AB Electrolux (publ)

Good morning and a warm welcome to Electrax third quarter 2020 results presentation. With me today I have our CFO, Therese Svidberg, and our head of investor relations, Sophie Arneus. Before we start I'd like to mention that this session is recorded and will be available on our website as an on-demand version. This has been an unprecedented year with great uncertainty where markets and operations have been strongly affected by the pandemic. But after a weak first half with significant downturn in market demand across most regions, we now have experienced a third quarter with strong recoveries in most markets. Let's look at our performance in the third quarter. We had strong volume growth across BAs resulting in organic growth of 15.2%. The strong demand in all main markets in the quarter was to a large extent a result of pent-up demand after previous store closures and restrictions as well as government stimulus programs. Due to pandemic restrictions during the first half of the year, we enter the quarter with unusually low inventory levels, which have remained throughout the quarter despite high production levels, somewhat impacting our ability to keep up with the strong demand across all regions. For most consumers, appliances are essential to daily life. The increased time spent at home during the pandemic has resulted in more intensive use of appliances and higher share of household budgets allocated to home improvements. This has resulted in a category spending shift towards more premium appliances driving favorable product mix and sales volumes. We had good traction from our premium brands on several markets. That price realization was quite favorable as there were less promotions and discounts in several markets. We also actively raised prices mainly in Latin America. For similar reasons, we also saw strong growth in aftermarket sales across all business areas. I'm very pleased with the result in the quarter. We reached a record high EBIT of 3.2 billion SEC and a margin above 10%, strongly driven by the volume growth, but also by higher prices and mix improvements. Raw materials and currency combined had a slightly negative impact year over year. And the record high operating income translated into a strong operating cash flow after investments of 6 billion SEC. Also this quarter, our high pace of innovation boosted earnings, showing the importance of attractive products built on deep insights in consumer needs and opportunities. And let me give you some examples of how we're driving sustainable consumer experience innovation. So first of all, we know that consumers are very concerned about food waste. And also from a sustainability perspective, we know that over a third of all food produced gets wasted. And we are driving innovation to help consumers to reduce food waste. And particularly our multi-door refrigerators that we're launching around the world now offer very innovative solutions to prolong the life of fish, meat, produce, and dairy products. And we have a strong ambition to grow the value market share of multi-door refrigerators, driving the extremely good benefits in terms of reducing food waste. Another key initiative for us is to grow in aftermarkets. As we mentioned before, our objective is to double our aftermarket share of sales to 10% by 2025. And one key initiative for us is to increase our penetration in aftermarket sales done by our own or authorized service technicians. And one way to do that is by offering fixed price repair services, which we've done in Europe since 2017. This gives consumers more certainty, more peace of mind, and a stronger reason to choose our authorized service technicians over independent agents. So looking at our business area performance in Q3, starting with Europe, we saw strong organic sales growth of close to 16%, mainly driven by pent-up demand and resulting in higher volumes across all categories. Mix continued to develop favorably, primarily from built-in kitchen and laundry products. The premium brands, Electrox and AEG, gained value market share, and aftermarket sales increased as well. Our sales to the important kitchen retailer channel, which was heavily impacted by the pandemic in Q2, increased in the quarter. The electrical retail channel grew even faster, as this channel mainly supplied replacement products and was able to shift more of the sales online. Sales of aircare products and cordless vacuum cleaners increased substantially in the quarter as well. I'm very pleased with the earnings performance in the quarter. We reached an EBIT of 1.5 billion SEC in a margin of 12.4%. The organic contribution in the quarter was strong and will continue to improve mix through our premium brands. A slight currency tailwind and lower cost for raw materials also had a positive impact in the quarter. Let's have a look at the European market. In the third quarter, overall market demand in Europe increased by 13% -over-year. In Western Europe, demand increased by 14% and in Eastern Europe by 11%. Oil markets increased, with many recovering strongly after lockdowns in Q2 resulting in demand decline below the natural replacement levels. Both pent-up demand and stimulus programs impacted the recovery pace. This confirms that household appliances are essential for our daily lives. As we said before, over 60% of the market demand is driven by product replacement. In September, the European market continued to report a positive development, although at a somewhat slower pace. Now let's look at our business area in North America. Organic sales increased by 8.6%, supported by volume growth. We could, however, not fully meet the high demand due to previous quarters' production and supply constraints resulting in low inventory levels as we enter the quarter. These production challenges were substantially mitigated in Q3, although inventories have remained constrained. Promotion activity in the market was low, which had a positive impact on net price realisation. Aftermarket sales grew significantly, driven by a favourable demand trend as well as our own strategic growth initiatives. Operating income increased significantly to 990 million SEC, corresponding to a margin of 9%. This was a result of the positive price development, higher volumes and mix improvements, combined with good cost control. We've seen good traction from our star product focus, improving the product mix. One great example is the Frigidaire Gallery air fry cooker that has recently received the 2020 Innovation Award across all categories at the Home Depot. The air fry cooker delivers a significantly higher growth margin compared to traditional cookers, so growth within air fry cookers really means profitable growth. As expected, the pandemic continued to somewhat impact the progress of our ongoing manufacturing consolidation in Anderson as well as Springfield. Lower material costs more than offset higher tariff costs from increased source product volumes. Now let's look at the US market. During the quarter, industry shipments of core appliances in the US increased by 9% year over year, and previous industry supply constraints were reduced, resulting in a catch-up effect on government stimulus programs which ended during the quarter impacted positively. The market has also been supported by improving macro indicators. The unemployment rate has decreased for five consecutive months since the peak in April, and we've seen a pick-up in consumer confidence, and the housing market is currently very strong. Market demand for all major appliances, including microwave ovens and home comfort products, increased by 14%. Let's move on to Latin America. In our largest market, Brazil, demand picked up strongly in the quarter, driven by government incentives, low interest rates and pent-up demand. Demand in Argentina declined, affected by quarantine measures and product shortages, while demand in Chile increased, supported by government stimulus programs. The organic sales growth in Latin America was 37.8%, to a large extent driven by strong sales volumes mixed and priced in Brazil. Mix improved as a result of increased sales of high-end products such as multi-door refrigerators. We continued to increase prices to offset the significant currency devaluations across the region. Lower promotion activity also contributed. Online sales continued to grow to record levels in all main markets. And EBIT improved significantly to 440 million SEC, and the margin reached 9.2%, driven by the strong organic contribution. Increased currency headwinds, as well as raw material cost increases in the quarter, driven by effects, were fully offset by the price increases. Finally, turning to Asia Pacific, Middle East and Africa. During the quarter, Australia, our largest market in the region, continued to grow, supported by government incentives and increased home improvement spending. South Africa and Egypt recovered after a decline in the second quarter, while Southeast Asia and Middle East continued to be affected by recessions and lockdowns due to the coronavirus. We reported an organic sales growth of 9.7%, mainly driven by the good development in Australia, while sales in Southeast Asia continued to decline. The increased sales in Australia were mainly driven by good traction from newly launched products and the repositioned Westinghouse brand. Driving favorable volume, price and mix. I'm pleased that also in APAC-MEA aftermarket sales increased double digits. Operating income improved to 459 million SEC, corresponding to a margin of 11.7%. This was mainly a result of the strong performance in Australia. Lower costs for raw materials also contributed positively. With that, I hand over to Therese.

