Il AB Electrolux downgraded to BBB by Standard & Poor's arrived on the markets on Tuesday 5 December and, although expected, it made the stalemate in which the Swedish multinational has been finding itself for months even more complicated, despite cutting costs, personnel, production sites and the sale of brands and factories
It may also be due to the fall in demand for household appliances throughout the world, which is very strong in Europe and North America, that the Swedish giant has not given up on examining the offers of total or partial sale (the infamous "stew") also because from indiscretions coming from very well-informed financial circles and in analysis and negotiation activities, Electrolux even received the offer to acquire production sites and brands from what is destined to become the European n.1, the group Arçelik-Beko. Which is already one of the strongest and most solid global competitors, after having closed the joint with Whirlpool EMEA. And there would also have been an offer from former very high-ranking managers for the acquisition of the glorious brand Zanussi (Zoppas and REX also) still famous in many countries. And in the smell of acquisition in Midea.
Are Koreans also in the running?
Not only that, important offers also arrived from Korean giants LG and Samsung, although weighed down by disastrous collapses in the consumer electronics and chip markets. Are the Chinese out of the game? Yes, for now. There is harsh and not always motivated opposition from Western governments while the Chinese government has asked MIDEA to postpone for the moment by engaging in an aggressive R&D strategy that would bring China to world-leading levels in AI and green technologies.
The global home and technology market, as already highlighted by FIRSTonline, has stagnated, after a very strong recovery between 2021 and 2023, due to the wars in Ukraine and in Middle East. In North Africa and MO, gigantic investments by Europeans, Turks, Chinese and Koreans were underway - and have stopped - for factories producing consumer goods and especially majap.
S&P's motivations
S&P has evidently been weighing this set of negative factors that are hindering any recovery. "There low consumer demand , price pressure they damaged - explains S&P - Electrolux's operating performance and frustrated its cost reduction efforts. The net sales of Electrolux decreased organically by 5% in the first nine months of 2023 compared to the same period last year.”
However, the rating company judges the outlook to be stable despite dedicating ample space for analysis to the negative aspects. "There reduced profitability – the report continues – reflects significantly lower volumes which have led to production inefficiencies, labor and energy cost inflation and currency difficulties due to Electrolux's operations in Argentina. Non-recurring costs related to the closure of a plant in Hungary and provisions related to an antitrust case also hindered Electrolux.” The provisions – 64 million euros – concern an antitrust case in France and affected the operating income of the European area in the second quarter of the current year.
Electrolux: rebound expected only in 2025
Then there is also the heavy Argentina's problem, a country where mega inflation and mass poverty are impacting the accounts of all companies and consequently also those of Electrolux.
“All these factors are offsetting the benefits deriving from the cost reduction program launched in 2022 – continues S&P – The program however eliminates inefficiencies in the supply chain and production and reduces structural costs in Europe and North America by adapting the workforce to meeting lower demand and adapting production. At the end of September 2023, we calculated that the debt/EBITDA ratio adjusted for S&P Global Ratings at 7,6%, and the FFO-to-debt ratio, at 2,9%, were materially weaker than our previous base case estimates of 2,0x-2,2x and 37%-41% , respectively, for 2023”. As for 2024, S&P believes that the reduction in consumption will continue before rebound expected for 2025.
Electrolux – recognized the rating agency – boasts records in the segment of high efficiency appliances but this segment has seen a significant drop in demand everywhere due to the fall in family incomes. In truth, with the usual generalization of many analyzes by well-known market research companies and rating companies themselves, the decline in sales of efficient and medium-high and high-end products is not at all ascertained.
The blockade of globalized logistics
The purely financial analysis does not take into account the fact that the market decline has mainly affected Electrolux also due to a series of continuous promotions that have cut margins and profits. While the European and global final figures for the first nine months of sales not only of household appliances but also ofConsumer electronics and the house's products present islands of growth and stability typical of quality, innovative and low energy consumption products.
However, S&P predicts that the costs of materials used massively in household appliances, plastic and metals, and logistics will decrease, favoring a drop in prices from promotions and a stimulating technological upgrade.
On the logistics however – we underline – other heavy clouds are gathering, after the only partially absorbed one of the lockdown. This is a 15 percent increase in the price lists of Suez passage and the now chronic disastrous blockade of Panama Canal due to a drought that is not seasonal but linked to climate change. In just a few days, 160 ships were blocked and some were delayed for up to 21 days. With the flight of investments of those who expected a return of the transport of the globalization era. What is happening in consumer goods - including Chinese reshoring towards Europe, Africa and South America - confirms this.
But Electrolux is investing in Australia
Electrolux, however, is judged by S&P to be able to overcome this significant mix of difficulties. “We estimate that Electrolux can counter this problem with a positive product mix thanks to successful sustainable appliance innovations. We expect modest revenue growth equal to 2%-3% in 2025, supported by continued successful innovation and assuming stable demand and no price pressure. We believe Electrolux will see higher margins in 2024 thanks to a step forward in its cost-cutting program, a simplified organizational structure and will focus on turning around its North American operations, which require restructuring costs this year.”
Unfortunately S&P recommends cutting costs in the value chain, that is, that of the components. Precisely the prolonged error at the basis of the disappearance of the large Italian manufacturers of majaps who debased their products and lost market shares by using Asian components of very low prices and terrible reliability. It should be added that Electrolux does not seem as determined to give up the majaps as it seems... and that it would probably like to lighten the considerable weight of some European and American sites. Why in Australia, for example, is heavily investing in factories, innovations, agreements and innovations like never before. Also because it should be underlined that in terms of innovations, eco-sustainability and circular economy, the Swedish giant is the world's No. 1 in its sector. Together with the Turkish giant which boasts many records and awards in environmental policy.
