But the driver of growth in Asia is multi-pronged like large population,

growth of middle class and the urban rich as well as the emigration from the rural to

urban areas development of housing and new infrastructure. Despite of all these

growth drivers there is no clear market leader. There are many manufacturers and

the sale is done through the small retailers and there is a little presence of big retail

chains. The growth strategy will be for this area will be defined by the distribution

channels. The sales drive should be focused on the kitchen designers and not onsmall retailers and the focus should be on the premium segment.

Analysis of China Market

Tough competition from Chinese competitors

Dependence on strong distributors and Retailers to reach consumers in

different parts of the country. This is affecting profit margin.

Proposal: Analysis for acquisition of a distributor for better penetration in

Chinese market.


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Competition Analysis China:

Source: Euromonitor

Strategy for EMEA-CIS, Egypt, Africa

Electroluxs revenues from the EMEA market fell by 7% to SEK34bn and operating

margin reduced by 4.1% to 2.1% in 2011. This was mainly because of lower sales

prices as a result of price pressure from discounting competitors such as HAIER

and a negative country mix due to higher sales in Eastern Europe and lower sales


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in Western Europe. Higher costs of raw material were largely responsible for the

deterioration in the operating margin.

EMEA: It is a matured market for Electrolux and it is the major source of revenue

for the company, but this is a complex market where there are different brands

available and the consumers also have varied choices. It is difficult to work out a

consumer pattern of buying. But there are certain driving forces in this region which

will help in boosting the sales numbers. It is estimated that the purchasing power of

people is increasing in eastern Europe which is seen as a growth market and in

western Europe too the sales can be achieved through the replacements because

the average lifespan of an appliance is 10 12 yrs and these require replacements.

The people also look foa change and energy efficient and water efficient products

with improved designs. Keeping this factor in view we propose to focus on the

distribution channels like kitchen specialists who will be a driving the sales. Kitchens

comprise of more than 60 percent sales for Electrolux. The growth strategy will be

to bring in more of built in products and expansion in product offering.

Major Focus on Russian household appliances market

The plant in Ukraine supplies products to Russia and other CIS states, as well as to the

Czech Republic, Poland, Hungary, Slovakia, Croatia, Slovenia, Romania, Estonia, Latviaand Lithuania

Electrolux is planning to become a leader on the Ukrainian and Russian household

appliances market

Their brands in Russia: AEG, Electrolux, Rosenlew, Zanussi.

Their competitors are: Bosh, Siemens, Samsung, who have their production in Russia.

The Moscow market, where the position of the vacuum cleaners under the brand

Electrolux premium cost from $ 100 to $ 550are traditionally strong, is reduced. The main

struggle is unfolding in the regions dominated by LG and Samsung products for $ 40-100.

And a massive, well-known in Russia Zanussi brand may be a good asset in this fight.

However, European leaders seem to be sceptical about this novelty, the vacuum cleaner

Zanussi what is jokingly referred to as bubble (bubble"), therefor they did not give big

budget for massive advertising campaign.


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Another alternative is to throw in the mass market the brand of Electrolux but it would

negatively affect the brand image.

The trial production experiment was launch in Russia for the small Zanussi vacuum

cleaners. The reason is that the premium brand vacuuum Electrolux is in demand only in

stagnant Moscow market. It took four years for the head office to agree to this project.

Experts say that in order for Zanussi to compete successfully, they have to work in the

same segment as LG and Samsung. And it will not survive without strong advertising

campaign.

Although the brand Zanussi is very well know and is a strong brand, the sales will not

depend on brand name and reduced price, but rather on its distribution and advantageous

positioning on the shelves of the major retailers.

The strength of Electrolux is not in the low price segment but in middle and middle-high

class. This is common European concept what is applied to Russia as well. The AEG

brand constitutes 5-10% in the portfolio while

Electrolux and Zanussi are about 40-50% for each brand.