Thank you, Jonas. Looking at our financial overview, I would like to comment on a few items. We reported a strong organic growth of .2% in the quarter. Volumes were significantly higher in all four business areas, as markets recovered strongly after lockdowns were lifted, driven mainly by pent-up demand as well as government stimulus programs. Positive price development and mix improvements also contributed to the sales growth. The gross operating income, defined as net sales minus cost of goods sold, improved compared to last year. The gross operating margin of .6% for the third quarter this year increased by .4% -over-year. Operating income increased significantly. The strong organic growth with increased volumes as well as positive price and mix was the main driver for the higher earnings. So now let's look at the drivers behind this -over-year change. The volume price mix contribution was strong in the quarter. We saw volume growth and mix improvement in all business areas. Price also increased across most business areas. In Latin America, we raised prices to offset currency headwinds and cost inflation. And in North America, price developed positively as promotional discounts were low. The combined impact from raw materials and trade tariffs was slightly positive. This was a result of that lower steel and plastic cost was offsetting tariff cost increase in North America as well as negative indirect currency impact in Latin America. Tariffs had a negative -over-year impact as we sourced a larger amount of products from China to North America to meet the high market demand. Currency continued to have a negative impact on EBIT and I will come back to that later in the presentation. Net cost efficiency was negative compared to our initial expectation of a favorable contribution. This was mainly driven by higher logistics costs where express freight increased due to the supply constraints. And we also decided during the third quarter to retroactively implement wage increases from July as our visibility for the remainder of the year improved. Production inefficiencies related to the pandemic also had a negative impact in the quarter. And if we then take a deeper look at the price and mix development, the EBIT margin creation for the group from price and mix of 3.2 percentage points in the quarter, mainly coming from price but also mix improvements. In Europe, we had a favorable mix driven by growth in the built-in kitchen and laundry products in our premium brands, while prices declined slightly. In North America, price developed positively as promotional discounts were low, but we also had a positive mix related to increased sales of premium products. In Latin America, we had a good contribution to earnings from price as we continued to implement price increases and also benefited from lower promotional activity. Mix developed positively from increase of high-end products. In APAC and MEA, price impacted positively, mainly related to Australia but also to Middle East Africa. I'm also very pleased to see that our product launches in Australia continues to have good traction, resulting in an improved mix. And now let's look at the currency effects. As highlighted in the EBIT bridge, currency had a negative impact of 248 million SEC on our earnings in the third quarter. Overall, the major negative effects in the quarter -over-year are related to weaker currencies in Latin America. And then looking ahead, we calculate the fourth quarter to have a negative -over-year impact from currency, mainly related to Latin America of approximately 400 million SEC, but also headwinds in Europe of 100 million SEC due to weakening Russian ruble and British pound. And for the full year 2020, we expect around 1.7 billion SEC in currency headwinds for the total group. And these calculations are based on current exchange rates as per October 15. And then looking at operating cash flow. Operating cash flow for the quarter was very strong and amounted to 6 billion SEC. This was mainly driven by the strong earnings development in the quarter, but also favorable development of working capital. We had some significant movements in working capital due to the strong recovery in the quarter with higher sales and production. And as we could not fully meet the high demand, we built less inventory than what we normally do in a third quarter. A lower level of investments also contributed positively to cash flow. And with that, I hand back over to you.

