Electrolux AB

Good morning and a warm welcome to Electroc's first quarter 2021 results presentation. With me today, I have our CFO, Therese Friedberg, and our Head of Investor Relations, Sofia Arnjus. I'd like to mention that this session is recorded and will be available on our website as an on-demand version. So let's look at our performance in the first quarter of 2021. Demand continued to be strong in all markets as changes in consumer spending pattern brought by the pandemic remained and retail inventory levels were low entering the year. We delivered strong organic growth at almost 23%, with double-digit growth across business areas. Volumes increased significantly, and we are producing at almost full capacity. The organization has been working hard to secure supply in a very tight market, especially related to electronic components, certain plastics, and logistics. Despite some shortages, we continue to drive mix in a very good way. Price increases implemented early in the quarter, as well as carryover effects from 2020, combined with continued low levels of promotions and discounts in several markets, reflecting the low product availability, resulted in very positive price development. Mix continued to improve, with good traction from our premium brands and innovative products. In addition, we had another quarter with strong growth in aftermarket sales in all business areas. Operating income was at a Q1 record of 2.3 billion Swedish kronor with an operating margin of 7.9%. As highlighted, we had strong organic contribution from all three levers, volume, price and mix. The positive price development exceeds cumulative external headwinds over the last three years, both from raw material and currency. Additionally, we have in early Q2 announced additional price increases in light of the recent developments in raw material prices. Higher logistics costs and production inefficiencies due to the strained supply chain were offset by continued cost improvements. We also increased investments in innovation and marketing somewhat to support profitable growth. As I mentioned, we improved the mix also this quarter. Let me give you some examples on what we do based on deep consumer insights to drive this announcement. The first example is our very important North America water filter aftermarket sales business. And we've seen very significant growth in water filter sales in 2020, driven by a strong focus on leveraging our own IP, driving strong consumer insight into our marketing messages, expanding our sales channels. And combined, this has resulted in almost a 60% improvement in our gross profit. And this is also a very important sustainability effort, where almost 4 billion plastic water bottles were avoided in 2020. by water dispense from our Electrolux water filters in North America. So a very, very strong both profitability and sustainability story. When it comes to recent examples of successful market launches, I'd like to mention one in the US and one in Latin America. The first example is our new Frigidaire Professional tall twin refrigerators, which we launched only a few months ago, but which have already received a five-star rating by consumers. This product targets more affluent consumers who see design as important and their home as an opportunity to express themselves. At the same time, it helps the consumer to keep produce fresh longer and thereby reduce or eliminate food waste. In addition, the built-in water dispenser helps minimize single-use plastics. The Tall Twins are produced in our new Anderson factory and is a great example of the mixed opportunities the Anderson investment brings. The second example is a relaunch of a very well-recognized and trusted brand in Brazil, Continental, which we acquired in 2017. It targets consumers in the age group up to 50 years with a lower to average level of income, and it's a great complement to our Electrox brand that we now can focus more on higher price points. The launch kicked off during the fourth quarter last year with a complete kitchen lineup of 27 new products. The multi-channel campaign was very well received with 90 million online media views, significantly more than we expected. This has resulted in a 1.2 percentage points total market share increase February year to date versus last year. So these were some examples on how we drive profitable growth. If you're interested in finding out more about how we drive sustainable consumer innovation, you're welcome to visit Electrolux for Investors on our corporate website. A new section that we launched in February connecting our strategy with the execution. Let's now go into our business areas performance in Q1, starting with Europe. Organic sales growth was 14%, and our strategy to drive profitable growth through innovation continues to pay off. Product mix improved in all innovation areas, taste, care, and well-being, with a further strengthened position in our focus areas, built-in kitchen, and especially laundry. Consumers awarded us with a positive development of consumer star ratings, an average 4.65 out of five stars in the first quarter. This has also helped drive improved price index. Value market share increased for our premium brands, AEG and Electrodux, and volume growth was strong across most markets, despite being limited by constraints on input materials and retail lockdowns. The strategic aftermarket business continues to grow. EBIT was very strong. 