AB Electrolux (publ)

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.

Thank you. If you wish to ask an audio question, please press the 01 on your telephone keypad. If you wish to talk on your question, you may do so by pressing 02 to cancel. Again, please press 01 on your telephone key card if you wish to ask an audio question. There will be a brief pause whilst you wait for a question to be registered. Our first question comes from Andrea Krinkman from Credit Suisse. Please go ahead.

Good morning. Thank you very much for taking my questions. I've got two, and I'll take them one at a time if that's okay. Firstly, I just wanted to follow up on your new external factors guidance. that has increased by 800 million. I'm a little bit surprised with the magnitude of the increase, given that it was kind of implied 1.4 billion of kind of XFX translation headwinds in there in January, and you already had, I think, quite a lot of raw materials locked in at the time, and looking at the spot prices moves since January versus the moves kind of since back end of last year into January. It just seems a bit disproportionate. Could you give us a bit more detail on the moving parts in that?

Yeah, it's really sort of every part of the raw materials that's increasing, and it's a number of different factors. So first of all, it's correct that in steel, much of our volumes are contracted on a full-year basis. Not all of them fully fixed, though. Some of them are impacted by input drivers that have increased. But the other main factor here when it comes to steel and also all of our other raw materials is that the price and the volume is fixed. So when we need additional volumes, we have to buy them at more variable cost. And those spot prices are substantially higher than the contracted prices we have. So that's one significant impact. Then in terms of plastics, the plastic input drivers have gone up fairly significantly. And also, base metals have continued to go up. So the combined impact is about that 800 million. But you're right. I mean, we have a fairly significant part of our steel supply at fixed prices, but that's just the base volumes.

Very helpful. Thank you. And I guess the other side of that question is on pricing. You made it very clear that you're increasing prices in April. And you've got some price increases that you put through during Q1 to kind of have the full effect. Could you comment on the response from your channel partners and potential competitors to these price increases? And maybe especially in the countries where you cited the inventory situation is not as tight as it used to be. You mentioned Latin America and countries like Germany and Netherlands, please.

Yeah. No, I think, look, price increases are never easy, and there's always resistance to that. However, I think there's a strong realization and insight, and also from other categories, frankly, in terms of our retailers' understanding of the need to increase prices. They're seeing it across categories, and I would say it's easier than it often has been, given the situation and strong demand situation that we're that we're facing in most markets. So it's never easy, but it's going actually very well. And we've been, I would say, substantially faster in getting realization of price increases this round than what we have been historically. And that's, of course, driven by the shorter sort of supply lines in the industry in general. So the implementation of the price increases have been faster.

Great. Thank you very much.

And before we move on to the next person that wants to ask a question, I can see that there are many of you that want to ask questions to Jonas and Therese. So please limit it to one question per person. And then if there is time, of course, you are more than welcome to dial back in to the Q&A queue here. So please go ahead, operator.

Our next question comes from Bjorn Ennesen from Danske Bank. Please go ahead.

Thank you for taking my question. Yes, I have a question. I mean, looking at Q1, obviously quite unnormal in terms of where it used to be. I would assume this is an unseasonal strength that we have seen during Q1. But where are we if you should look ahead a quarter or two? Do you still expect to see more of normalization of seasonality in Q2 or should we expect to see a little bit of a seasonal uptick in Q2 versus Q1? If we can take it that way.

I think there are seasonal effects. Things like the summer season per se typically drives more sales of air conditioning and refrigeration products and so on. So there are seasonal effects and they will be here as well. I think what's different is, of course, that we're selling pretty much everything we can produce across all seasons. So that's limiting the seasonal impact. In terms of demand, as we highlighted, we basically see that consumers are continuing the same sort of shopping behavior and investing in their homes as they have throughout the pandemic. There's no clear reason to see that that's going to change in the second quarter, as we globally still are very much impacted by the pandemic. The bigger question is, of course, what happens as restrictions are eased and consumers are able to spend money on travel and entertainment and things like that again, how quickly the demand will then normalize. And on the flip side of that, we have the supply chain. which is strained coming from input components mainly on the electronic side. So very, very difficult to predict the normalization of the supply and demand equation, let's say, going forward. And most likely that normalization has been pushed out a little bit, which is kind of what we're guiding for.