Thank you, Triss. Looking into the fourth quarter, visibility remains limited as demand is affected by several opposing drivers, especially as the pandemic is still very much a factor. However, we currently anticipate that consumer demand will normalize gradually going forward. Considering this and the catch-up effect during the third quarter, we have revised our market outlook for the full year 2020 upwards. We anticipate that the European market shipments will be slightly positive for the full year. Retail inventories are in general low. And so currently shipments remain solid. However, more countries are again imposing restrictions triggered by the pandemic, which adds uncertainty for the end of the year. In North America, demand is anticipated to be slightly positive to positive for the full year. Disposable incomes have been strongly supported by the now-ended government stimulus programs. And a second stimulus package is under negotiation, but with the presidential election just around the corner, this adds to the uncertainty of the outcome of the size and timing of such a package. However, macro indicators such as GDP, unemployment rate, housing starts and consumer confidence indicate a positive near-term trend, and industry shipments currently remain solid as retail inventories still are low. Demand in Latin America is expected to be positive for the full year, driven by Brazil. In Chile, we look for a relatively flat development, while Argentina suffers an overall market reduction due to the pandemic and economic turbulence. We still expect overall demand in our main markets in Asia Pacific, Middle East and Africa to be negative for 2020. This is mainly driven by Southeast Asia and Middle East that are impacted by the pandemic and recessions. However, demand in Australia has so far been strong, and we expect this to be the case also for the full year, supported by government incentives. Turning to the business outlook. In the fourth quarter, we anticipate favorable organic contribution. As mentioned, we enter the quarter with low inventory levels, and that is in general also the case for our retail customers. This, in combination with a continued solid consumer demand for the time being, is the main driver for our favorable view and impacts both volume and price. The main question is how consumer demand, as well as production and supply chains, will be impacted by the development of the pandemic and related restrictions and government actions. If stimulus programs are not prolonged, consumer demand sensitivity to the underlying economic development increases as we go forward. We also expect lower impact from pent-up demand in the fourth quarter compared to the third quarter. Additionally, we need to bear in mind that the fourth quarter is normally promotional season, primarily in North and Latin America. This year, we're looking at less promotional intensity, which on the margin impacts consumer demand negatively, but it's beneficial for net price realization. We have a continued positive view on our mix also for the fourth quarter. Net cost efficiency for the fourth quarter is expected to be unfavorable, and this is due mainly to three areas. First, higher brand marketing investments in line with our favorable demand view. Secondly, we have a catch-up in strategic initiatives to strengthen our presence in, among others, e-commerce and aftermarket. These activities were put on hold during the first half of the year due to the pandemic. Lastly, just as we saw in the third quarter, we expect production inefficiencies and higher logistics costs related to the pandemic to impact also the fourth quarter. Looking at the full year 2020, we revised our organic contribution outlook to favorable, given the strong recovery in the third quarter and the favorable outlook for the fourth quarter. We now expect net cost efficiency for the full year to be unfavorable as we start investing more in marketing and strategic initiatives to improve our brand strength. Supply chain strains related to the pandemic and increased costs for the ongoing manufacturing consolidation are only partially anticipated to be offset by the cost mitigation activities in the first half and continued productivity improvements. We estimate the positive -over-year impact from raw materials, and we expect to see a significant increase in the cost of manufacturing. We expect the net cost of raw materials and trade tariffs to be approximately 0.3 billion in 2020 compared to the previous estimate of approximately 0.3 to 0.6 billion. This is, as we now expect, a larger indirect currency headwind in Latin America, as well as an increase in tariffs due to a higher volume of source products. Currency headwind of 1.7 billion for 2020 is based on currency rates as per the 15th of October compared to the 1.4 billion that we saw a quarter ago. Our business outlook for the full year 2021 will be presented in the Q4 report. So in summary, we're well positioned to create value. We continue to execute on our strategic drivers in Q3. We saw mixed improvements driven by our product innovations and the strength of our premium brands with very solid contribution. We saw strong aftermarket sales growth with very high profitability. We continued our consolidation of the U.S. fridge and freezer production and are increasingly stabilizing and increase the output from our Anderson facility. And we remain agile and flexible short term while keeping a strong focus on long term value creation. Before we open for Q&A, I want to take the chance to invite you to our virtual capital markets update on November 17. The event will focus on how we're driving profitable growth through innovation where design and brands are key pillars. We will showcase how ElectroX has strengthened its premium position in Europe through deep consumer insights, specifically in the built-in kitchen area and how this has boosted earnings. I recommend that you register well ahead of the meeting to avoid any IT related issues. With that, we will now open for questions. Yes,