1,122,000,000 SEK and a margin of 9.6%, with strong organic contribution from volume, price and mix. We increased investments in marketing and strategic initiatives somewhat to support profitable growth. In the quarter, we started to see the impact of further higher raw material costs and are in the midst of implementing additional price increases. And our continuous cost improvement initiatives offset increased logistics costs in the quarter. Let's look at European market. In the first quarter, overall market demand in Europe continued to be strong, and the demand increased by 14% year-over-year. In Western Europe, demand increased by 15%, and in Eastern Europe by 13%. We continue to see high levels of home improvement spending, and in addition, retailers enter the quarter with generally low inventory levels, and overall sell-in is assessed to have been higher than the sell-out in the quarter. The current situation is more unbalanced when it comes to retailers' inventory, depending on the level of restrictions in each country. Some countries, like Germany, the Netherlands, and to some extent France, returned to lockdown in the quarter, and retailers could then replenish their inventories. The UK opened up to some extent in mid-April, and early indications show strong traffic in the stores, with shoppers enjoying some level of normality, and design appointments in kitchen retail have been at an exceptionally high level. This indicates short-term reaction when restricted countries open up. In countries that have remained open, such as the Nordics, retailers' inventory levels are still low in general. Now let's look at our business area in North America. Organic sales grew 22.9% with volume growth in all product categories. Net price realization continued to be strong with price increases implemented early in January. We're currently announcing additional price increases to be implemented in Q3. Sales promotions continued at a minimum level, as we also saw in Q4, reflecting the lower product availability. We delivered continued significant aftermarket sales growth, with sales of accessories, such as water filters, as mentioned, as one important driver. EBIT improved significantly to 493 million Swedish krona, with a margin reaching 5.5%. Volume and price drove strong organic contribution, and price increases fully compensated for the cumulative headwinds from raw material and trade tariffs. Mix was unfavorably impacted by the harsh winter weather in February, affecting our ability to supply some of our premium products, and production efficiencies were offset by higher costs related to logistics and weather disruptions. Given the strong market and our large backlog, we will keep the legacy factory in Andersen open throughout 2021, compared to the previous plan to close it by mid-2021. This is as we see that the benefits from a supply perspective clearly outweighs the higher costs. Now, let's look at the US market. During the first quarter, industry shipments of core appliances in the US increased by 18%, with strong market growth across all main categories. Market demand for all major appliances, including microwave ovens and home comfort products, increased by 20%. Strong market development was driven by higher consumer demand, supported by economic stimulus, with a third round of government stimulus package being delivered. We also had continued low channel stocks, and unemployment continued to decrease, further boosting consumer confidence. Housing market remained strong, with slightly increasing mortgage rates from all-time lows, but still very attractive. Let's move on to Latin America. Business Area delivered very strong organic growth of 58%, with volumes increasing in all regions. There was a strong contribution from higher net price through price increases implemented early this year, as well as carryover effects from price increases in 2020 in all countries. We're currently announcing additional price increases also in Latin America. Additionally, we saw unusually low promotional activity for the season due to limited availability on some products. Positive mixed development also contributed, especially in refrigeration, as the penetration of multi-doors increased and more frost-free fridges are sold instead of cycle defrost. We also saw continuous strong growth in aftermarket sales. Sales last year were impacted by pandemic restrictions towards the end of the quarter, so that of course also impacts the comparables. Q1 sell-in in the ABC, Argentina, Brazil, Chile regions as a whole is estimated to have exceeded sell-out, improving retailer inventories. Brazil is experiencing increased market uncertainty. And in Q1, sell-out is estimated to be negative, impacted by closed retail stores and lockdowns in several cities. The pandemic accelerated further towards the end of the quarter. The selling increased as retailers' inventory levels in general were low entry in the year. Commercially in Argentina and Chile, we saw increased consumer demand driven by pent-up demand after long lockdown periods in 2020. EBIT improved to 423 million SEC, and the margin reached 9.4%, with strong organic contribution from higher volumes, price, and better mix. Price more than offset headwinds from external factors, mainly currency and raw material, as well as increased logistics costs. Investment in innovation and brand strengthening initiatives increased, supporting further profitable growth. And finally, turning to Asia-Pacific, Middle East, and Africa. Consumer demand overall in the region is estimated to have increased. The pandemic situation was somewhat stable, with vaccination underway in all countries. Southeast Asia started to recover after several quarters of declines. In Australia, our largest markets continue to be positive on the back of a home renovation boom. Organic sales growth of 18.9% was driven by strong volume growth in all markets, and also positive mix contributed across most markets. In Australia, we saw high margin kitchen products growing, such as multi-door and built-in kitchen, with the Westinghouse launch last year being an important driver. Also, our product launches in Northeast Asia are performing very well, And consumer star ratings also here continue to improve. We saw positive price development, mainly coming from Australia. And aftermarket sales growth across all categories, consumable, services, and spares continued to grow. One successful example is our bundled sales with air filters in North America. No, in Northeast Asia, sorry. Operating income of 393 million Swedish krona, and margin was 10.1%. We had strong organic contribution, particularly in Australia, through high margin products and prices. We had a favorable currency development, which mitigated the increased cost of raw material. We had higher prices for ocean freight, but those were offset by continuous cost improvements. And we increased investments in brand building and marketing, supporting product launches in 21, such as AEG in Australia, the introduction of induction in Korea, and air care in Japan, which is already contributing to mixed improvements in the first quarter. With that, I hand over to Therese.

