AB Electrolux (publ)

Warm welcome, everybody, to the first quarter 2022 electoral results presentation. With me today, I have Therese Friedberg, our CFO, and Sofia Arneas, our Head of Investor Relations. I would like to mention that this session is recorded and will be available on our website as an on-demand version. The beginning of the year has been dominated by the terrible situation in Ukraine. Russia's invasion is a serious violation of international law, and we are very concerned about the suffering it is causing our employees and the people of Ukraine. When the war commenced, we paused our operations in Russia and Ukraine, and after careful assessment in Ukraine, we restarted in the second half of April, with limited sales and production in our factory located in the western part of the country. In Russia and Belarus, we do not have any factories. In 2021, Russia, Belarus and Ukraine represented approximately 2% of total net sales for the group, and as per March 31st, 2022, assets accounted for approximately 1% of total assets. From a group perspective, there are no key direct suppliers located in any of these three countries. Now, let's look at our performance in the first quarter of 2022. Organic sales declined by 3.4%, and the decline in sales was the result of lower volumes, not fully offset by strong price and mix, As expected, the global supply constraints continue to significantly impact our production and sales volumes, particularly of higher feature products. Market demand was down in most regions compared to a strong last year, which benefited from increasing spending on home improvement. Our strong price realisation continued. We've implemented further list price increases in all regions during this quarter, generating a year-over-year impact of over 8%, together with the increases from previous quarters. With this level, we managed to largely offset the significant cost inflation, mainly in raw materials and logistics. Mix was positive across all business areas, and we are now in our most launch-intensive year ever, and I'm very pleased with the strong consumer demand for our new and innovative premium products. In addition to the cost inflation that we largely offset with price, the supply constraints also resulted in substantial costs for express logistics and spot buys. Our North American business area continued to be especially affected since the congestion at the important U.S. ports amplified the constraints. We estimate that the supply situation in the second quarter will be as challenging as the first quarter, with significant risks of disruptions related to the resurgence of the coronavirus in China. We then expect sequential improvements from mid-2022. Operating income amounted to 0.9 billion sec, or 3.1% of net sales. Therese will now walk us through the main drivers behind the changes in operating income.

We had a strong organic contribution to earnings in the quarter. And as Jonas mentioned, we continue to have very good price realization from our list price increases implemented both during this quarter and previous quarters. And in addition, promotional levels remained low. Our attractive product and brand offering generated a positive mix despite limitations from the supply chain constraints. and aftermarket sales decreased slightly in the quarter. Volumes declined following a demand normalization compared to a strong first quarter last year as the seasonal market demand pattern returned across regions to a pre-pandemic situation. In addition, the global supply chain constraints impacted product availability negatively and resulted in difficulties to meet the underlying market demand. Our investments in consumer experience innovation and marketing increased to support strategic growth initiatives and product launches. The cost efficiency was negative. The supply chain constraints resulted in significantly increased costs for mainly logistics, but also for components. This higher cost was both inflation-driven and due to increased use of express freight and spot buys of components. Price largely offset the continued significant cost inflation, mainly in raw material that is included in the external factors and in logistics that is part of the cost efficiency. 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 10.4 percentage points, mainly from a very strong price execution, but also mix developed favorably. And in Europe, we had strong price development, mainly driven by list price increases implemented during this first quarter of 2022, but also from previous quarters. And mix increased, mainly driven by built-in products, despite the negative impact from supply chain constraints. In North America, price continued to develop favorably, mainly from list price increases implemented in previous quarters, but also additional increases implemented this year starting to have an effect towards the end of the quarter, and promotional discounts remained at the low level. Strong mixed execution with increased sales of the tall twins and built-in kitchen products being important drivers. Aftermarket sales declined slightly compared to a strong quarter last year. In Latin America, contribution from price was strong, driven both by list price increases implemented in previous quarters and during this quarter, and promotional activity also here continued to be at low levels. Mix was positive despite the softer market in Brazil and Chile and negative impact from supply constraints. In Asia-Pacific, Middle East and Africa, list price increases implemented in this quarter was the main driver for the higher price and added to the increases implemented in previous quarters. Mix increased slightly, however, supply constraints impacted our ability to fully drive mix. An attractive product and brand offering is essential for our profitable growth, and Jonas will now give you some concrete examples of what we do.