so we will open up for questions and to allow as many questions as we ask you to limit yourself to one question per person. And then if time allows, you're of course welcome to dial back in and ask additional questions. Moderator, please.

Thank you. Ladies and gentlemen, if you have a question, please press 01 on your telephone keypad to enter the queue. Our first question is from Andreas Willey from JPMorgan. You may begin the question, sir.

Yeah, good morning, Jonas. Good morning, everybody. Question on the cost savings and your restructuring program. You didn't include the chart in this presentation, but in the past you showed an improvement in incremental savings from your cost program of 1121 over 20. So you go from minus 600 impact to plus 500. Is that still the right metric to look for when we look into next year? And is that including all the reversal of the negatives we have seen this year in Anderson and the related extra costs? Is there anything on top? And I would also like to better understand why we have the big step up in 22 rather than in 21 in terms of the timing of Anderson and then the new work that begins in Memphis that could disrupt 22 again.

Yeah, so our outlook for savings is unchanged. Of course there are always minor things that are moving up and down, but in general it's unchanged for 21 and beyond. So if we take it piece by piece, first of all, and we don't talk as much about that, but we have solid improvements also from our reengineering programs in Brazil. So this is not just about North America. Secondly, of course, we have these significant disruptions, particularly in the first half of the year from the Anderson transition in 2020, and those will not reoccur in 2021. So we expect to ramp up, continue a significant ramp up throughout the year. However, we still will keep our legacy factory for the first half of next year to ensure that we're able to supply our customers without disruption. So there's still some extra cost in 21 from Anderson while we generate a lot of the anticipated benefits next year. And then, of course, we start up our new factory in Springfield starting, let's say, mid-year or Q3 next year with the first launches. And from that factory, we will launch products during essentially a one-year to -half-year period following that first launch in the middle of 2021. And so gradually we'll start to see those benefits into 2022. And of course, there are some duplication costs from keeping the two legacy facilities as well as the new facility open during that transition period. So there are some, let's say, some period while we're ramping up until we get those full benefits. And in the meantime, we're continuing with our re-engineering programs again in Brazil and in Latin America. And that's all reflected in the graph that we showed last year, so no, last quarter. So we're not indicating any difference versus that.

Thank you very much. Sure. Thank you. Next question we have Johan Iliasson from Capicebro. May begin your question, sir.

Yes. Thank you and congratulations to a really good result. On the pricing and the promotional activity, you mentioned it will continue to be low sort of in the fourth quarter as well. How long do you think the pricing regime will remain as solid as it is right now? Will it last into next year as well? Or do you expect normalization already Q1 or Q2? Thank you.

Well, I think a fair expectation is that we will continue to see a relatively benign pricing environment for still some time to come. Exactly how long is difficult to predict. It will depend both on, of course, on the continuation of consumer demand and as well as the supply from us and our competitors on that sort of supply and demand equation. But I think it's fair to assume that it will continue into next year.

Okay,

good.

Thank you.

You're welcome.

Thank you. Next question we have Andrea Cookin from Credit Suisse. You may begin your question, sir.

Good morning. Thanks very much for taking my question. I wanted to ask whether you could quantify at all the kind of degree of the catch up in this quarter versus the underlying more favorable trend from the stay at home, spend at home intentions. And maybe just a quick follow up on the previous question. On the industry capacity, you've made it very clear where you are. But in terms of industry capacity, what's your assessment on how far it's caught up?