Thank you, Jonas. Looking at our financial overview, I would like to comment on a few items for the first quarter. We have strong organic growth of 22.8% driven by mixed improvements and positive price development, and volumes also increased across business areas. Gross operating income defined as net sales minus cost of goods sold improved to a margin of 21.3%, which was an increase by 6.3 percentage points year over year. Operating income increased significantly, mainly a result of the strong organic contribution. Let's look at the drivers behind this year over year change. As mentioned, we had significant contribution from volume, price, and mix in the quarter, where volumes increased on continued strong markets. We had very good price execution from price increases implemented early this year as well as carryover effects from increases in 2020. And we also continue to see very low level of promotional discounts. We also had positive contribution from mix as a result of further strength and position of our premium brands and our innovative high margin products performed well in the quarter. We also delivered strong aftermarket sales growth across business areas. We increased investments in consumer experience innovation and marketing to support our profitable growth. And cost efficiency, as you see, was slightly positive, as continuous cost improvements were offsetting the increased logistics cost and production inefficiencies due to the supply chain constraints. We saw headwind from external factors, mainly from raw material, but also from currency in Latin America. Let's take a deeper look at the price and mix development. The EBIT margin accretion for the group from price and mix in the quarter was 4.8 percentage points, which is mainly coming from price but also mix improvements as a result of increased sales of innovative premium products and growth in aftermarket sales. In Europe, we have a favorable mix driven by growth in built-in kitchen and laundry products under our premium brands and strong aftermarket sales growth. In North America, price developed positively from price increases implemented in the beginning of the year, as well as continued very low promotional discount levels. Aftermarket sales increased, but mix was unfavorably impacted by the harsh weather in February, which impacted our ability to supply some of our more premium products. In Latin America, mix was positive, mainly in food preservation with increased penetration of multi-doors and frost-free fridges. Also, price contributed positively, both from price increases implemented in the beginning of the quarter and carryover effects from increases last year to offset the external headwinds. And in addition, the promotional activity remained very low also here. In Asia-Pacific and Middle Eastern Africa, we saw positive mix across most markets with high-margin kitchen products growing in Australia, but also successful product launches in other areas. Price was positive both from implemented price increases in several markets and reduced promotional activity. Now let's look at our cash flow. Operating cash flow for the first quarter amounted to minus 0.2 billion Swedish krona and the very strong operating income compensated to a large extent for the seasonal outflow from working capital that we normally have in the first quarter. And compared to last year, investments were also at the slightly lower level, impacting our cash flow favorably year over year. And with that, I hand back over to Jona.