But quite likely catch up from Q1, Q2, also in Q3, I would assume.

Sorry, catch-up meaning?

Catch-up sales as the industry are not able to produce as much as is needed.

No, I think that's a fairly reasonable argument, but again, visibility is very low.

Thank you.

Our next question comes from Will McCauley from Morgan Stanley. Please go ahead.

Hi, good morning. Thank you very much for taking my questions. So two from my side. Firstly, could we get an update on your order backlog? I see, you know, your inventories are up 30% since the start of the year, but you had the capacity constraints previously. So what's your current visibility on it?

Yeah, so we need to build up inventories in the first quarter, because as indicated there's a seasonality effect with refrigeration products and primarily air conditioning products, which were always sort of stocking up in Q1 and selling in Q2. So that's one factor. But also the fact that we have this very strong demand and short supply lines, which means that we kind of produce what we can, and then try to match afterwards rather than sort of exactly matching our production to demand every week. So that's a particular situation that we have right now given the very strained supply situation. So there's a little bit of sort of inventory mismatch, but that's very short-term in nature, but it results in the combined effect of those two results in a little bit. higher inventory, but still, as a percentage of net sales, I would say we're only barely sufficient in terms of inventory coverage.

Okay, that makes sense. And then secondly, sorry, to return to raw materials.

Will, sorry, we said one question per person at this time, so you are more than welcome to dive back into the Q&A. So let's move on to the next person that wants to ask a question.

Our next question comes from Johan Eliasson from Capo Chevre. Please go ahead.

Hi, it's Johan Eliasson here. Congratulations to Good Quarter again. I'm just a bit curious about what you said about pricing. In Europe, it seems to be slight price increases. Is the market situation significantly different in Europe than the other regions where I think, well, obviously, Latin America, you have the currency-induced price increases as well, but if you compare with North America, for example?

Yeah, I mean, there are clearly differences in different markets. And in Europe, we have a little bit of a different strategy, but which we're migrating to in the other regions as well, which is that we have a substantially higher pace of new product introductions. And, you know, every time we introduce a new product, we, of course, set a new price for that. And especially now this quarter, we had a significant reset in combination with the new energy label. So those type of price adjustments we count in our mix. And it's only the pure price increases on products already in the market that gets counted as price in our bridge. So that's one factor. The other is that as raw material prices are increasing, some of that is a little bit offset by the fact that the U.S. dollar is weaker against the euro. So we have a little bit less headwinds net-net in Europe. And it's more specific countries where we have a need to raise prices substantially, such as Russia and a few others. So it's a little bit more of a mixed picture. And, again, we also have a different type of contract relationship with our kitchen customers. So that accounts for the differences. And in North America and in Latin America, we have more sort of straight-on cost headwinds and then also price increases as a consequence of that.

But the backlog situation is similar in Europe.

The backlog per se varies a lot country to country, and it's mainly driven by the extent of lockdown. So in some of the countries like Germany and a few others that have been more heavily locked down, we have been able to replenish retail inventories and then others less so. So it's a very mixed picture in Europe right now.

Okay, thank you.

Sure, thank you.

Our next question comes from Christian Monaco from D&B Markets. Please go ahead.

Good morning. I was wondering if you have an estimate of sell-in versus sell-out in the quarter and Also, just a clarification on what you guided for in Latin America when you said neutral and how that will pan out over the year.

Yeah. So clearly in Latin America, we had a higher sell-in than sell-out, and we have been able to replenish retail inventories in many cases, but not all. And we had, of course, as I think is well known, a sharp increase in the pandemic in in particular Brazil, but also other Latin countries in late Q1, which resulted in new lockdowns and also increased economic uncertainty. So when you balance out the economic uncertainty, the lack of capability to further support economic stimulus, and then compare that to the very strong second half of last year, we've reassessed our estimate there more towards a neutral position. If you look at sell-in versus sell-out in other parts of the world, again, it's a little bit of a mixed picture by category, by country, by retailer. But generally speaking, I would say that sell-in in Q1 was higher than sell-out as a global average.