Yes, one aspect I'd like to bring up is how the investments we've done in our new fridge and freezer factory in Anderson in the U.S. really has enabled us to take a step up in competitiveness in the market with a sharpened offering. The new products have been very well received. As an example, the highest volume top freezer has a consumer star rating of 4.4 out of 5 and is among the most sold in that category at major US retail chains, valued particularly for its design and features. By using modularized product architectures, we can bring innovation to the market at a much faster pace and leverage our global scale. Together with increased automation, it also gives increased flexibility a lower cost for raw material and efficiency gains. Finally, I would also like to lift the substantial environmental gains, both in our own production and throughout the entire lifecycle of the product. The investment allows us to take yet another step towards the target of being climate neutral across the whole value chain by 2050. And if we move to another region, I'd like to highlight the largest product launch ever in Latin America, to illustrate the first quarter of our most launch-intensive year ever. The launch included 16 new products across our innovation areas, taste, care, and well-being in our main markets, Brazil, Chile, and Argentina, and also in the NDNs. During the coming two quarters, over 100 additional products will be launched. The products cover both the premium segment under the Electrox brand and the mass segment under the Continental brand. We introduced these new products at a launch event in March in Brazil. The event was very well attended by more than 70 retailers, and we also got great feedback on our innovative solutions. I would especially like to highlight our new product portfolio for the Continental brand, which was acquired in Brazil five years ago to increase our competitiveness in the mass segment and allow us to keep the Electrox brand positioned at higher price points. In the current market environment, this dual brand positioning is even more important for continued profitable growth in Latin America. Through the new products, we bring relevant consumer innovation to the market through 10 pre-sending cooker models and 10 built-in oven models. They offer easier interaction, control, and cleaning benefits, all locally produced in our factory in San Carlos, with new product architecture as part of our investment programs.

Operating cash flow for the quarter amounted to negative 5.3 billion SEK, and we are now back to a normal seasonal outflow from operating working capital compared to last year when the market dynamics resulted in a lower level of outflow. However, the normal seasonal increase in inventory was further amplified by both increased cost inflation and impacts related to supply chain constraints, such as longer time in transit, products missing vital components for production and inefficiencies. We have a clear intention to optimize the inventory levels going forward In addition, a lower operating income and a higher level of investments compared to last year impacted cash flow negatively. During the quarter, we also repurchased own shares of Series B for a total amount of 1 billion SEK, completing the share buyback program launched in 2021. And as communicated earlier, the board has the intention to propose share buybacks with subsequent share cancellations to the shareholders meeting over several years to optimize the capital structure and improve earnings per share. The objective is to maintain a solid investment grade rating as defined by the leading rating institutes, meaning that over time the group's net debt should not exceed two times EBITDA. In February, the first buyback program was finalized and the AGM in March resolved on cancellation of repurchased shares of approximately 25.8 million Series B shares corresponding to about 8.4% of the total number of shares in the company. The AGM also authorized the Board to resolve on acquisitions of own shares of Series B up to a maximum amount of 10% of all shares issued by the company. As announced in the press release earlier today, the Board has decided to utilize the authorization granted by the AGM and repurchase a maximum of 8 million Series B shares on Nasdaq Stockholm during the period from May 2nd, 2022 up until and including October 21st, 2022 for a total maximum amount of 1.25 billion SEK. This program is the first step to reaching the aim of share buybacks amounting to approximately 2.5 billion SEK up until the next AGM as was announced in the Q4 report for 2021.