In 2012 they will launch a big sophisticated advertising project what involves opening a

new restaurant in the prestigious place with their equipment and the best chefs.

In the center of the brands is the Electrolux what targets the middle and middle-upper

class, who want to have innovated equipment for stylish type of living.

This segment is very important because it does not really depend on how much people

earn, but the people wanting good quality of equipment what feets their life style and

they put high expectation on it. The Electrolux perfectly meets this demand.

We want increase of Electrolux brand because the products of the economy class give

nothing, just volume sales. It is the innovation that will move the market. Example-

iPhone, it is expensive but highly demanded due to its innovation.

Design is very important because of the high competition.

We concentrate our efforts on the upper segment of the market in order to bring variety

of innovative products to it.

There is no production in Russia yet, but is our plan because we understand how

important it is to have local production there. Russian market is strategic market and we

want to have long term growth there.

The purchase of plant in Ukraine will help us to increase sales in Russia and CIS.


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It is very important to grow together with the Russian market. In long terms, we would like

to increase knowledge of our brands among population.

Strategy for LA

The Groups sales in the Latin America market rose as a result of higher sales

volumes and contribution from the acquired Chilean company CTI. Government-incentive programs such as tax reduction on domestically-produced appliances inBrazil which accounts for 78% of the Latin market sales - positively impacteddemand for the overall market. Despite the sales increase, operating margindeclined by 1.2% to 4.6% mainly as a result of increased costs for raw materialsand a weaker customer mix ensuing from the consolidation that has taken placeamong several retailers in the Brazilian market. The group however continued togain market share in the rapidly growing Brazilian market.Latin America: This is the fastest growing market for Electrolux. It is the second

biggest manufacturer of appliances in brazil and the biggest for vacuum cleaners. It

is having the biggest market share in brazil but the challenge for the company is to

grow outside brazil in the markets of Argentina and mexico. The growth driver for

this economy is the growing middle class and the purchasing power of the people

which is accounting for more sales as there is a shift in the lifestyle. The strategy for

the growth will be to strengthen the premium product segment and efficiently market

into this segment and then to offer more product differentiation.

Strategy for Professional products

Professional Products business which consists mainly of laundry equipment andfood service equipment achieved an improved operating margin which grew by 2.7to 14.6% during the year despite a slight decrease in sales. This was achieved by

increasing the prices of the products


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Professional products: the biggest market for these products is North America for

Electrolux. It accounts for 50 per cent of sales. This market is in growth stage as the

population is growing there is an opportunity to expand the laundry market and the

foods division. The growth strategy for this market will be to tailor efficient products for

fast food chains and targeting big chains for the bulk sales.

Business Strategy/ Department Level Strategy

Marketing+ Brand Management/Product portfolio

Here our major analysis is that presence of too many brands for different segments

in different market is an issue. This may be result of growth through acquisitions.

Strategy proposal:1. Consolidation of Brands

2. Better Brand management and portfolio management.

Product Management/ Innovation

Here our analysis is that in Electrolux innovation-linked to customer insights is

absent. India and China are good examples. Electrolux need to understand that

requirements for India and China customers are different from customers in Europeand America.

Strategy proposal

a) Analysis of requirements in growth markets like India and China and link

innovation management to that knowledge.

HR

Implementation of employee lay off policies may create a negative impact among

the employees. This may have a negative effect among the employee productivity

in the long run


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Evaluation of strategy

Risk and Return

Shareholder value analysis

Feasibility Analysis

Scenarios

Strategy Implementation

Decision Tree Consolidated view of KPIs: [Proposal is to project a consolidated view of KPIs and

how our strategy proposals will help Electrolux to reduce the gap]. As of now we

would like to project the consolidated view of KPIs of the company as follows:

0

20

40

60

80

100

120

Electrolux KPI 2011

Actual

Electrolux KPI 2011

Target

Documents

Electrolux Boardroom Paper1