Electrolux AB

Good morning, and a warm welcome to Electrolux's fourth quarter 2022 results presentation. With me today, I have our CFO, Therese Friedberg, and our Head of Investor Relations, Sophie Arnius. I would like to mention that this session is recorded and will be available on our website as an on-demand version. So let's look at our performance in 2022. We're leaving a highly challenging year behind us that resulted in a significant drop in profitability and an organic sales decline. The decrease in organic sales was driven by lower volumes. Market demand declined in most of our markets compared to last year, when demand was in general strong. During the first half of the year, supply chain constraints limited the ability to fully meet the underlying demand, while the increased general inflation, interest rates, and geopolitical tension impacted consumer sentiment and purchasing power negatively during the second half. The other main factor behind the large drop in earnings was significantly elevated cost levels. The supply chain constraints and irregular supply led to low planning visibility, causing production and logistics inefficiencies, including increased use of spot buys and air freight. This was especially severe in business area in North America. To return to stability and increase profitability, we initiated a group-wide cost reduction and North America turnaround program towards the end of the year, expected to increasingly gain traction during 2023. On the positive side, We have had a very launch-intensive year across all regions, with well-received products, and we continue to generate a positive mix. Our average consumer star rating for 2022 was 4.64 out of 5 stars. Net price realization was strong, despite promotional activity returning to normal levels towards the end of the year. And we fully offset the significant cost inflation, primarily in raw materials and logistics. In line with the dividend policy, the Board proposes no dividend payment for 2022. So if we then move into the fourth quarter specifically, we had an organic sales decline in the quarter across business areas and a loss at EBIT level of 612 million SEC, excluding non-recurring items. The loss was due to a combination of lower volumes in a weak market environment and elevated cost levels from inefficiencies in the supply chain and in production in North America. Volumes declined across business areas, mainly as a result of the lower market demand, driven by high general inflation and low consumer sentiment, coupled with inventory reductions at retailers. This also led to further production inefficiencies. We delivered a strong mix in the quarter, also in this weak market environment, through successful product launches. Our strong price realization continued, and we offset the significant cost inflation. This despite that promotions now are back to normal levels in general. We have firm plans in place for a group-wide cost reduction and a North America turnaround program and have started execution. Based on our review of production capacity needs, we have decided to discontinue production at the Niri Jasta factory in Hungary from the beginning of 2024. In Q1 2023, we will take a charge for this of approximately 550 million SEK reported as a non-recurring item. The strategic direction is to optimize our refrigeration production footprint from a cost perspective through both outsourcing and own production, leveraging group scale.

In the quarter, we had non-recurring items which impacted across business areas and group common cost. 1.5 billion SEK in total was related to the cost reduction program with a regional charge reflecting country-specific conditions. 0.2 billion SEC was related to the termination of a U.S. pension plan that was transferred to a third party. We also had a positive effect from the Swiss real estate sales as previously announced. Having clarified this, let's go into the results for the quarter. We had a strong organic contribution to earnings in the quarter despite a large decline in sales. We continued to have very good price realization from list price increases while the promotional activity in the quarter returned to normal levels. Our attractive product and brand offering continued to generate a positive mix also in the fourth quarter. Volumes 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 decreased, mainly by lowering marketing spend, given the market environment. Cost efficiency was negative as a result of the large inefficiencies in production, exacerbated by low production volume in the quarter to adjust to lower demand and reduce the inventory levels. Also, logistic costs increased, and despite implemented reduction in the use of express freight and spot buys of components, the elevated cost level continued, as it takes some time to realize these savings through the value chain. Price 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. Let's take a brief look at the EBITB for the full year. Also for the full year, we had a very strong organic contribution to earnings. We had a very good price realization that also for the full year was offsetting the significant cost inflation from raw material and logistic costs. This was the result of the list price increases implemented during the year, whilst the promotional activity also intensified towards the end of the year. Volumes declined significantly, mainly as a result of the weaker consumer demand and large market decline. Our most launch-intensive year with an attractive product offering generated positive mix every quarter during this year. despite supply constraints during a large part of the year and then the sharp market decline in the second half of the year. Our investments in consumer experience, innovation and marketing increased for the full year to support product innovation and product launches. Cost efficiency was very negative. The constrained and irregular supply chain resulted in considerable increased costs for logistics and components, as well as large inefficiencies in production. from low visibility and ability for efficient production planning. The high cost was both inflation-driven and due to the use of express freight and spot buys of components. Measures on the cost reduction program were taken in the fourth quarter, but it's important to note that it takes some time to see the effect of the structural changes. And also for the immediate cost reduction, there is a delay earnings impact due to the high inventory levels before the program started. If we then take a deeper look into our price and mix development, the EBIT margin equation for the group from price and mix was 12.9 percentage points for the full year and 13.9 percentage points in the quarter. And this was mainly from price as we had strong price execution across all regions driven by the list price increases implemented from the end of 2021 and during 2022 in order to offset the significant cost inflation The promotional activities increased gradually during the year, and in the fourth quarter were back to a normal level, mainly in North America and Latin America. Mix was, as mentioned earlier, positive in every quarter in 2022, and in this quarter we had positive mix in all business areas. In Europe, the favorable mix was driven by our clear focus on our premium brands Electrolux and AEG, as well as on high-mix products, which continued to deliver a positive mix also in this quarter. In North America, we continued to mix up based on our new product range. In Latin America, positive mix was the result of successful product launches, including well-received built-in ovens produced in the renewed factory in Sao Carlos that was part of the re-engineering initiative, and the strong-performing multi-door fridges. In Asia Pacific, Middle East, and Africa, mix also increased, partly driven by successful product launches in water care and washing machines. An attractive product and brand offering is essential for our profitable growth and Jonas will now give you some concrete examples of this.

In recent years we have expanded the offering in the globally growing multi-door refrigeration category. This high value category offers the possibility to deliver strong consumer innovation in terms of dedicated climate zones and easy access. Our modular architecture significantly reduces time to market and cost as we rapidly increase our product offerings. Looking at the North American business, we recently launched a refreshed line of Frigidaire professional wall ovens from our new factory in Springfield. These wall ovens feature our new total convection system, which gives consumers maximum flexibility in the kitchen with meaningful and easy-to-use cooking modes. Examples of these are air frying, slow cooking, steam baking, and no preheat. These wall ovens have also undergone an extensive visual update, adding backlit knobs and eliminating a lower trim piece that will make them stand out on the sales floors and in consumers' homes. Early reception in the market has been very positive, and retailers are dedicating new showroom space to these wall ovens. Early consumer reception is above target, with a combined 4.7 out of 5 consumer star rating for the three wall oven platforms we offer, single wall ovens, double wall ovens, and microcombis. So these were some concrete examples I would work with. Innovation.