So let's now go into our business areas performance in Q1, starting with Europe. Organic sales declined 4.3%, and EBIT was 600 million SEK. Volume declined compared to a strong quarter last year, as supply chain constraints continue to impact product availability, especially within laundry. Price execution was strong, as price fully offset the significant cost inflation in the quarter, mainly driven by raw materials and logistics. Further price increases were announced to be implemented in the second quarter. MIX contributed positively in all three innovation areas, taste, care, and well-being, despite limitations due to supply constraints. Our position strengthened further in our focus areas built in kitchen. In the quarter, we launched a new fridge from our factory in Susigana in Italy, the Green Zone Maxispace, based on the product architecture we now have for all variants of built-in refrigerators in Europe. It's brand new to the market, 75 cm wide, and has loads of innovations to help our consumers to store their ingredients in the best possible way. Aftermarket sales increased slightly. We increased investments in innovation and marketing, partly in digital platforms enabling direct interaction with consumers throughout the ownership cycle. Additional costs for spot buys of electronics and for increased use of air freight related to supply chain constraints continue to impact earnings negatively. Let's look at the European market. In the first quarter, overall market demand in Europe declined by 7%. Supply constraints continue to impact product availability throughout the market. Western Europe declined by 10%, while demand in Eastern Europe remained flat. The decrease in demand is also compared to a strong quarter last year and remains above pre-pandemic levels. Towards the end of the quarter, high general inflation and increased geopolitical tensions impacted consumer confidence negatively. In Russia specifically, market demand temporarily increased in March as consumers anticipated purchases. Let's continue with our business area in North America. In the quarter, we had flat sales but reduced EBIT excluding the non-recurring items. Price continued to develop favorably, mostly from list price increases implemented last year, while list price increases implemented this year started to have an effect towards the end of the quarter. Due to timing effects, price could not fully offset significant cost inflation, mainly in raw materials and logistics. Mix contributed strongly to earnings through increased sales of products with higher margin. Supply chain constraints continued to affect our operations heavily, amplified by the remaining congestion at important U.S. ports. Volumes declined as we were not able to fully meet the underlying demand. In addition to limitations on the supply side, production output was also impacted negatively by labor availability. The constrained supply environment also continued to result in significantly higher costs from increased use of air freight and spot bison components. EVIT included a positive non-recurring item of $655 million SEC after a settlement with a prior external counsel. The settlement relates to a U.S. tariff case resulting in a charge to earnings in the fourth quarter of 2021 of $727 million SEC as the Electrox prior external counsel failed to timely respond to requests for data. Looking at the U.S. market, industry shipments of core appliances in the U.S. decreased by 4%, compared to a strong quarter last year driven by laundry and refrigeration. Compared to the first quarter of 2019, industry shipments increased by 24%. Consumer spending on home improvement continues to be strong. The housing indicators are still favorable, and the labor market is coming back to pre-pandemic levels. A solid consumer confidence has, however, lately been negatively impacted by high inflationary pressure and remains a concern. Market demand for all major appliances, including microwave ovens and home comfort products, decreased by 2% year over year. Let's move on to Latin America. Overall consumer demand for the region is estimated to have decreased in the quarter. This was driven by Brazil and Chile, where higher general inflation and interest rates negatively impacted consumer purchasing power. In Chile, last year was positively impacted by government incentives, delaying the negative underlying macroeconomic effect. on consumer purchasing power that we now see. Demand in Argentina increased, though, from a very weak baseline. As I mentioned previously, we're currently launching new products under the Continental brand in Brazil, strengthening our position at lower price points, and this is especially important in today's market situation. The 6% organic sales decline and lower EBIT were due to lower volumes, mainly in Brazil. In general, we're back to a more normal seasonal pattern, with a weaker first half of the year compared to the second half. List price increases impacted sales positively, and we continued to implement new list price increases also in Q1 that gradually took effect. Price fully compensated for cost inflation, mainly in raw materials. Mix improved despite softer Brazilian demand and supply constraints. This was driven by our attractive offering, including well-received product launches, and also aftermarket sales increased. Brand strengthening activities and marketing increased slightly to support product launches. And then finally, turning to Asia Pacific, Middle East, and Africa, organic sales declined by 5.2%. And EBIT was still at a solid level, even if it declined year over year. Supply chain constraints impacted product availability negatively, mainly resulting in lower volumes, especially in Australia, where the floods in Queensland resulted in supply disruptions and cost-supporting decisions. This meant that we were not able to meet market demand that was estimated to have remained strong, especially in Australia and Southeast Asia. We continued to raise prices, and the impact from price in the quarter was mainly coming from new list price increases implemented in the quarter. Price increases fully offset significant cost inflation, including unfavorable currency effects, mainly related to the weaker Australian dollar. Mix continued to increase despite limitations due to supply constraints. and marketing investment decreased in the quarter. So, let's turn to our market outlook. The dynamic environment, with the Russian invasion of Ukraine, inflation soaring to historically high levels, and supply constraints exacerbated by uncertainty regarding the coronavirus pandemic, results in limited visibility for the rest of the year. We revise our regional market demand outlook for 2022 full year in North America, mainly driven by supply constraints in the first half of the year and in Europe due to lower consumer confidence. However, we still expect demand in these regions to be above pre-pandemic levels. Global supply chain constraints are expected to continue to impact the industry's ability to fully meet demand with regional variances, limiting availability of certain product categories. Specifically, Electronic