Global Trends That Affect The Industry - Electrolux Group

Global trends thataffect the industryThe increasing pace of change in the global market for household appliances stemsfrom a number of trends such as increased consumer power, digitalization, sustainability,consolidation and a growing middle class. These changes are placing demands oninvestments and economies of scale, but also open up major sDigitalizationindustrydriversConsolidationFor simplification purposes, the global market for householdappliances can be split into two parts. In the mature markets(Western Europe, North America, Japan and Australia/NewZealand), population growth is low and sales are dominatedby replacement products. However, growth markets (Africa,the Middle East, Eastern Europe, Latin America, SoutheastAsia and China) are characterized by rapidly rising livingstandards and a large number of new households beingable to invest in appliances and other household products.During 2016, demand for appliances increased in maturemarkets such as North America, Europe and Australia as wellas in growth markets in Southeast Asia and China. Althoughdemand continued to decrease in Latin America a generalincrease in global demand for appliances was noted.Growth markets have increased their global share ofdemand. In 2016, the demand in growth markets represented about 70% of the total market volume comparedwith 50% in the year of 2000. Growth markets accounted forabout 30% of Electrolux sales for the year, and the objectiveis to increase this share.TrendsThe increasing pace of change in the global market stemsfrom a number of trends that influence volumes and thetypes of products that are in demand.18Strategic prioritiesSustainability- Consumer power is growing as increasingly well- informed customers easily can access information aboutprices, offers and product characteristics. This means thatElectrolux, as well as other brands, need to offer transparentinformation about how the products and offers are differentiated to meet customer needs.- Digitalization plays an important role in increasingconsumer power. Mobile solutions and access to the Internetplace demands on Electrolux and increase opportunitiesto interact with consumers in new ways. Digitalization alsoprovides substantial opportunities to develop increasinglyadvanced products, such as connected products, as wellas making the Group’s operations more efficient.- Sustainability is becoming more important for customers and consumers as well as authorities, whodemand that manufacturers develop and offer sustainableproducts. This trend has been apparent for a number ofyears but development is now accelerating at varying pacesin the different regions.- A global middle class is expanding as a result ofstrong economic growth in emerging economies. This trendhas been visible for many years and will continue.- Consolidation in the sector is, to a large extent,driven by the above trends as they result in challengesthat require major investments and economies of scale. Manufacturers and retailers of household appliancesare becoming fewer, larger and more international.ELECTROLUX ANNUAL REPORT 2016

global ation inElectrolux core marketsPopulation inElectrolux growth marketsWestern Europe,North America, Australia,New Zealand, JapanAfrica, Middle East,Eastern Europe, Latin America,Southeast Asia, Chinathe pace of digital growth continues to accelerateWorldwide Digital Indicators 21%3.3 23%4.02.22.7 38% 126%2.94.32.11.92016 2020internet users 700 million2016 20202016 20202016 2020social media userssmartphone usersb2c sales world wide,USD 500 million 800 million 2.4 trillionSource: Emarketer and Electrolux estimates.ELECTROLUX ANNUAL REPORT 2016Strategic priorities19

Market overviewCore marketsWestern EuropeNorth AmericaAustralia, New Zealand and JapanThe European appliances market is fragmented and characterized by widely varyingconsumer patterns between countries and alarge number of manufacturers, brands andretailers. Structural overcapacity and pricepressure has led to ongoing industry consolidation with players aiming to achieve economies of scale. During 2016, markets showedcontinued postive demand enabling growthin areas such as compact, energy-efficientand built-in kitchen products.A mature, homogenous market with highproduct penetration that is dominated byreplacement products. Large homes allowspace for many household appliances,including large appliances. The market iscomprised of several domestic and globalmanu facturers. Four major retailers sell 70%of the appliances on the market. The recovery in the housing sector generates opportunities for growth in the coming years. In2016, market demand remained positive.Japan is the world’s third-largest single market and is dominated by major domestic manufacturers and retailers. Small livingspaces have led to consumers demandingcompact products, such as hand-held vacuum cleaners. While market pene tration ishigh in Australia and New Zealand, demandis primarily driven by design and innovationsas well as water and energy efficiency. Competition between manufacturers from Asiaand Europe is intense in the region.Market demand for major appliancesMarket demand for major appliancesMarket demand for major appliancesMILLION UNITS80702423706022605090 92 94 96 98 00 02 04 06 08 10 12 14 16Market value2120500204060810121416Market value02USD BILLION50USD rappliancesSmallappliances% OF irElectrolux major competitorsMiele B/S/H Whirlpool Samsung LG Electronics ArcelikElectrolux major competitorsWhirlpool Haier LG Electronics SamsungElectrolux major competitorsHaier Samsung LG Electronics PanasonicEuro AreaPopulation:Average number ofpersons per household:Urban population:Estimated GDPgrowth 2017:North AmericaPopulation:Average number ofpersons per h ousehold:Urban population:Estimated GDPgrowth 2017:Australia, New Zealand and JapanPopulation:155 millionAverage number ofpersons per h ousehold:2.5Urban population:93%Estimated GDPgrowth 2017:1.4%Markets and business areas445 million2.378%1.5%16Product penetration% OF 0610Product penetration% OF HOUSEHOLDS10004Market valueUSD BILLION50Product penetration42MILLION UNITS25MILLION UNITS80360 million2.683%2.2%ELECTROLUX ANNUAL REPORT 2016