Yeah, so, you know, starting with the industry capacity, I think we're, inventory levels are short still, I would say, in most markets at our retailers for most manufacturers. And I think we see that in Europe and in North America and Latin America as well. So that's why my prediction is that that will continue for some time to impact the supply and price and demand equation in a favorable way. Sorry, now I forgot the first part of

the question. It was about the catch up versus underlying. Yeah,

yeah. Thank you. It's, I mean, we'd like to know that as well, right? So I think it's probably fair to assume that a really significant part of the volume sort of lost in the second quarter for the industry as a whole, a lot of that was recaptured in the third quarter. And at the same time, we do see, and we do see continued good demand, this impact from people staying at home, using their appliances more intensively. We see very good development in aftermarket revenue as well as demand for new products. So we think that that's a real factor and that that will continue. People are just reallocating their household budgets away from travel and eating out and entertaining to improving their homes. And I think we are really benefiting from that and I think especially benefiting from it with our strong focus on consumer experience innovation, right? It's really helping people to try new things when they cook and reduce the risk of failure, you know, extend the useful life of product store in their fridge, caring for people's clothes, really useful innovations that help us drive favorable mix. And that I really see, I mean, that's a long term trend that we've seen very favorable mix development for a number of years. That's accelerating. I think that acceleration will continue to be beneficial for us. Some of the other effects are a little bit more transient, particularly the catch up, of course, and the stay at home trend, I think, will continue for. For quite some time,

though. Thank you.

But it's difficult to piece it apart. We're not able to do that.

Thank you. Next we have the on in our phone, thank you. You may begin,

sir. I guess that's me, Björn Enarsson, Danse. Yeah. Can you help us with some more details on how you look about the North American situation? I mean, you have quite odd comps in Q4 and also in most part of the first half, of course, also before the pandemic. If you can add some details on that.

Yeah, it's true. I mean, we had a really, really negative impact from the ramp up challenges in Anderson in Q4 and as well Q1, Q4-19, Q1-20. And of course, we don't expect those to repeat. We also, and you may recall, we communicated about that in Q4 last year that we had a significant also inventory push by one of our largest retailers out of Q4, which had a negative impact on ourselves. So we have a very sort of depressed comparable in North America in Q4. And of course, we expect to completely offset that since we're now up and running in Anderson. Plus we have on top of that the favorable demand and price environment. So I guess that's as much guidance as I can give on that.

Thank you. Perfect. And if you can remind us about the inventory impacts from Sears or one of your customers.

I don't have it in front of me right now.

Yeah, I can check it out.

It was

the smaller part of the 70 million US dollar that we announced

for

Q4. And that the main part of that was relating to Anderson. Yeah,

the majority was Anderson and the smaller part was. But yeah, we have it in the release.

Yeah, perfect. Thank you.

Thank you.

The next question we have Olof Sederholm from ABG. You may begin the question, sir.

Hi, everyone. It's Olof from ABG. I just have actually one question. The pricing going into Q4, you were able to offset the effects in Latin fully. Will you be able to offset the effects effect also in Q4 in Latin America and elsewhere?

Yes.

That's a good question. Thank you. That's a good reply, I should say. The question I leave to others to judge. Thank you very much, Iulia. Thanks. Thank

you. The next question we have Gustav Haggius from SBB. You may begin the question, sir.

Thank you, Operator. Good morning, guys. I'm a little bit curious about the mix in Europe. It's been a positive contributor now for some time. I guess it coincides at least partly to your launch of the built-in kitchen range in Europe. I think it was Q4 last year, so about to annualize that anniversary. Going forward, I guess there was a gradual launch of the built-in kitchens in Europe to start, so maybe the midpoint isn't reached here. But how do you see that profile going forward? Are you confident that you could drive positive mix in Europe also towards the second half of next year? Or what's your view there? Yeah,

we're absolutely confident in that. And I think it's, of course, our favorable mix trend in Europe is so much more than an individual launch or product range, even though it's an important one. So, yeah, we're seeing positive mix in every product category. Laundry, built-in kitchen, home comfort products. And we have all the intention to continue to drive that. And I think very importantly as a part of that, we're investing behind growth of our premium brands, right? So Electrox and AEG. And inherently, as we grow those brands more than the business as a whole, that has a positive mix effect as well. So a lot of the discussion we have around, let's say, increasing marketing investment and increasing both our transformation and R&D spend, it's all about continuing to drive that favorable mix trend. And I think we're showing that that works, and we have all the confidence that it will continue to work.

All right, that's very clear. Thank you. Thank you. Thank you. Next question, we have William Turner from Goldman Sachs. Good morning,

everyone. You provided some interesting color on the September developments in Europe, saying that it was positive but at a somewhat lower pace. Could you provide a similar kind of sequential trends in the other regions, the U.S., Latin America, and APAC, and how September was compared to the previous months?