components with semiconductors are in very tight supply globally, and shortages of containers and vessels and backlogs at major ports result in varying and intermittent supply. Let's look at our 2022 volume demand view year over year for specific regions. In Europe, we revised our view on market shipments to negative from flat. This as we, towards the end of the quarter, saw consumer confidence being negatively impacted by higher general inflation, and Russia's invasion of Ukraine. In Russia and Ukraine, we expect market demand to drop significantly. The replacement market, which in general drives roughly 60 percent of demand in more mature markets such as Western Europe, is still supportive. In terms of market value, price increases are expected to offset a large part of the decline in market. In North America, demand is estimated to be flat for the full year compared to our previous positive view. This is mainly driven by constraints in the supply chain during the first half of the year. Underlying demand remains robust, driven by a strong housing market and a labor market coming back to pre-pandemic levels. So far, solid consumer confidence has lately been negatively impacted by the high inflationary pressure, especially on gas, and remains a concern. The replacement cycle is supportive, and we see shortening of the cycle due to increased usage during the pandemic. In Latin America, we expect consumer demand for 2022 to be negative, driven by Brazil and Chile. In both Brazil and Chile, we see higher general inflation negatively impacting consumers' purchasing power. In addition, reduction of government aids combined with increased nominal interest rates also contribute to the negative demand view for these two countries. In Argentina, consumer demand growth is expected to continue in 2022 we have to bear in mind that it is from a weak baseline from several years that's starting to catch up ongoing pandemic related uncertainty remains a key risk to the region outlook and finally we estimate market demand in the asia pacific middle east and africa region to be positive for the full year 2022. in general we see under underlying consumer demand being solid and the uncertainties mainly around potential pandemic restrictions, which in 2021 impacted consumer spending negatively. In Southeast Asia, which is a large market for us in this region, the recent increase in travel is showing an even more positive sentiment. Hence, we expect demand in 2022 to grow above 2019 levels. For Australia, which is our other large market, the recent flooding is likely to result in forced replacement, and contribute to a slight growth this year compared to a strong 2021. Let's look at our business office. I'm pleased with our achievements where we step by step in a consistent way have improved earnings quality through a clear strategy for driving profitable growth through providing the right type of innovations on a well-established brand to our target consumers. And delivering these products with high quality and automated production. I'm also proud of how we have managed the market volatility during the last years, showing efficiency and agility. These are key success factors also going forward in the dynamic environment we're facing, with higher general inflation and increased geopolitical tension, as well as continuing supply chain constraints and pandemic. In 2021, the combined contribution from volume, price and mix to operating income was nearly 9 billion SEK. We expect this organic year-over-year contribution to be even higher in 2022, mainly driven by price, but also increased sales of innovative high-margin products and aftermarket solutions. Price is our main tool to offset cost inflation, and we have a strong track record of successfully doing this. We have in the quarter implemented additional list price increases in all regions, leading to a total year-over-year effect of over 8%, and continuously implement further increases. Our attractive product range and well-established brands are key to continue to be successful in raising prices. In the increasingly inflationary environment, as we now have, price increases are also more acceptable in the market. For the full year, we remain confident that price will fully offset cost inflation, just as has been the case for the last four years. Just to be clear, what we mean with cost inflation It comprises of two parts. Firstly, external factors, which includes raw material, currency, tariffs, and excess labor cost inflation. Secondly, the cost inflation in, for example, sourcing of finished goods, electronic components, and logistics, which is included in cost efficiency in our business outlook. Starting with external factors, we revised the estimated negative headwind to be in the range of 8 to 10 billion SEC from previous estimate of 6 to 9 billion SEC This, as the uncertain geopolitical situation in Europe, has triggered additional cost inflation, primarily on raw materials such as plastics and base metals. The year-over-year increase in steel prices was already largely reflected in our previous guidance. The constrained supply environment has resulted in cost inflation, especially for logistics, in particular ocean freight, but also for electronic components. The recent geopolitical tension has mainly impacted logistics through higher fuel prices. If we shift focus from price to the other two levels within organic contribution, we expect the combined contribution from volume and mix to be positive for the year. And this positive contribution is expected to be fully driven by mix as volume is expected to decline year over year. 2022 will be our most intense product launch year ever, partly enabled by our re-engineering program. This gives us confidence that consumer demand for our products will remain healthy, also in a more challenging environment, and provides us with a great platform to drive mix improvements. We aim to invest more in innovation and marketing to support these launches, but also to strengthen our digital capabilities in terms of consumer interactions. In recent years, mix improvements have contributed an average of 1 billion SEC to operating income. Global supply chain constraints are, however, expected to continue to negatively impact our ability to fully drive volume and mix, especially in the first half of the year, with an increasing challenge in Europe in Q2. From mid-2022, we expect sequential improvements with regard to the overall supply chain situation. We're collaborating closely with our suppliers to mitigate these constraints, but we estimate that the second quarter will be as challenging as the first quarter. with significant risks of disruptions related to the resurgence of the coronavirus. Lockdowns in important ports and cities in China, as we've seen lately, adds to the uncertainty. This as we're sourcing a significant number of components from China. The supply chain constraints also resulted in significantly higher costs for air freight and spot buys of electronic components in the second half of 2021 and in Q1 2022, year over year. And we estimate this cost level to remain in the coming quarters.