Growth marketsAfrica, Middle East andEastern EuropeLatin AmericaSoutheast Asia and ChinaThe level of market development varies substantially between countries. The geographicspread plays its part in hindering manufacturers and retailers from capturing substantial market shares. Eastern Europe is dominated by Western manufacturers and a largemarket for replacement products is emerging.Penetration in Africa is low, but growth is highand in line with increasing household purchasing power. The Middle East offers a basefor regional manufacturing but is impactedby political uncertainty.Brazil is the largest appliance market in theregion where the two largest manufacturers accounts for a large share of the market. Despite the economic slowdown in theregion, there exists considerable growthpotential for appliances in the longer term,especially in low-penetrated categories.The growing middle class is expected todrive demand for basic cookers, refrigerators and washing machines. Growing interest for energy and water efficiency may alsodrive demand.The region is characterized by emerging economies, rapid urbanization, smallliving spaces and an expanding middleclass. China is the world’s largest market forhousehold appliances and the domesticmanufacturers dominate in China. Similar toother emerging markets, consumers prioritize refrigerators, washing machines andair-conditioners as prosperity rises. Energy- efficient products and foreign premiumbrands are growing in popularity.Market demand for major appliances*Market demand for major appliancesMarket demand for major appliancesMILLION UNITS40* Eastern EuropeMILLION UNITS250703520060301505025402015MILLION UNITS80100300204060810121416Market value200204060810121416Market value5002USD BILLION20USD lappliancesMajorappliances0MajorappliancesProduct penetrationProduct penetrationProduct penetration% OF HOUSEHOLDS100% OF HOUSEHOLDS100% OF itiond-coAirersDry010121416Market valueUSD ond-coAirElectrolux major competitorsB/S/H Whirlpool Samsung LG Electronics ArcelikElectrolux major competitorsWhirlpool LG Electronics Samsung DaewooElectrolux major competitorsLG Electronics Panasonic Haier B/S/H Whirlpool Midea Samsung GreeAfrica and Middle EastPopulation:Average number ofpersons per household:Urban population:Estimated GDPgrowth 2017:Latin AmericaPopulation:Average number of persons per household:Urban population:Estimated GDPgrowth 2017:Southeast Asia and ChinaPopulation:4,050 millionAverage number of persons per household:3.8Urban population:44%Estimated GDPgrowth 2017:6.7%1,480 million4.846%3.1%640 million2.879%1.2%Sources: World Bank, OECD and Electrolux estimates.ELECTROLUX ANNUAL REPORT 2016Markets and business areas43

Electrolux market dataCore marketsWestern EuropeNorth AmericaAustralia, New Zealand and JapanElectrolux prioritiesIncreased focus on the strongest and mostprofitable product categories and brands,Electrolux and AEG. Emphasis on innovation,often drawing inspiration from the Group’sprofessional expertise but also increasedfocus on smart appliances. Examples ofgrowing segments are built-in kitchen appliances and energy-efficient products. Priority is also given to strengthening the smalldomestic appliances offering.Electrolux prioritiesLaunch of new innovative premium productswithin core appliances. Focus is on strenghening and investing in the Frigidaire brandand growth in new channels such as thebuilder-channel and online. Key focus areasare broadening the range of professionalproducts as well as the offering for globalfood chains.Electrolux prioritiesFurther strengthening of positions in Australia and New Zealand through the launch ofnew, innovative products such as the newWestinghouse cooking range but also products with features such as high energy andwater efficiency. Prioritization of compact,user-friendly and quiet household appliances in Japan and South Korea continues.share oF groupsales 2016share oF sales inthe region 2016share oF groupsales 201630%share oF groupsales 201638%share oF sales inthe region 20163% Major appliances, 85% Small appliances, 8% Professional food-serviceand laundry equipment, 7% Major appliances, 95% Small appliances, 3% Professional food-serviceand laundry equipment, 2% Major appliances, 80% Small appliances, 8% Professional food-serviceand laundry equipment, 12%Consumer brandsConsumer brandsConsumer brandsElectrolux market shares16% core appliances11% floor careProfessional: Leadership position with astronger recognition in the institutional/hotel segments for professional products.Electrolux market shares18% core appliances5% floor careProfessional: Historically strong presencein laundry equipment and a growing presence in the food service industry and in thechain business for professional products.Electrolux market shares in Australia39% core appliances7% floor careProfessional: Historically strong position inboth laundry equipment and food-serviceequipment for professional use.net salesnet salesnet ket demand in Western Europe hasimproved during several years, andElectrolux sales have increased. The Grouphas strong market positions with a particularly strong position in kitchen appliancesboth for consumers and professional users.44share oF sales inthe region 2016MARKETS AND BUSINESS AREAS1213141516Net sales in North America have beenimpacted by growth in the market,launches of new products and new distribution channels.01213141516Australia is the Group’s main market in theregion. In Japan, Electrolux is a relativelysmall player but has, in recent years, established a growing business in small, compactvacuum cleaners.ELECTROLUX ANNUAL REPORT 2016