Yeah, I would say there's a fairly, I would say, common trend that June started to be positive, July and August were very positive, September also positive but at a slightly lower pace, right? So that's essentially the curve, if you will. And it's actually mirrored in many, many markets. And I think it has to do with the fact that, again, some of the growth that we saw in the quarter was driven by pure delayed shipments to consumers, you know, following the lockdowns, and some of the growth was driven by this shift in investment into home improvement that we're seeing. I think one factor that's worth noting, and we said it but maybe it didn't come through as heavily, we see very, very strong housing markets in many important markets. And if you recall, you know, how we typically kind of look at the demand buildup on appliances, you have this sort of 60% plus we call forced replacement, so you're replacing a product that's beyond repair. You have around 20% that's planned replacement, and you have around 20% that's new construction. That's a typical split. And the new construction is going well in the money market, and as a lot of existing homes change hands, that typically means good pricing developments for homes. People feel that they have home equity, and that makes them more willing to spend money on refurbishments of their kitchens, of their laundry rooms, and so on. So those factors tend to be supportive of demand for us going forward. The tricky part is, of course, that we're still in the middle of a pandemic, so, you know, what restrictions and other things, as well as potentially stimulus packages will come out of that. And of course, we're also still in a recession, so that has a dampening effect. And because we have so many different drivers, it's a little bit tricky to give a very precise outlook. But I think in summary, we're pretty confident in the near-term development here.

That's clear, Francis. Sure. Thank you. Next question. We have James Moore from River. You may begin your question,

sir. Yeah. Hi, everyone. Ernest, Terese, Sophie. And my question is also on the savings. I'm really following up from Andreas earlier. Can I confirm something and then ask a question? Can I confirm that when you say the savings are net of expected transition costs, just in plain English, does that mean that we get the remaining three billion of gross saving or whatever the number is? And the one billion transition costs dropping out or whatever the number is, so that we get in my math something like four billion in the bridge by 2024, or is it just the three billion? My question relates...

It's all in there. Yeah, that's the point.

It's the two together,

yes. It's all in the graph, yeah.

And my question is really about Anderson and the transition costs. Very helpful to have the, I assume, 50 out of the 70 in the fourth quarter was Anderson. And would it be possible to help us with sizing the -to-date financial impact for the nine months? And when you talk about that, do you think about both the volume impact from lost market share and the cost impact from double costing or just one of those and just try to get a flavor for where we're at this year?

Yeah, no, I mean, we definitely saw a significant negative impact from Anderson in the first half of the year, mainly in the first quarter, but also into Q2. And in the case of Q2, it's a little bit hard to piece it apart from the, let's say, COVID impact. But we clearly didn't get the output that we wanted out of Anderson, nor from the other factories in the second quarter. And now in the third quarter, the combined output from the new factory in Anderson and the legacy factory is quite solid. It's not, frankly, not yet fully meeting the very strong market demand that we have, but it's a solid output and we expect that to continue and further improve in the fourth quarter. And then gradually, as we continue to ramp up the new facility, we will then ramp down the old one and then towards the second half of next year, then fully close it down. So there's this sort of very gradual, or not very, but gradual progression of the benefits throughout next year.

Would it be fair to think about that? We're

not exactly that the individual factory impact and so on, but suffice it to say that it was quite significant, particularly in the first quarter of this

year. And just on that, Jonas, if I could, would it be fair to say that the first quarter was broadly similar to the fourth? Or was it much bigger or less than that?

It was broadly similar on the Anderson impact,

yeah. Yes. And is there a period when you expect that to be break even that you could help us with?

Sorry, say that again. I'm sorry.

So at which quarter should we think about the negative impact, which I think of as getting less and less and less? At which point, roughly, does that get to being roughly break even?

Versus the history, let's say.

Yeah, the Anderson piece. Do we have to wait? Does it happen in the fourth quarter with the comp?

Yeah, I mean, it's a little bit tricky to kind of piece that question apart. But I would say by, let's say, Q2 of next year, you know, we shouldn't certainly not have any negative impact anymore from Anderson. And then the real sort of net positive contribution starts then in the second half,

effectively. Thank you. Thank you very much.

Thank you. Next question, we have Karuintar from Hunters-Banken. You can begin your question, sir.

Yes, thank you. I have a question about current trends and the mix and more specifically, my thinking is that given the exceptional conditions that we have now with high amount of people working from home, this planned replacement that you mentioned is roughly 20 percent of volumes is probably higher or is probably a pretty good market at the moment. And at the same time, you also mentioned that after sales is doing really well. So the question is that, of course, as long as we continue to work from home, these positive trends are sustainable. But how sustainable are those beyond and maybe more specifically about the after sales opportunity? How much of the positive tailwinds do you believe are sustainable also going forward?

I think that's, of course, a very relevant question. And I think that there's just no question about the fact that the pandemic and the work from home and related issues and travel restrictions are having a beneficial impact. And we'll continue to have that for some time. What happens afterwards? Well, it's a bit difficult to predict. What I would say, though, is that we feel extremely confident in how we focus our strategy. And I think that's the key message here, really focusing on relevant consumer experience innovation, helping people solve their daily problems in their homes in a more enjoyable and more sustainable way. And this is really what's driving our favorable mix development. And frankly, that's what's driving our favorable aftermarket development as well, as we're investing in more capability to deliver better services in a way that gives consumers more peace of mind when they have a service event. So these trends are there. They're accelerated by COVID. I think some of that acceleration will remain, but some of the effects are clearly temporary. Difficult to give an exact guidance, but overall, I think that part of a very tragic pandemic is actually payable for us. Great. Thank you

very much.