Okay. Our next question comes from James Moore from Redburn. Please go ahead.

Yeah, good morning, everyone. Hi, Jonas, Therese, Sophie. My question is on the price mix accretion to the group EBIT margin. It was 4.8 in the quarter and 4.7 last quarter, a really incredible job. And I'm just trying to think about the net effect as we move forward to the next couple of quarters as the new hikes kick in, but the carryover fades from last year. Do you think those last two quarters are a good indication for the next two quarters Or should we think about it being higher or lower than that?

Yeah, I mean, I think in this case, it's more helpful to think sort of linear rather than year over year. And, well, you have to do both, I guess. But, you know, we have indicated the headwinds, an increase in the headwinds. And, of course, we didn't see as much in terms of headwinds in Q1. So we'll see more headwinds. On the other hand, we are raising prices, as mentioned, further. and are intending to offset those additional headwinds that we see. But in terms of sort of additional net contribution, it's obviously less of that going forward as we're more kind of offsetting the further headwinds coming. And then that's sort of on the list price side. Then, of course, we have the promotional part of pricing, which is a little bit harder to predict at this point given given the low visibility on the supply-demand outlook, particularly for the latter half of the year, or latter, let's say, part of the year, which typically is heavily promotional, but now, you know, given the unclarity on supply and demand, it's less clear how promotional it will really be. So we'll have to wait and see a bit there.

Thank you. Thank you.

Thank you. Our next question comes from Olaf Söderholm from APG. Please go ahead.

Hi, everyone. It's Olof from ABG. Just a very quick question on your factory reengineering program. Could you give us an update on that and maybe elaborate? Maybe I missed it. It sounded like you will ramp up Anderson slightly later. If you could repeat that and discuss why, please.

Yeah, it's not the ramp up of the new facility, it's the ramp down of the old one that we're extending. So basically what's happening is we have this continuous significant backlog of orders of top mount refrigerators and freezers coming out of the Anderson complex, so to speak, because we had, as you know, an extended period where our production was hampered by the ramp up. And we continue to have a strong backlog. The ramp up of the new facility is going well, with the exception of the shortages of residents that we saw in Q1, you know, coming from the winter storms impacting Texas. That was an impact that we had on all our factories, but including Anderson. So that put back a little bit the recovery of the backlog. So what we're doing is we're ramping up the new factory as quickly as we can and as planned. but we're keeping the old one open for a bit longer to try and reduce that backlog in the second half of the year. So that's the reason. And it's a net positive earnings effect, of course, from that.

Excellent. And all other things with the factory reengineering program is going according to plan.

Going very well. So we're super excited about the new factories and new products that we're starting to ramp up really in the second half of the year here, both in new refrigeration products in Europe, built-in refrigeration. We have our new cooking products starting with very exciting built-in products in North America. We also have cooking products in Latin America also built in that we're ramping up in the second half. So it's a super intense period ahead of us, but really, really exciting, again, to drive mix and profitable growth.

Perfect. Thank you.

Thank you. Our next question comes from Gustav from SEB. Please go ahead.

Thank you. Good morning, guys. On the balance sheet, 4 billion now in financial net cash, if I read correctly in Q1. I would assume shareholders would prefer adjustments to the balance sheet sooner rather than later. So could you, Jonas, let us know a little bit on how you feel that the board's sense of urgency is in communicating on this topic? I think you referenced some time during the summer, perhaps, but is there any chance to be more specific or bring some clarity to that that would be helpful?

