Appliance giant the Electrolux Group has announced that it is stepping up its cost reduction programme to restore margins against a backdrop of continued weak consumer demand and competitive pressures in the market.
The group expects its action to result in net cost savings of SKr10-11 billion (£740-810 million) in 2024 compared with 2022, which will extend the previous cost reduction target of over SKr7bn. The move will lead to a restructuring charge of Skr2bn to SKr2.5bn in the fourth quarter of this year.
It reported that the existing cost-reductions measures, while going to plan, were not enough to restore margins.
The group will also reorganise into three regional business areas and two global product lines, reporting to CEO and president Jonas Samuelson.
Electrolux Group said it will also increase its focus to grow the mid and premium categories with its main brands in a bid to restore margins and return to profitable growth through accelerated execution of its strategy to deliver “innovative and sustainable digital consumer experiences”. The restructuring is expected to affect around 3,000 positions.
Commenting on the decision, Samuelson said: “We are therefore accelerating structural cost reductions and execution of product cost measures. Hence, the cost reduction target for 2024 vs 2022 is increased to SKr10-11bn, compared to the previous target of over SEK 7bn. The new target comprises net cost reductions from Cost efficiency and Investments in innovation and marketing, combined. For 2023 the target is to reach cost reductions of approximately SKr6bn, year-over-year, compared to the previous target of at least SKr5bn.”
He added: “We remain committed to achieve at least 6% EBIT margin mid-term. In addition to an attractive offering driving commercial growth in targeted areas, a key component to deliver on this under current market conditions will be to continue to annually reduce product cost at a similar rate as during the period 2023-2024. This is enabled by a new, more focused business approach and simplified organisational structure.”
The group said it will be focusing on manufacturing productivity and material cost reduction. The simplified structure will consist of two global product lines, three regional business areas and four global functions, all reporting to the CEO.
Dan Arler will be head of product line ‘taste’ and Ian Banes head of product line ‘care’.
The Europe and Asia-Pacific, Middle East and Africa business regions will merge into one (Europe-APACMEA) under the leadership of Anna Ohlsson-Leijon, who will also be group executive vice-president, responsible for group consumer direct interaction development and product line well-being. The business areas of North America and Latin America remain.
Product line changes wlll take effect from November 1 this year and business area changes from January 1 next year.
These changes come hot on the heels of Electrolux Group’s Q3 financial results, which showed an 87% fall in operating income (SKr227m) in the first nine months of 2023 compared with the same period the year before (Skr1,749m). Net sales fell 7.9% from SKr35.24bn in Q3 2022 to SKr33.42bn.
Operating margin fell in the first nine months of 2023 to 0.2 compared with 1.8 in the same period in 2022.