And looking specifically at the line cost efficiency, we expect this to be negative for the year. This of the cost savings we expect from the re-engineering program in 2022 will only partly offset the cost inflation on logistics, finished goods and components. We will also see an increase in depreciation. as we are continuing to start up additional production lines and new product platforms in our factories that are part of our eight billion sector re-engineering program. In the fourth quarter of 2021, we started the ramp up in three additional factories, Springfield, Susagana and South Carlos, on top of Andersson and Cortiba that are already up and running. Investments to strengthen our competitiveness through innovation, automation and modularization continues in 2022, and total capital expenditures are estimated to be approximately 8 billion SEK. The increase compared to 2021 relates mainly to some timing of investments from 2021 and raw material inflation on equipment.

So, to sum up the quarter and the strategic drivers we've delivered on, we continue to have a strong execution on price, which is crucial for us to secure continued profitable growth in an inflationary environment. We've successfully implemented list price increases in all regions during the quarter and are continuously doing so. For the full year, we remain confident that price will fully offset cost inflation, as it has done for the past four years. Innovation is key to delivering profitable growth, and therefore I'm very pleased with the way we continue to drive mix, increasing sales of our high-margin products despite a supply-constrained environment. It shows how well our new innovative products are being received by consumers. With this quarter, we entered our most launch-intensive year ever, many coming from our re-engineering investments in North America, Latin America, and Europe. This gives me great confidence that consumer demand for our innovative product offering will remain healthy going forward, also in a more challenging market. With that, I leave the word to Sofie.

Thank you, Jonas. We will now open up for questions, and to allow as many of you to ask questions, We will, as we usually do, ask you to limit yourself to one question per person. And if time allows, you're of course welcome to dial back into the Q&A queue and ask additional questions. With that, I leave it to our moderator, please.

Thank you. As a reminder, if you wish to ask a question, please press star 1 on your telephone keypad. The first question comes from the line of Uma Samuli from Bank of America. Please go ahead.

Hi, good morning, everyone. Thank you so much for taking my question. So my question is that, so this week, Whirlpool actually announced in their quarterly result that they are considering to dispose their EMEA business. I know you probably comment too much on that, but I was just wondering that would that be potentially a good fit for Electrolux? I mean, given you have done extensive work to increase the profitability in your European business previously, I guess it could be like an exciting opportunity. So I just want to hear a bit more how you think on that. Thank you.

Thank you. No, as you guessed, I obviously cannot comment on that.

Sorry about that. Okay, all right.

I guess another question for me, then, is that you mentioned that... Sorry, Uma, only one question per person. Then please dive back into the Q&A queue. Thank you.

Okay, thank you. Thank you. Next question comes from Andre Kupnin from Credit Suisse. Please go ahead.

Good morning. Thanks for taking my question. I wanted to check on pricing. The 8% level that you gave, is that already with the price increases that you announced at the beginning of this year and are going through in Q2? Or is that the level in Q1 and hence will have further price increases, as you said, on the call being implemented now? And if you could help with the order of magnitude maybe of those additional increases so we can think about how to phase it through the year?

Yeah, correct. The over 8% that we referenced is the net effect year-over-year in the first quarter. And then we have announced additional pricing that was taking effect sort of gradually throughout Q1 and then also gradually in Q2 as well. So it's kind of a layered effect throughout the business areas. And I don't want to give a specific guidance on the pricing outlook, but we expect to see more in the coming quarters than we saw in Q1.

So if I may, because you have got obviously kind of higher, the comp starts to climb as well. And thank you for clarifying that over 8 is a net effect in Q1. Should we then think about that net effect to be maintained through the year despite obviously comping higher price increases from last year?

Yeah, as I indicated, obviously we gave a range of external headwinds and we have some additional cost inflation in cost efficiency and we expect to fully offset that for the year.

Got it. Thank you. I'll stick to one. Thank you.

Thank you. Next question comes from the line of James Moore from Redburn. Please go ahead.

Good morning, everyone. Hi, Jonas. Thanks for the colour on the 8 to 10 billion external factors. I wondered if you could size the rough inflation from the source goods, electronic components and logistics in the cost efficiency piece. And just to clarify, did you just say you think that the net price realization of 8% plus in the first quarter can improve as we go forward?

Yes, it can improve. We don't break out the exact details of the cost efficiency, but suffice it to say that we have a fairly big impact from these spot buys and express freight and so on in the quarter. And again, as we had in Q4 and also Q3 of last year, and we expect that to continue. But then we have some fairly significant favorable effects from the reengineering programs that are eaten up, let's say, by these underlying inflationary pressures on logistics, in particular ocean logistics, but also land freight is fairly inflationary right now. Plus, of course, the fact that electronic components in particular, are getting more and more expensive. So it's a mixed bag of pluses and minuses in that other costs. We don't break out the detail because it gets too complicated. But there is a significant element of inflation also in there that we're offsetting.

