Electrolux AB

Good morning, and welcome to Electrof's third quarter 2022 results presentation. My name is Jonas Emerson. With me today, I have Therese Friedberg, our CFO, and Sofia Arneus, our head of investor relations. 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 2022. We had slight organic growth in the quarter and an operating income at break-even, excluding the one-time cost to exit the Russian market. The reduced earnings was due to a combination of weaker market environment and supply chain imbalances resulting in operational inefficiencies. The decrease was mainly driven by business area in North America that reported a significant loss. Volumes declined mainly as a result of the lower market demand driven by high general inflation and low consumer sentiment coupled with high retailer inventory levels. The supply chain constraints improved sequentially in the quarter but still impacted operations, predominantly in terms of additional costs. We delivered mixed improvements in the quarter, also in this weak market environment, through successful product launches. This was across our business areas, though primarily in Latin America and Asia-Pacific, Middle East and Africa. Our strong price realization continued, and we offset the significant cost inflation, mainly in raw material and logistics. In general, promotions continue to normalize in the quarter, essentially getting back to pre-pandemic levels with seasonal promotions. In addition, the high inventory levels at retailers increase promotion in certain product categories, especially in North America and Latin America. In light of the weakening market environment, as previously communicated, we have this quarter initiated a group-wide cost reduction and North America turnaround program. The group-wide cost reduction element of the program will primarily focus on three areas. One area is to eliminate cost inefficiencies in our supply chain and production by adapting sales and production plans to what can be supplied in a stable manner and to right-size the workforce in our factories. Another area is to leverage the organizational changes which took effect on July 1 this year. Through these changes, we have created stronger global organizations for operations, sales, administration, R&D, and IT, which is also enabling efficiency gains. Finally, we're optimizing in R&D and marketing investments. This includes leveraging recent global investment programs in R&D and prioritizing the highest ROI opportunities, as well as centralizing marketing and brand building activities. In addition to these three areas mentioned, the North America turnaround requires additional measures to return to stability and then profitability. This, as the production transformation with the two new facilities in Anderson and Springfield, includes several new product platforms in combination with the particularly challenging supply chain conditions, which have resulted in significantly elevated cost levels. Specific for North America, key activities will be to stabilize and improve operational planning and to significantly improve cost efficiency in Anderson and Springfield to ensure cost competitiveness in these new production facilities. We remain highly confident in the consumer appeal of the new product ranges, which also the sales execution in the quarter resulting in year-on-year market share gains proves. The turnaround will be conducted under the leadership of Ricardo Cons, who has been appointed new head of business area in North America. Ricardo has led business area in Latin America since 2017, and has a strong track record of navigating in a dynamic environment and improving margins. The initiated program is for the full year 2023, expected to result in a positive year-over-year earnings contribution of 4 to 5 billion Swedish kronor from a combination of cost efficiency and reduced investment in innovation and marketing. The activities implemented under the program will gradually contribute to earnings over the course of 2023 and into 2024. The full cost reduction from the program is estimated to be in excess of 7 billion Swedish kronor. The majority of the targeted savings will be realized in business area in North America. For the sake of clarity, the cost reduction from the program includes and replaces the previously communicated benefits from the Swedish kronor 8 billion global re-engineering program. The program is expected to lead to a restructuring charge in the fourth quarter of 2022 in the range of 1.2 to 1.5 billion kronor. which will be reported as a non-recurring item. More or less the entire charge will have a cash impact throughout 2023, and 3,500 to 4,000 positions will be affected by the program. If we go back to the third quarter, Therese will now walk us through the main drivers behind the change in operating income.

We have strong organic contribution to earnings in the quarter. We continue to have very good price realization from our list price increases implemented during the year, whilst the promotional activity essentially normalized from a previously low level. Our attractive product and brand offering generated a positive mix, despite some remaining supply constraints on specific premium products. Volume declined significantly, mainly as a result of the large market decline in our main markets in the quarter. Our investments in consumer experience innovation and marketing increased, mainly in product development and innovation that is harder to impact within a short time frame. Cost efficiency was very negative. The supply chain constraints resulted in considerably increased costs for logistics and components, as well as large inefficiencies in production. The higher cost was both inflation-driven and due to use of express freight and spot buys of components. Price did offset the continued significant cost inflation, mainly in raw material that is included in external factors and in logistics that is part of cost efficiency. Worth mentioning is that we had a contribution from currency translation in the quarter, where our method for calculating the currency translation is based on earnings last year and not this year. 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 14.3 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 affect the significant cost inflation. Promotional activities is now essentially normalized, which we mainly see in North America and Latin America. Mix also continued to improve in the quarter for the group. In Europe, mix was favorable, even though the lack of specific electronic components still had a hampering factor. Our clear focus on our premium brands, Electrolux and AEG, as well as on our high-mix products, showed a positive mix also this quarter. In North America, we continued to mix up based on the new product ranges. In Latin America, mix was positive, where the product launches enabled by our re-engineering program are well received by our consumers, and significant growth in aftermarket sales also contributed to the mix improvement. In Asia-Pacific, Middle East, and Africa, mix also increased, partly driven by successful product launches. 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, at this year's IFA in Berlin in early September, several new product launches were announced. The most significant ones were our new 75-centimeter-wide built-in fridge freezer and the new AEG laundry range. The new built-in refrigeration ranges are a result of our new product architecture investments in Sussegana, Italy. The new products are extremely well-received with a 4.8 out of 5 consumer star rating. Technology innovations enable reduced food waste and increased capacity while significantly reducing energy consumption and energy costs as well as the carbon footprint. With regard to the new laundry range, we know that washing clothes too often and at too high temperatures can affect the color and fabric and have a negative impact on the planet. Despite this, we have learned that nearly two-thirds of Europeans still wash at 40 degrees or higher. This is why we in Europe now have launched a new range with a water-saving steaming function and programs which automatically adjust time, water, and energy usage based on the load. The range has features such as a pro-steam technology, getting rid of odors in 25 minutes using 96% less water than a regular washing cycle, and a power clean program that cleans your clothes efficiently and removes stains at only 30 degrees. The new range of tumble dryers has been developed to minimize energy use and uses 3D scan technology to identify humidity levels inside the items, ensuring that even layered garments are evenly dried. Also, I'd like to highlight an accessory, an add-on filter for washing machines that catches up to 90% of microplastic fibers released by synthetic clothing. This new range provides us with a great platform to continue driving premiumness within laundry and to further strengthen the AEG brand position in Europe. These were some examples of how we drive profitable growth.