Electrolux AB

Good morning, and a warm welcome to Electrolux's second quarter 2022 results presentation. My name is Jonas Samuelsson, and with me I have our CFO, Therese Friedberg, and our Head of Investor Relations, Sofie Arnjus. Before starting, 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 2022. Organic sales were flat, with an operating income of 0.6 billion SEC, or 1.7% of net sales. Like in the first quarter, we faced significant supply chain challenges in Q2. The irregular deliveries of multiple components, mainly electronics, continued to substantially lower our volumes, caused severe production inefficiencies and high costs for air freight and spot buys. In North America, labor shortages and a faulty critical component issue further aggravated the situation, and the business area made a loss in the quarter. The decline in market demand compared to a strong quarter last year also contributed to lower volumes. Industry shipments were in the quarter impacted by supply chain constraints in specific product categories and by softening consumer demand following high general inflation and increased interest rates. Despite the constrained environment, we still delivered solid mix improvements as we continue to have strong demand for newer and innovative products and optimize the use of available components. However, we could not fully meet the underlying demand, especially in laundry and premium cooking. Our strong price realization continued, and we offset the significant cost inflation, mainly in raw materials and logistics. The significant, mainly supply-driven volume decline and related inefficiencies thus fully account for the year-over-year earnings deterioration. Therese will now walk us through the main drivers behind the change in operating incomes.

We had a strong organic contribution to earnings in the quarter. As Jonas mentioned, we continue to have very good price realization from our list price increases implemented both during this quarter and previous quarters, whilst the promotional activity normalized somewhat from a previously very low level. Our attractive product and brand offering generated a positive mix despite limitations from the supply chain constraints, and aftermarket sales grew in the quarter. Volumes declined significantly, mainly as a result of the global supply chain constraints, in combination with labor shortage and production interruption related to a faulty component in North America that impacted product availability negatively. Our investments in consumer experience innovation and marketing increased to support strategic growth initiatives and the product launches. Cost efficiency was negative. The supply chain constraints resulted in considerably increased cost for logistics and components, as well as large inefficiencies in production. The higher cost was both inflation-driven and due to use of express rates and spot buys of components. Price 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 efficiencies. Let's take a deeper look at our price and mix development. The EBIT margin accretion for the group from price and mix in the quarter was 13.1 percentage points. This was mainly from price, as we continue to have a strong price execution across all regions, driven by the list price increases implemented both during this year and in 2021 to offset the significant cost inflation. Promotional activities started to normalize, mainly in North America and in Latin America. Mix also contributed to improve the quarter for the group. In Europe, mix was favorable, even though the lack of specific electronic components especially impacted the laundry category negatively. I'm very pleased that our clear focus on premium brands Electrolux and AEG, as well as on high mix products, really showed a positive mix also this quarter. In North America, our ability to drive mix was severely impacted by shortages of multiple components. By optimizing the allocation of the available components, we managed to keep the mix flat in the quarter. In Latin America, mix was positive. It is great to see how well received our product launches enabled by our re-engineering program are by the consumers, especially since consumer purchasing power is decreasing in the region as a whole. An improved product availability and significant growth in aftermarket sales also contributed to the mix improvements. In Asia-Pacific, Middle East and Africa, mix increased, partly driven by successful product launches, as you will hear about in a moment. 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.

Emerging markets growth is a key strategic pillar for us, and based upon our manufacturing hub in Egypt, we're introducing new tailored products for the Middle East Africa region. In 2022, New water heaters were launched, which have been very well received by Egyptian consumers, with a star rating of 4.89 out of 5. The launch will continue in more countries, such as Morocco and Libya, until 2023. Product developments that improve the user experience have been key, with particular focus on comfort, safety, and hygiene. Heating efficiency has increased, making almost 30% more hot water available at the same capacity compared to the current platforms. By introducing a new material for enhanced heater insulation, heat loss has been reduced by around 15%, making these products both more energy efficient and cost-effective for users. I would also like to mention our new Electrox kitchen range that was launched in Australia and New Zealand during the quarter. The launch includes premium multi-door refrigerators, built-in ovens, built-in hobs, and freestanding cookers. In the launch, we leverage our Swedish heritage and emphasize sustainability aspects extending the make it last campaign that we've used for laundry products to the taste category. The multi-door fridges and built-in ovens will progressively be launched across other markets in the region. One important fact that I'd like to emphasize is that the multi-door fridges are built in Rayong in Thailand based on our global modelized product platform for refrigerators. It's a very good example of how we, through the modelized platform, can leverage our global scale, accelerate innovation speed, and have higher production flexibility. In this specific case, a significant part of the production is also exported to the North American market. These were some examples on how we drive profitable growth.