Thank you very much.

Thank you. Next question from the line of Andreas Willi from JP Morgan. Please go ahead.

Yeah, good morning, everybody. Thanks for the time. My question relates to your comment about Q2 being similar in terms of supply chain challenges. Maybe you could discuss that a little bit more. Given the situation in China, one could assume that it actually gets worse. Or is Q2 basically for you still covered by inventory you hold, and therefore is the risk more Q3 or later in the year? But then you say you expect an improvement from the summer. I'm just a bit confused here. given that the China lockdowns may have actually risks on H2 rather than Q2?

So it's a little bit different items. That's why if you think about the electronics components risk, that's actually not mainly a China issue. That's the issue of wafer production in our tier three suppliers, but that's not to any significant degree happening in China. That's in Taiwan, Japan, Korea, US, and Europe. So the lockdowns that we're seeing in China are impacting more assembled components, let's say, that we're sourcing. And so far, not very significantly. There is an impact and there are constraints and congestions, but we're concerned about that potentially, of course, getting worse, but not mainly on the, call it tier three, wafer production, which is the source of the electronics challenges. So that's why we think it's more of a temporary challenge in Q2. In terms of then the electronics, we had a very challenging situation both in Q4 last year and in Q1 this year. We were previously hoping that that would start to improve already in Q2. We don't see that right now. but we see indications that it will sequentially improve as we go into the second half of the year. So impacting slightly different elements of constraints, let's say, these different factors.

Maybe you could indicate what share of your component or finished goods purchasing is China for the rest of the world?

I don't want to give exact numbers because it's changing, but suffice it to say that we have a fairly sizable component sourcing in China. It's not a majority or anything even remotely close to that, but it's fairly significant. However, for finished goods, that's actually a majority of our finished goods sourcing coming out of China. So far, that's been flowing okay, but that's a risk area that we see. And again, components, it's more temporary and smaller effects, we think.

Thank you very much. Thank you.

Thank you. Next question comes from the line of Bjorn Ennerson from Danske Bank. Please go ahead.

Yes, thank you. If you can shed some color on your comments on Q2 versus the full year guidance. I mean, you have a pretty upbeat full year guidance and more cautious on the Q2 indication. Should we expect an unusually strong sequential development in in Q3, is that what you're saying? Or if we can get some color on the Q2, how we look upon that?

Yeah, so obviously we've been heavily impacted by these electronics constraints, starting in Q3 of last year and then becoming quite severe in Q4 and Q1. And again, we expect that to continue in Q2, but then to get sequentially better. So then as you go into those year over year, comparisons, that starts to look much more favorable, unless something negative happens, but that's what we're seeing right now for Q2, for the second half, I'm sorry, that both sequentially and year over year becomes a more favorable situation.

And it's more pronounced both down and up in Europe, is that correct?

Well, for Q2, this is a specific situation that we have right now with a specific set of electronics that are important for Europe that we have in particular short supply in Q2. This is just a specific component that is in short supply for Q2, or a couple of specific components for Europe that is impacting that. On the other hand, we see some improvements quarter to quarter in North America, and that's all driven by just very specific components availability.

Okay, great.

Thank you. Next question comes from the line of William Turner from Goldman Sachs. Please go ahead.

Morning. I just have a question on the demand environment and what you're seeing from your customers. I guess in the second half of the quarter, with the higher cost of living, we did really start to see a deterioration in some consumer sentiments. I was wondering, are you seeing... Any demand destruction from the higher prices? And have you reached a point now where the inventory levels of your customers are a level where you've had to restart more promotional pricing versus the last couple of years?

Yeah, I mean, I would say in Europe in March, we did see a slowdown in foot traffic, let's And we also saw a sharp slowdown in consumer confidence. So to what extent that's driven by inflation, to what extent it's driven by the Ukraine situation, it's a bit difficult to analyze, but I assume it's both. Now, we have been in a situation, we still are in a situation, where the more limiting factor, frankly, is supply rather than demand, given the electronic shortages. So far and also in the near-term outlook, we are more constrained by supply than by demand. And while we are concerned about the inflationary pressures, we don't really see a specific sort of significant elasticity on demand for appliances per se. It's more the generalized inflation impacting the share of the wallet and so on available for for investments. So that's something to watch out for. On the positive side, and I think it's important to balance this, you know, we are concerned and we are reducing our outlook for Europe for these reasons. But it's also important to note that unemployment levels are at historically low levels in Europe. We have home prices that have increased significantly in value, meaning that people have wealth to spend on renovations and so on. In general, people are not concerned about unemployment or being laid off. It's more an inflationary thing. So there are counterbalances against these inflationary pressures. And, of course, as usual, our demand is, again, to a majority driven by forced replacement. So we have that underlying strength. So we're not overly concerned about the demand development. But, again, the interplay of supply and demand in this situation is a bit... unpredictable. In terms of promotion, your other question, we're still seeing relatively moderate promotional pressure, and I expect that to continue. And the reason for that, of course, is the massive cost increases that everybody in this industry are faced with. So I do expect a return to a more, call it promotional cadence, which I don't necessarily think is a bad thing. It's just the depth of promotion is not likely to be what it was a few years ago as a consequence of the cost inflation that we're all seeing.