Yeah, no, I mean, exactly. What we referenced is that we have a strategy review with the board where we look holistically at our strategic plan, our investment opportunities from an organic perspective, M&A prospects in relation to our balance sheet strength. It's clear, we've been clear about the fact that we have definitely more cash than we need from a sort of risk management perspective or a stronger balance sheet than we need. so that we will uh you know address over time but exactly the mix of how we address it that's something that we will determine as part of the uh strategic plan review that we have this summer so so we'll come back after that great thanks our next question comes from martin moki from city please go ahead yeah thanks a good morning it's martin from city just coming back to the question of promotional activity

We've seen in other consumer durable markets like automotive, for example, where there are no discounts on certain cars because of shortages of components. Is that the same with appliances? Are you effectively not having to put promotional discounts at all in some of these markets? And then just how we should think about that. Is the supply constraint sufficient that it can continue for another quarter or so, or when in your own planning you think that promotional activity could return? Thank you.

Yeah, I think that's really the tough question to answer right now. And I think you're spot on. We are at a very low level, as we've indicated, in terms of promotional activity in many, many countries and product categories. Not universally, but I would say that's the general situation. And then the question is, how long will that last? It most likely will normalize, at least to some extent. That's our forecast here starting in the second half of the year as consumer demand starts to normalize and then hopefully as we're starting to fully meet that demand in terms of supply. The challenge that is increasing and which is I think also well known is the shortage of particularly electronic components or semiconductors. And the severity of that, and this is not an electrospecific question, it's an industry-specific, the severity of that shortage and duration of that will also impact the supply-demand equation and hence the promotional intensity. So this is really the key question right now, and our visibility is unfortunately very low.

Thanks. And can I just clarify, when you have a promotional element to price, is that in your price mix number, or does that appear in the sort of marketing expenses in the investment in consumer?

No, we split out the promotional part, and it's part of price mix, and it's only the real marketing, let's say, costs that are in the marketing and innovation bucket.

Okay. Thank you very much.

Sure. Thank you.

Our next question comes from Frederik Motegro from Priority Securities. Please go ahead.

Thank you very much. Good morning, everyone. So on the investments that you're making in customer experience, marketing, and so on, are you still guiding for that to be a negative impact on this year's earnings? But how should we think about that? How are you thinking about that? Now, compared to in January, are you thinking about continuing to accelerate this as demand remains very strong? Or how agile are you to continue to scale that up and really monetize on those investments in the short term?

Yeah, so I think that's another very good topic for us because it is tricky. We are very agile in terms of increasing or decreasing our pure marketing spend. When it comes more to R&D and also building out our CRM capabilities, of course, that's a little bit longer cycles. I think it's also important to remember that we cut down significantly last year on these costs, and some of what we're doing right now is just sort of a normalization of our investment in marketing and innovation. But clearly, as we said, we are seeing a very strong return on investment from marketing and innovation, and we want to increase it. We don't want to be imprudent, though, and spending money to generate demand that we can't meet. So that's the balance that we're trying to find on an ongoing basis here. Again, as we see, continued very strong demand, but also continued shortages of key components. So it becomes a very interesting equation, let's say.

All right, thank you.

Our next question comes from William Turner from Goldman Sachs. Please go ahead.

Hi, everyone. When we look at the EBIT bridge for the first quarter, there was only a 0.3 or 300 million Swedish kroner headwind from those external factors that you've highlighted. So the bulk of them are still to come later on in the year, according to your guidance. Have you been increasing your pricing ahead of those increases, kind of front-running the headwinds? And do you think pricing will become more challenging in the summer as you're going to be competing, you're going to have consumers competing with, like, manufactured goods and back-to-consumer services?

Yeah, so... It's a mix of all of those, I guess, is the answer. So we were still raising prices to compensate for prior headwinds, right? So there's always, as we said, there's always a backlog or sort of, you know, timing effect of priorly announced price increases impacting the market as a consequence of prior cost increases. So that was a favorable impact, sort of carryover effect in Q1. And then we further raised prices in Q1 to compensate for the additional headwinds that we saw at that time. And now in April, we're announcing additional price increases for the further increase in cost headwinds that we're seeing now. So it's a combination of sort of carryover effects and new price increases impacting the number. And then on top of that, to the prior questions here, there's, of course, the promotional price impact, which has been quite favorable in the last several quarters, as demand has been stronger than our ability to supply. So it's all of those. And as we look forward, we do expect some level of normalization over time in the promotional activity. I think that's sort of gradually being pushed out a little bit, again, as the supply-demand equation is not in balance yet fully. But I'm not particularly worried about our our ability to get the list price increases that we've already announced. They're going to happen, but most of that effect will come favorably in the second half. So yeah, I would say I have high confidence in our ability to raise prices, but also I do predict that promotional activity will return to some extent in the second half. Great, thanks. Sure.