Thank you. Next question is from Fred Morigart from Parades of Security. You may begin your question,

sir. Thank you and good morning, everyone. So you entered Q3 with lower inventories, and obviously you've had some difficulty at least delivering products in North America throughout the year. Could you tell us something about what that has done for the competitive landscape? Has that impacted listings for you in some way ahead of next year?

No, I think, look, we're not pleased with our ability to meet market demand in North America, but frankly, that's an industry phenomenon. And I don't think we're worse off than most others. So yeah, we're working extremely hard to meet market demand, and we are continuing to raise output, as I expect our competitors are as well. But I don't see that we're at the specific competitive disadvantage from that.

Okay, thank you. That's encouraging.

Thank you very much. Next question is from Andreas Willey from JPMorgan. You may begin your question, sir.

Yeah, thanks for giving me another go. Just two clarifications, or a clarification on FX and the question on October. Would you expect to be able to offset the 500 million FX in Q4 on price, particularly the 400 million in Latin America? And secondly, on the question you answered earlier on September, maybe you could just indicate how October is developing. Is that another slowdown versus September or a similar level?

First on the pricing, the answer is yes again. We will fully offset the FX that went through pricing. On the demand trend in October, I did mention that we currently see a very solid consumer demand, and of course, retailer inventories are still low, and we're effectively shipping what we can produce. So, yeah, still favorable.

Thank you. Thank you. Next question we have Johan Eliasson from Capital Chevrolet. You may begin your question,

sir. Yeah, just some follow-ups. On the cash flow, it was obviously very strong in Q3. Can you give us an indication of how the seasonality will be impacted for the fourth quarter on the cash flow trends? Yes. Then secondly, Brazil. I think you lost a bit of share in Q2. Did you regain it all? Now you think. I think WorldFull said they took market share also in Q3 in Brazil. And finally, automation investments. You talk about positives coming from North America and also Brazil, but I also understand there's an automation program going on in Europe, which seems to be related to the new higher energy requirements or labeling practices. Is that energy transition taking off all the positives from the potential automation in Europe? Should we worry about it for a similar situation that we saw in North America four years ago?

I should have written all this down, but okay. I'll leave the cash flow one, two, three. But we have 37 percent growth in Latin America in Q3. We're pretty pleased with that. So who took the most market share? I will leave to others to analyze, but we're extremely pleased with our development in Brazil and in the region. The automation ongoing across the group, yes. So we've chosen in this sort of extra eight billion of reengineering that we talk about, we've chosen to focus on the really big ones, which is then Anderson and Springfield cooking and refrigeration in North America. We have cooking and refrigeration also in Brazil that we're driving and then a major, as you mentioned, reengineering program to enable us to really win in the new energy labeling environment in refrigeration in Europe. And I'm really pleased to report that we're making solid progress on that reengineering program in Europe. The first products will be launched in the third quarter next year. I have no sort of negative deviations to report compared to what we already have indicated in that graph. And then on top of that, and that's really my point, we're continuing to invest in automation across the group, more as an ongoing initiative that we've been driving for many years. And that's a large reason for the underlying cost productivity that we drive on a quarter to quarter basis. But that's not part of that big reengineering tracking that we're doing. So yeah, I'm very confident that our cold program or food preservation program in Europe will position us extremely well in that market, in that new, very demanding energy labeling environment that we will have there. And then on

cash flow, yes, of course, the 6 billion was tremendous. But I think if we look at the cash flow year to date, it's a little bit more normalized level. And I think we have had, of course, tremendous swings between the quarters in all parameters, both in results as well as in working capital. But of course, we believe that the strong, solid performance is continuing. And so we believe with cash flow.

Did I miss one?

No, I think we answered them all.

Yep, absolutely. Thank you very much.

Thank you. Next question we have, Andre Cookman from Credit Suisse. You may begin your question, sir.

Yes, hi again. Thanks so much for taking the follow-ups. Just a couple. Firstly, on pricing in the quarter, kind of just gross pricing level, is an estimate of around 300 basis points about right? Or which way would you correct that?

Yeah, no, I mean, we obviously don't break out price versus mix, but we show the combined effect of 3.2 there.

And then price would be clearly the bigger one out of the two. Would that be fair to say?

In terms of the leverage impact, let's say on EBIT, yeah, price is the big one.

Right. And on the raw materials indications into 2021, is there anything you can say on that?