Thank you very much, Therese. Let's look at our market outlook. Even though visibility remains limited due to the ongoing pandemic, we continue to expect demand for the first half of 2021 to exceed normal seasonal levels across our main markets. This is driven by increased home improvement spending by consumers and retailers' inventory replenishment. However, capacity and electronic component availability will remain a constraining factor into the second half. We estimate that market demand will begin to normalize during the second half of 2021, assuming that consumer spending patterns start to normalize by mid-year. All in all, we expect market demand growth to be positive for the full year for most of our main markets, with the exception of Latin America, where we anticipate demand to be more neutral. Looking at the specific regions, we revised our full year 2021 view on European market shipments to positive, from slightly positive, with growth across the key markets. A slower pace in the vaccine rollout than initially expected may push the ease of restrictions somewhat forward, and hence normalization of demand. We see a supportive trend from the replacement market. Government similar programs are expected to mitigate effects from new COVID variants and rolling lockdowns, which so far have halted recovery to some extent in terms of consumer confidence and unemployment. In North America, demand is estimated to be positive for the full year, partly driven by a very strong housing market and favorable repayment cycle. Recently announced government stimulus programs should further support the economy and consumer sentiment, leading to a favorable demand output. In Latin America, the pandemic has accelerated during the end of first quarter 21, adding to the increased uncertainty as previously highlighted. We now expect consumer demand in Latin America to be neutral for 2021 compared to our previous positive view, given the recent macro turbulence and worsening of the pandemic situation in Brazil. We expect high demand in main markets during the first half of 2021 and markets normalizing in the second half as a result of moderation of disposable income growth, the reduction of government aids combined with still weak labor markets and rising currency-based inflation. And finally, we estimate demand in Asia Pacific, Middle East and Africa region to be positive for 2021. This is mainly driven by Southeast Asia that's expected to rebound but still below 2019 levels due to lower consumer purchasing power. Many countries in Southeast Asia are heavily dependent on tourism which has been negatively impacted by the pandemic. However, A strong and fast recovery in China is supportive also for growth in Southeast Asia. For Australia, which is our other large market for this business area, we anticipate a slight decline in 2021 demand compared to a strong 2020. Let's look at our business outlook. For 2021, we expect a continued positive organic contribution from volume, price, and mix, driven by favorable market demand, higher prices compensating for raw material headwinds. Demand and mix are assumed to be positive, impacted by increases in innovation and marketing investments, including a step up in digitalization of our consumer interactions. Volume growth could be constrained by the global electronic component shortages, and our team is working hard and is having a close dialogue with our suppliers to address these issues. In addition to the price increases implemented in Q1-21, we're also announcing another set of price increases in key markets in early Q2. These will be implemented in the coming months. In terms of promotion levels, which currently are very low, we expect them to normalize when the supply and demand situation normalizes, even though this may vary between product categories and price point and markets. During the past three years, mixed improvements from innovation, brand, and aftermarket sales growth have in total contributed more than 3 billion Swedish krona to operating income. realizing a very favorable return on investment. We also know that the strengthening of our main brands, Electrox, AEG, and Frigidaire, are paying off. These brands accounted in 2020 for approximately 80% of GroupNet sales, compared to just over 70% three years ago. Besides brand and marketing investments, we're also strengthening our capabilities within aftermarket and e-commerce, both strategic areas for us. If we see weaker demand, we have the opportunity to significantly slow down these investments like we did in 2020. We estimate the cost efficiency, excluding innovation and marketing investments, will be positive for 2021. Our group target is to annually drive down the variable product cost, excluding raw material, by 3% on like-for-like products. Main cost efficiency drivers in 2021 are continuous cost improvement and execution of our re-engineering programs. particularly improve productivity and output from our new refrigeration facility in Anderson in the US. However, this will partially be offset by increased logistics and sourcing costs and transition effects as we ramp up more facilities in our re-engineering program towards the latter part of the year. These estimated ramp-up costs are already included in the cost savings from the re-engineering program that we communicated previously. Last update being in the Q2 2020 earnings score presentation. All in all, As we plan to accelerate innovation and marketing investments, given that marketing conditions remain favorable, total net cost in 2021 is expected to increase. As a global appliance company, we're exposed to various external factors, such as raw materials, tariffs, currency, and excess labor cost inflation. For 2021, we revised the estimated negative headwinds from external factors to 2.4 to 2.8 billion Swedish krona, from the previous estimate of 1.6 to 2 billion. This is in light of price increases on raw materials such as steel, plastics, and base metals, in combination with an unusually tight market. Weaker currencies in Latin America have also contributed to the increase in headwinds. The assessed impact from translation currency remains at approximately negative 400 million Swedish krona at current exchange rates. We expect to offset the headwind from external factors with price, just as we did in the quarter and have done in the past two years. We're continuing our re-engineering investments and expect total capital expenditures to be about 7 billion Swedish kronor in 2021. Our re-engineering investment program is crucial to strengthen cost competitiveness and drive profitable growth through increased modularization and automation in the Americas and in Europe. So to sum up the quarter and the strategic drivers that we've delivered on, we see that we continue to remain very well positioned to create value, and we've delivered that in the strong profitable growth in the first quarter. Our mix improvements are continuing, driven by product innovation and focus on premium brands. We've continued to execute very strongly on price to offset for our increasing cost headwinds, and we expect to continue to do so. We're continuing to drive significant aftermarket sales growth, adding to our profitable growth. And our agile ways of working to minimize the impact from a strained supply chain is further benefited from our initiatives to increase the digitalization of our supply chain. With that, we open for questions. Back to you, operator.