Our next question comes from Carrie. Winter from Handelsbanken, please go ahead.

Yes, thank you. Thanks for taking my question. I wanted to shift gears a bit and talk about the new energy ratings in Europe, which were implemented in Q1. So what's your early take on these? Have you seen any initial changes in consumer behavior, i.e. maybe shying away from the lowest ratings? How do you stack up versus your competition? And I know it's early days, but any early thoughts on whether that has some operational or strategic implications for you?

First of all, this is a change that we support overall. We think it's very important that we find ways to nudge consumers to choose the more energy-efficient products. We were running out of the prior scale in that sense. That's a good thing. We've been working very, very hard to prepare for it and come out with... very competitive products in the new scheme, and we're pleased with the development. As we said in the first quarter here, we continue to gain market share in our premium brands, Electrox and AG, and particularly in laundry, which is one of the categories where – or the category where we saw the biggest changes in terms of the energy rating. And I think we're extremely well positioned in Europe there – both in terms of innovation and in terms of energy efficiency and laundry. So a lot of hard work, fairly complicated and confusing transition, I think, for both retailers and consumers. We're working hard to make that as smooth as possible, but for us, we see that as long-term, strategically very positive to us.

All right. Thank you.

Our next question. comes from David McGregor from Longbow Research. Please go ahead.

Yes, good morning, everyone. Hope everyone's doing well. I guess one question, but first, if I could just get a clarification around this. It's been a lot of talk about the promotional discounting, and is there any way to distinguish just how much of the current price mix benefit you're getting right now comes from actual list price increases versus the reduction in promotional discounting. I think that clarification would be helpful. And then my question was with regard to all the progress. Yeah, if you want to clarify that first, then I can ask my question.

Yeah, we're not breaking that down. But, of course, it's a sizable contribution from both. Let's be clear on that. But I think, especially in North America, the reduction in promotional activity is quite significant. So that's, to a large extent, the North American effect. but also there we're now raising prices quite significantly, or list prices quite significantly going forward. Right.

Sorry. My question was really with regard to the success you're having with aftermarket, and if you could just talk a little bit about some of the drivers there, and I guess more specifically, do you have sufficient distribution assets and infrastructure in place to support continuing growth in that business?

Yeah, no, I think that's the right question. We were very much lacking that that capability to reach our end consumers. Since the distribution setup is largely that retailers sell our products to consumers and they don't share the specific details of those consumers. So we have historically struggled to reach them on an individualized basis and have only sort of been able to compete in the open market for aftermarket business, if you will. What we've done now in the last five years or so is we've substantially increased our investment in being able to reach and supply both our own service technicians and independent service technicians with our own sort of branded services and components and accessories, consumables, and so on. So that's something we need to continue to build out. We're not where we need to be yet. neither in terms of capability nor in terms of revenue and profit. I think we have, as we've indicated, we want to double from 2018 to 2025 our share of aftermarket sales. And that requires a lot of investment, but it's, of course, a very, very positive ROI from that. It's not coming initially or for sure.

Thank you.

Thank you.

Congratulations on the progress. Excellent.

Thank you. Unfortunately, that's all we have time for in terms of questions, so I'll now hand over back to Jonas.

Thank you so much, Operator, and thanks for all the very good questions. Again, I'm really pleased with our execution in the first quarter. We're delivering strong, profitable growth with record high Q1 earnings and organic growth of 23%. And as the pandemic continues, we're ready to respond in an agile manner And I'm confident that our strategy ensures that we remain well positioned to deliver long-term shareholder value, even in these very rapidly changing market conditions. With that, thank you very much, and look forward to seeing you all soon again.