No, it's a bit early. And I think just in general, here as well, we're seeing these sort of competing impacts where we have a global recession, clearly, and people saying that GDP will not be back to pre-recession levels until the earliest end of next year. At the same time, we also see a fairly rapid recovery right now, and a lot of suppliers have reduced their capacity. So there's this sort of supply and demand balance going on also there. And it's too early to see where that's going to shake out. Of course, we're actually in those negotiations as we speak, and as normal, we'll give a better indication once we have more of a feel for how that's going.

Got it.

Thank you very

much for your time.

Thank you.

Thank you. Next question, we have Gustav Hagius from SBB. We'll begin the question,

sir. Thank you for giving the opportunity for a follow-up. I'm a little bit curious about the evolution of the re-engineering program. You guided at the time, it was an 8 billion incremental capex income combination. I'm just curious, I appreciate that you pushed some capex from this year into next year by lowering capex guidance for the year. But when we start to approach the end of next year, how much of this capex will have been deployed and how much do you still recognize will be to be spent in 2022 and beyond of the 8 billion incremental?

I think the bulk will have been spent by the end of 2021, but there is still going to be an elevated level in 2022, and then we'll start to see it taper off a bit. Okay, thank you.

Thank you. Next question, we have Kari Winsa from Handelsbanken. We'll begin the question, sir.

Yes, thank you very much. One more about the manufacturing consolidation and more specifically when it comes to Andersen, these ongoing supply constraints that you experience at the moment, are that do you see them as a risk or an opportunity when it comes to sticking to the timeline that you're working on? I mean, you have discussed IE being able to close down the legacy plant by mid-year next year. And then secondly, at what point should we get concerned about Springfield when it comes to these travel restrictions to the US? IE, are they or any other COVID related disruptions putting the sort of the Springfield plant launch Q3 next year at risk?

Yeah, no, on Springfield, I think we did indicate basically a six month delay, and that was, you know, including the expected continued impact from COVID. And so we have no reason to change that guidance. And it is actually, it is possible to travel to the US now with waivers and exemptions. And so we are able to bring suppliers in, not to the level that we would ideally prefer, but it's able to, it's possible to continue the progress of the investments and installation of equipment and so on. That's happening as we speak. When it comes to then, to Anderson, I think we're, as I mentioned, I think we've actually ramped up production in the combined old and new factory to decent levels and pretty good levels. It's just that demand is so high. And I think that's again an industry wide phenomenon where the industry isn't able to supply to full demand. So it's always a concern to me when we're not filling consumer needs or demand fully, and we're doing literally everything in our power to do that. But I don't think we are particularly exposed for it. I think that's that's an industry wide phenomenon. Great.

Thank you. Sure.

Thanks. Thank you. And for our last question, we have James Moore from Rayford. You may begin your question, sir.

Yeah. Hi, thanks for squeezing me in on a follow up. I've got a couple. Can you talk a bit about your US fridge freezer production levels, I guess? Given you lost some share with the transition, you now have a fantastic market that must be helping. I wonder if you could give us a flavor for how much production units kind of all in US colds, electrolytes fell from, say, a year ago before the problems. Are we broadly back to where we were? Or is there a permanent impairment or a data with the better volumes? Are we above where we were, say, before the problems? That's the first one. And the second one is.

Let's take it one at a time. Maybe then. Yeah, just because otherwise we'll forget. No. So, yeah. So look, the combination. So what we've done, just to recap for everybody, right, we we closed our freezer factory in St. Cloud and we outsourced part of that production and we moved part of that production to to Anderson. And that's actually been the more difficult part of the of the transformation. So so I think it's it's you know, even though we are actually supplying a lot of freezers out of both our own facility in Thailand and our other external suppliers. But yes, we've lost a little share in freezers. There's no no way around that. In terms of the combined bridge freezers there, I think we're actually now producing it at very solid levels. And and I'm not not particularly concerned about that. That development. We're we're we're progressing very well.

Nice. And lastly, did the retroactive pay hike you mentioned fully impact in the quarter? Or can we or should we expect a more significant sort of one time negative in the fourth quarter or at any other stage? Or have we already fully embedded?

Yeah, we fully accrued for that in Q3. Great.

Thank you very much.

Sure. Thanks. Thanks, James.

Thank you. As there are no further as there's no further question at this time, I'll hand the session back to speakers for closing remarks.

OK, thanks, everybody, for for very good questions and a good discussion. Just in summary, I think this quarter has proved with all this volatility that we are extremely well positioned to create value. We're continuing to execute on our strategy to drive demand and profitability through relevant, sustainable consumer experience innovation. And this helped also in this quarter to further boost earnings. Our innovation focus together with our reengineering initiatives will result in more efficient manufacturing with great new products setting us up for long term competitiveness. I'm very confident that the lecture lecture remains well positioned to create value. Thank you very much. Looking forward to seeing you all at the capital market update and have a nice day. Thank you. Bye bye.