Okay, thank you.

Thank you. Next question comes from Kari Winter from Handelsbanken. Please go ahead.

Yeah, thank you, Kari Handelsbanken. A follow-up on the previous question, which is that you commented or you have commented that this will be a very active year for you in terms of new product launches. So I guess the question is that, uh, how do you implement this in the, uh, in the current environment of, uh, inflation and, uh, uncertain consumer confidence when one consequence of that, that you could argue seeing is that, uh, consumers down trade to, uh, to more affordable appliances. So how do you play this new product introduction cycle in this market?

It's a good point and of course then you add on top of that the fact that we have a short supply of electronics which makes it a bit challenging. I think we're extremely confident in our new product launches mainly because we see that they're working extremely well right now. I was referencing the Andersson products in the presentation we're selling more than we can build across the various products in that factory. We're wrapping up the new built-in oven in Springfield right now. Same thing there. We can't make enough of them. So, yeah, there might be some down trading, but it's from a situation where we just can't make enough. So we're confident that on a, on a sequential basis and on a year-over-year basis, will continue to be able to drive favorable mix at good prices compensating for these cost determinants.

Maybe a quick follow-up. How do you see Europe in terms of sort of the activity level in Europe in terms of these new product introductions? Is it mainly Latin America and North America, or are we also talking about you having ambitious plans for new products in Europe?

So in Europe, with... You know, we have more of an ongoing product launch sort of cadence because we didn't have as many of these large architecture programs that we've had in North and in Latin America. We have one big one, and that's the built-in refrigeration range that we are now ramping up in our plant in Susagana, which I referenced is the Maxiflex, a whole new – product 75 centimeters wide off of our new built-in architecture. And there we're continuously adding new variants and wrapping up that factory. So that's the big one in Europe. And then we have a number of more sort of refresh and incremental type launches in laundry and in the other categories. And then in Asia Pacific, we have fairly significant new launches, both in laundry, in refrigeration, and in the water heater. When you add it all up, it's a very, very active year for us.

All right. Thank you very much.

Thank you. Next question comes from Olof Söderholm from ABG Center Courier. Please go ahead.

Hi everyone, it's Olof with ABG. Just a bit more on the mix and volumes. In your guidance you say specifically that volumes and mix together will have a positive effect on EBIT year over year. Is it possible that if you could discuss this a bit more in detail, was this the situation already in Q1 or is it a second half event? And just a bit more color on how powerful the the new product launches are in terms of mix.

Yeah, definitely mix is favorable in Q1 and we expect it to be an even stronger contributor going forward. Volume was quite negative in the first quarter and we expect that to be challenging in Q2 as well, especially year over year. If you remember last year, we were producing at very high levels in the first two quarters and then we started to get hit by the supply constraints in the second half. So on a year-over-year basis, we'll have a fairly negative first half on volume, positive mix. And then in the second half, we're seeing better volume and even more supportive mix.

Thank you. Sure.

Thank you. Next question comes from the line of Gustav Haggis from SEB. Please go ahead.

Thank you. Thanks for taking my question. If I understand you correctly, you feel a little bit better about supply, especially in North America, second half this year than you have experienced in prior quarters. That brings my question. How do you feel about that prior guidance you once had on the re-engineering program? I believe you had a chart illustrating somewhere around $1.7 billion in in Delta from cost savings this year. Do you feel that that is still a relevant ambition, maybe a little bit skewed towards the latter half? Or has something changed there?

I think you're right. The cost benefits are more or accelerating, let's say, in the second half of the year, both in North America and in Latin America. But But we're also, you know, as we've discussed before, kind of shifting the focus a bit on these new products to more of our premium offerings. Again, as we mentioned, the demand is really, really strong for that. So we're shifting more of our focus to premium, which gives a little bit less of a net pure cost benefit. But we still are looking at significant benefits that are actually happening right now. They're just obscured by the very, very significant cost deflation that we're seeing on input costs. So it's there already, and we expect it to accelerate over the course of the year, but it's a little bit less visible than we would like, of course.

