Electrolux AB

Good morning and warm welcome to Electrop's second quarter 2021 result presentation. My name is Jonas Samuelsson. With me today, we have our CFO, Therese Rydberg, our head of investor relations at ER News. I'd like to mention that this session is recorded and will be available on our website as an on-demand version. Let's look at our performance in the second quarter of 2021. Demand remains strong across our main markets, though with some signs of consumer spending patterns normalizing around mid-year. Retailers' inventory levels have now partly been replenished, depending on the region, but with imbalances in terms of product mix. In North America, we assess that the level is still on the low side, while Australia and Southeast Asia seem to have rather high levels of inventory. In Brazil, we see retail inventories normalizing, with the European picture more mixed with imbalances, but on average on normal levels. We had significant organic sales growth of 39.1% in the quarter. The growth was primarily driven by increased volumes compared to a quarter last year that was severely impacted by the pandemic. But it was also 16% above second quarter 2019. Positive price development across all industries business areas more than compensated for cost headwinds. Mix continued to develop favorably, driven by innovative products and our focus brands, and our aftermarket sales had another quarter of double digital growth. Operating income amounted to $2 billion with an operating margin of 6.5%. This resulted in a rolling 12-month EBIT margin close to 8%. Therese will now walk us through the main drivers behind the strong improvement in operating income.

We had a significant contribution from volume price and mix in the quarter, even though logistics and supply constraints impacted both product availability and mix as we worked intensively with production planning. Volumes increased on continued strong markets, but also compared to quarter last year that was heavily impacted by the pandemic. We continued to have very good price execution from list price increases implemented earlier this year and in the second quarter. as well as carryover effects from increases in 2020. We also still see a very low level of promotional discounts, reflecting the remaining constraints in product availability. Our innovative high-margin products performed well in the quarter, and we further strengthened the position of our premium brands. In addition, we continued to grow our aftermarket sales. We increased investments in consumer experience innovation and marketing to support our profitable growth. but also as a result of the significant reduction we made last year to respond to the severe market conditions. Cost efficiency was positive. This was the result of continuous cost improvements and progress in the manufacturing consolidation in North America. But due to the supply shortages, we do still experience manufacturing inefficiencies across the group due to low production planning visibility. And increased logistics and sourcing costs also impacted negatively. The increase in logistic cost as well as the headwinds from external factors, predominantly from raw material, were fully assessed by price in the quarter. And let's now take a deeper look at price and mix developments. The EBIT margin accretion for the group from price and mix in the quarter was 5 percentage points, coming from both a strong price momentum, product mix improvements and growth in aftermarket sales. In Europe, we had a favorable mix driven by our premium brands and across our innovation areas, taste, care, and well-being. We also had a positive price development as price increases implemented during the first half of the year gained in effect, although not yet at full effect in the second quarter. In North America, price developed positively from price increases implemented earlier in the year, as well as continued very low promotional discount levels. as a result of the product availability constraints in the market. Product mix was also favorable as sales of high-margin products increased, such as the multi-door refrigerators, front-control cookers, as well as built-in ovens. And in Latin America, nest price was significantly higher through carryover effects from price increases in 2020, price increases implemented early this year, as well as some impact from the new round of price increases announced during the second quarter this year. And in addition, we continue to have unusually low promotional activity level, with product availability still being a limiting factor. And mix was positive, especially in refrigeration, but also from product launches in our innovation areas, care and well-being. In Asia-Pacific and Middle Eastern Africa, we saw positive mix from strong launch execution. As an example, in Australia, the built-in products and multi-door refrigerators contributed to a large extent. and we also had very good performance of several product launches in Egypt as well as in Northeast Asia. Price was positive, from selective price increases implemented in the beginning of the year, as well as some contribution from additional increases during the second quarter across the markets, although not yet with the full effect. We also had some carryover effects from last year, and the low promotional level seen in the previous quarters remained. And driving positive mix through sustainable consumer experience innovation is a central part of our strategy. And Jonas will now give you some concrete examples on what we do.

Thank you, Therese. We thought it would be useful to give some specific example of how we're driving favorable mix and productivity. And I think most of you know that our refrigeration facility in Curitiba, Brazil, was one of the large facilities that we included in our 8 billion kroner re-engineering program. That facility is now fully up and running with fantastic new products. The main product segment is top freezers, non-frost top freezers, where we're now market leaders in Brazil. These products have fantastic consumer value proposition in terms of sealed drawers for extended food preservation, etc. Also, very importantly, the products have a 45% lower energy consumption than the local energy standards. The facility has implemented low-cost automated manufacturing, and the automation level has gone from 4% before the transformation to now 23%. And please refer to page 10 in the report to see more details on this fantastic transformation program. Our recently launched Sanusi top-load washing machine in Egypt targets consumers who find it expensive to buy a front-load washing machine. But the concern that consumers have around top-loader washing machines is that wear and tear of clothes compared to front-loaders. We saw this opportunity to enter the market, adopting the latest technology of cyclonic care, taking care of that concern. The launch campaign in Q1 was conducted within targeted consumer channels with a reach of 5 million people and was very well received. We're only in the first quarter of sales, but so far have seized about 4% of volume share in this category over the quarter, so very promising initial results. Another successful launch is our new air purifier series launched in March 2021 in Europe, completing our existing air care range. It strengthens our position in the air purification mono segment, where we gained nine points of value market share in first quarter 21 versus first quarter 2020. From the early reviews, we can already see a promising 4.9 consumer star rating, which is above our current rating for air purifiers of 4.37. There are several factors behind this success. But let me highlight the combination of the five-step air filtration technique paired with a highly designed product using sustainable materials. That's a nice addition to the home decoration. These were some examples of how we drive profitable growth.