Electrolux AB

Good morning, everyone, and a warm welcome to Electroc's third quarter 2021 results presentation. With me this morning, I have Therese Friberg, our CFO, and Sofia Arneus, our Head of Investor Relations. And 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. Let's look at our performance in the third quarter of 2021. Demand was solid in most markets, with normalization above pre-pandemic trends. Retailers' inventory levels have been replenished in most regions, but with imbalances in terms of product mix. In North America, though, we assessed the levels to still be on the low side. Last year's third quarter benefited from a significant market recovery, mainly driven by pent-up demand and government stimulus programs. Net sales were essentially flat in the quarter, and compared to third quarter 2019, sales growth was 15%. I'm very pleased with the strong price realisation, mainly driven by list price increases implemented in the first half of the year. We're on track to fully offset the 2021 headwinds from external factors and inflationary cost increases on electronic components and logistics with price. Additional list price increases were implemented in the quarter as a response to the recently significantly higher cost inflation, mainly on raw material as well as unfavourable currency effects. We're also in the process of announcing further list price increases in our main markets, as we're determined to offset accelerating cost headwinds also in 2022. A strong product range is key, not just for price execution, but also to drive mix. Also this quarter, we improved the mix thanks to our attractive and innovative product offering under well-established brands. It's been a challenging environment from a supply chain perspective, mainly electronics components availability, just as we anticipated in our Q2 interim report and earnings call. These constraints have impacted production output negatively, affecting volume, but also mix in production efficiency. We estimate that the impact is approximately 10% in the quarter compared to an undisrupted production schedule. In particular, our North American business area was affected since the congestion at important U.S. ports amplified the supply constraints. The situation also resulted in very large temporary cost increases for the group of approximately 300 million SEC for express logistics and spot buys. It is difficult to price for these temporary cost increases as we can for inflation-driven cost increases for external factors, logistics, and electronics components. Operating income amounted to 1.6 billion SEC or 5.3% of net sales. Therese will now walk us through the main drivers behind the change in operating income.

The organic sales in the quarter was essentially flat, but it was positive from an EBIT contribution perspective. We continue to have a very good price execution from list price increases implemented during the year, and the promotional discounts remained at the very low level, as it has been for the past year. Our attractive product offering and strong brands continue to generate a positive mixed development, despite the limitations from the supply and logistic constraints, mainly impacting the mixed development in North America. Our aftermarket sales were in line with last year. Volumes declined compared to the third quarter last year with significant market recovery, fueled up by pent-up demand and government stimulus programs. As Jonas mentioned, the global supply and logistic constraints impacted product availability negatively in the quarter and resulted in difficulties to fully meet the underlying market demand. Our investments in consumer experience innovation and marketing to support profitable growth increased compared to the reduced level last year. Cost efficiency was negative. The supply chain constraints resulted in production inefficiencies due to low planning visibility, as well as increased costs for logistics and electronic components, with additional temporary costs for express freight and component spot buys further deteriorating the cost performance, as mentioned before. Price offset the significant accelerating headwind from external factors, mainly driven by raw material and currency, as well as general cost inflation. However, as Jonas said, it could not fully compensate for the very large temporary cost increase of about 300 million SEK for express logistics and spot buys. Let's take a deeper look at price and mix development. The EBIT margin accretion for the group from price and mix in the quarter was 6.4 percentage points, mainly from a very strong price execution, but also mix developed favorably. In Europe, we continued to improve mix with the focus areas built-in kitchen and laundry under our premium brands Electrolux and LG, despite the limitations deriving from the supply constraints. We also had a positive price development as price increases implemented during the first half of the year gained full effect in the third quarter. In addition, promotional levels were on a lower level than last year. In North America, price continued to develop positively from price increases implemented earlier in the year. An additional round of increases were implemented during the third quarter, but hence did not generate the full effect yet. Promotional discount levels remained at a very low level. Earnings contribution from mix was neutral due to the supply and logistic constraints, impacting our possibility to drive product mix. In Latin America, price was significantly higher as a result of price increases implemented during the first half of the year, as well as some impact from the new round of price increases implemented during the third quarter. And also in Latin America, the promotional activity level remained very low. Mix was slightly negative, impacted by the supply concerns. In Asia-Pacific and Middle East and Africa, price was favorable, driven by selective price increases across most markets during the first half of the year. Additional price increases implemented during the third quarter also contributed, but not yet at the full effect. Mix continued to improve, and in Australia, kitchen products such as steam ovens performed well, and in Northeast Asia, I would like to highlight the air purifiers. 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. And the centerpiece of our strategy is really to drive sustainable consumer experience innovation under strong brands. And I wanted to give two really good examples under the Electrox brand that we've driven in the last year and the last quarter. So first is our laundry campaign, Make It Last. which is connecting our consumer experience innovation in terms of maintaining the quality and fit, feel, finish of clothes over time to extend the lives of them with the sustainability benefits of an extended life of your clothes and reduced energy and water consumption. And this, in combination, serves to further strengthen the Electrox brand and drive the credentials of the Electrox brand. This is our first truly global Electrox-branded laundry campaign with fantastic results. When it comes to the recent examples of successful product launches, I'd like to mention our Electrox branded kitchen range that we're launching throughout the year in North America, the first one in more than 10 years. The full suite includes a range of cooking and refrigeration products, all centered around sustainability and designed to enhance nature's flavors and inspire culinary creativity. The range includes, for example, wall ovens with built-in air sous vide technology that uses precisely controlled heat and airflow to ensure meats and vegetables are cooked to perfection, just like traditional sous vide but without water. And the new Electrox refrigerators use TasteLock CRISPR technology that makes veggies stay crisp and berries stay juicy longer, helping to reduce food waste. The products in the range launched so far have been very well received, currently holding an average consumer star rating of 4.8. So these were some examples of how we drive profitable growth.