We feel confident that we will reach the variable cost per unit that we identified. It's just related to in amount and how much that will turn out to depending on the mix that we produce in the factory.

Should we expect sort of an update on where you are and what that number will be with your new assumptions on mix and volumes and all that?

We'll give an update as we go, but it will not be purely cost-focused because, again, we've shifted the focus more towards the really, really strong mixed generation. All right.

Thank you for taking my question.

Thank you. Next question comes from the line of Johan Eliasson from Kepler-Chevreux. Please go ahead.

Yeah. Hi. Good morning. Thank you for taking my question as well. I was wondering a little bit about North America and the volumes you obviously the component shortage there. And I guess some of your competitors are doing that as well. The market was down 4%. You were sort of neutral, but assuming price was at this 8% also in the US, it seems like your volumes were below market shipments, which are doing the same maths on Whirlpool could even be even more negative there. Who is taking the volumes and don't you see that there's a risk on price in the second half when players want to regain lost market shares?

I think there are differences between different manufacturers in terms of how they're impacted on a quarter to quarter basis from these component shortages. So I don't want to comment on individual competitors, but clearly we're seeing that, you know, for us as well as for others, these impacts hit differently in different product categories. And, you know, in the quarter here, we saw, for example, that shipments of laundry and refrigeration products were particularly impacted in the quarter, whereas other categories were doing better. Again, I don't want to go in and give a review of individual competitors, but suffice to say that it goes a little bit up and down. It's an intermittent impact, different suppliers in different categories as we go along here. In terms of the promotional pressure, as I said before, I would say that it's normal and natural that the normal promotional cadence will return, but with substantially lower magnitude because everybody's impacted by these inflationary costs.

And you don't think you have lost any underlying market share in North America specifically? Just a mix from categories?

Yeah. You know, we are big in refrigeration in North America, and the weakness of the refrigeration segment per se negatively impacts us. I mean, that's a factor. But again, you know, the challenge for us is just getting enough components, and then we have the demand there for our products.

Excellent. Many thanks.

You're welcome.

Thank you. Next question comes from the line of Frederik Morregaert from Pareto Securities. Please go ahead.

Thank you, operator. I appreciate that you are not willing to comment on the Whirlpool's decision to evaluate their European business, but is it possible that you could remind us of your European market share at the moment in different categories?

Yeah, I mean, I think we're overall, it's always, you know, what's the definition of Europe and what's the definition of major plants and all that. But, you know, let's say that we're around 15, 16% market share, value share in Europe. And inside of that, we're continuing to kind of mix out of low-end mass brands and into our electrics and AEG brands, which have grown significantly market share over the last several years.

And on our website you find more information. We have a market overview document with market shares and relevant information.

Great, thank you.

Thank you. And the last question comes from Henrik Kristiansen from Carnegie. Please go ahead.

Great, thank you. So a question coming back to the Q2 guidance there on supply chain impacting negatively. I mean, you know, you talk about the price hikes coming through partly in Q1 and then we should see the full price hike coming through in Q2 and then you have this time lag in the U.S. which I guess is expected to close as well. When you talk about the supply chain challenges, is it mainly volume or is it margin or is it both? Basically, the end of the question is should we expect

sequential improvement in margins in q2 um maybe maybe a bit of weaker volume so how should we think about that perhaps a bit more color there thanks so we don't give specific margin guidance and and and especially not for quarters especially not in this volatile environment that we're in but but you know again in in uh in the first quarter um we had a very challenging supply situation, you know, similar to what we had in Q4. And again, we expect that to not improve in Q2, just to be clear, on an aggregate basis. In terms of the impact on the business areas, we see a worse situation in Europe and a slightly better situation in North America. That's all we wanted to kind of guide there and that has to do with the availability of very specific electronics that we see right now and of course this is impacting both volume but it's also impacting mix since it's more related to our premium products where we are exposed to the electronics yeah it's impacting our mixed potential let's say right because we still have faucets mixed but we could have had even more yeah yeah whereas price will be sequentially better i guess

given the comments you made earlier. Great, thanks.

I would now like to hand back over to the speakers for final remarks.

Thank you very much, operator, and thanks everybody for very good questions. In summary, I'm very pleased with our strong mix and price execution in the quarter, given the challenges that we've experienced. And our ability to adapt quickly and successfully to this changing environment that we've demonstrated during these past two years will continue to be instrumental. It's a confirmation that we have the right strategy and the right culture to respond quickly to challenges and seize opportunities. Thank you very much and talk to you soon again.