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The Covid-19 pandemic brought companies and societies around the world to the brink of an abyss within a matter of weeks. Production facilities shut down when staff was sent home, supply chains were disrupted, and consumers ceased consuming when stores closed.

Swedish appliance giant Electrolux was no exception: “We suddenly found ourselves in a situation where it was extremely difficult to assess how the lockdown would affect our production capacity in several markets – particularly Italy, where we have five production facilities,” says Group Treasurer Martin Bendixen and adds: “How the combined effects on supply, demand, logistics and inventory buildup would affect cashflow from accounts receivable and accounts payable was very hard to predict.”

Fortunately, Electrolux entered the crisis equipped with a strong balance sheet and an A minus rating from S&P. “We enjoyed a good capital structure and a healthy maturity profile and hence had planned only a relatively low amount of new long-term funding 2020 to finance an ambitious investment plan within modularization and automation.”

When the crisis erupted in Asia in February and hit Europe in March, capital markets effectively shut down. A non-functioning capital market is obviously a Treasurer’s worst nightmare and Bendixen’s team had to put contingency planning on top of their agenda. “Given the overall uncertainty, our priority was to secure liquidity and access to credit facilities.”

Injecting confidence

Compared to the financial crisis ten years ago, the pandemic crisis was highly different both in terms of cause and effects. But, like then, government agencies and financial regulators saw the need to step in and inject confidence into virus-jittery markets. In Sweden, EKN rapidly devised a set of new and expanded guarantees to assist exporters in managing the effects of the pandemic. One of these guarantees is aimed directly at large companies; termed Individual Credit Guarantee it covers 75 per cent of the bank’s loan to the company and can be used by exporting companies with more than SEK 500 million in sales.

“Carrying on a dialogue with exporting companies as well as banks was crucial in this situation,” says Marie Aglert, Head of Large Corporates at EKN, and adds: “We rapidly developed new solutions when the crisis struck and the interest has been enormous. Within just over two months we received applications from 60 companies, worth a total of SEK 190 billion in limits.”

Electrolux was among the applicants and Bendixen salutes the swiftness of the introduction: “EKN developed a very good solution in no time. The structure they set up and the way they processed the guarantee application and managed the facility was very professional.”

Chief Credit Officer Jenny Moquist adds: “EKN’s support helped us strengthen our liquidity position. Taking a proactive approach and having the guarantee in place meant a lot to us in shielding us against potential unnecessary disruptions in production and operations. Once the capital market began functioning again, we managed to secure necessary liquidity, but EKN’s guarantee still helped us secure access to further credit with the banks.”

Under normal circumstances, EKN does not offer large corporates working capital financing guarantees, but with Covid-19, nothing is “normal”.

Contingency planning in three steps

At Electrolux, the contingency plan consisted of three steps: ”First, we had to ensure sufficient liquidity given the volatility and unpredictability of demand as well as production by looking at estimated cash in and cash out on a daily basis. The next step was to build a cost-efficient, desired capital structure from a mid-term perspective and to safeguard profitability. Finally, a ‘new normal’ will require adaptations to longer-term demand development, a flexible supply chain and a go-to-market strategy acceleration.

So, when will we return to “normal”? “Some markets still offer strong demand on certain products, while other markets struggle,” says Bendixen: “The timing and pace of the comebacks differs a lot. In the long run, if people will continue to spend more time at home, the usage of appliances will increase, which in turn will be beneficial for the demand.