AB Electrolux (publ)

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.

Operating cash flow was negative, 6.1 billion SEK for the full year, while the fourth quarter was positive and amounted to 0.2 billion SEK. From a year-over-year perspective, the decline is mainly related to the lower EBIT, both for the quarter and for the full year. For the full year, also higher level of capex impacted cash flow negatively, as did the sharp decrease in accounts payables. We managed to substantially lower our inventory in the fourth quarter, mainly of in-house produced finished goods, which are now at an overall normal level. It will take somewhat longer to see the result of our efforts in our inventory of supplies and source products. We will continue to work to further optimize the inventory levels gradually during 2023, while applying the normal seasonal pattern with some inventory build-up in the first half of the year. the significantly reduced production level to adjust to lower market demand in combination with inventory reduction impacted accounts payable negatively. With more than two years of very high volatility, we will continue to focus on stabilizing the working capital level in 2023.

Let's now go into our business areas performance in Q4, starting with Europe. In Q4, the market demand continued at a low level, impacting our sales volumes negatively, and exacerbated by retailer destocking. We continued to execute well on price and mix improvements through our focus on the premium Electrox and AEG brands. The low sales volumes exacerbated by successful destocking in our in-house produced finished goods products led to revenue decline and high product costs. Additionally, we saw significant inflationary cost pressures. This was partially offset by the strong price and mix execution. Let's have a look at the European market. Market demand in Europe continued to decline in the fourth quarter, excluding Russia, and was down 12%. In the quarter, Western Europe declined by 11% and demand in Eastern Europe by 19%. The market demand continued to also be at lower levels than before the pandemic, declining by 8% compared to the fourth quarter of 2019. Consumer confidence remained low, with consumer demand being negatively impacted by the high general inflation, increased interest rates, and geopolitical tensions. The decline in consumer demand was amplified by retailer inventory reductions, subsequent high levels entering the quarter, also outside the white goods category. For white goods, retailer inventory levels now seem to be normalized, while other categories, such as electronics, are estimated to remain high. With the lower consumer purchasing power, there are signs of consumers mixing down. This is mostly seen in the lower price points, leading to increased polarization in the market. Let's continue with our business area in North America, which had a substantial EBIT loss for the second quarter in a row. The loss was a result of lower volumes due to the weaker market environment combined with elevated cost levels. The high cost level is a result of previous supply chain constraints and the ongoing production transformation with our two new factories and several new product platforms. Actions under the turnaround program for North America are well underway, The main focus being to adapt sales and production plans and to right-size the workforce. However, there is a delay in earnings impact since we had a high level of inventory going into the quarter produced at the cost levels before the program started. Price offset the significant cost inflation, mainly in raw materials and logistics. This is an environment where we now see promotional activity being back to normal levels. Mix contributed favorably. Looking at the U.S. market, industry shipments of core appliances in the U.S. decreased by 7%, but still increased compared to the fourth quarter of 2019 by 3%. High general inflation and increased interest rates impacted consumer sentiment negatively. The drop in consumer demand was amplified by retailer inventory reductions. These are now estimated to be normal to high compared to high in Q3. Market demand for all major appliances, including microwave ovens and home comfort products, decreased by 9% year-over-year. Let's move on to Latin America. Volumes were lower in the quarter, driven by consumer demand in Brazil and Chile, while Argentina was up. We continued to execute well on pricing, despite higher promotional levels, offsetting significant cost inflation. Aftermarket sales continued to grow at a high rate. A record number of product launches in 2022 contributed to positive mix contribution despite market mix pressure. Price and cost control offset currency and inflation headwinds. Finally, turning to Asia Pacific, Middle East, and Africa, consumer demand weakened in key markets, which also led to retailer inventory management actions resulting in lower sales volumes. We continued to execute on price improvement, and our strong product launches drove favorable mix in the quarter. Profitability was impacted by the lower volumes, while efficient cost control contributed positively. Price increases offset cost inflation and currency admins. So, let's turn then to our market outlook. We expect consumer sentiment in 2023 to be negatively impacted by a high inflation and interest rate environment, although with regional differences. In Europe, the tight energy situation and Russia's invasion of Ukraine further weigh on consumer confidence and purchasing power, while we see in general less pressure from inflation and interest rates in the Asia-Pacific region. China's reopening could also have a further positive impact for this region. The housing market, a key driver for appliance demand in mature markets like Europe and North America, is expected to decline in 2023. On the back of this, we expect demand for appliances in 2023 full year to be negative for Europe, North America, and Latin America, and neutral for Asia Pacific, Middle East, and Africa compared to 2022. Although the outlook is uncertain, it's probable that reduced inflationary pressures will lead to demand stabilization in Europe and North America in the second half of 2023. Let's look at the business outlook. On the back of this market outlook, we estimate our volumes in 2023 to decline year over year, partly mitigated by mix improvements from a strong offering. 2023 will be another launch-intensive year, although less than 2022. I'm very pleased with how well-received the new products have been the last couple of years, even in this challenging demand environment with reduced consumer purchasing power. This gives us confidence that we have a great platform to drive mix improvement from. Looking at price, we anticipate differences in the price dynamic for our business areas given the regional variations in cost inflation and demand output. Since most of the expected cost inflation will impact Europe and Latin America, we will, in these regions, structure our price execution in terms of list prices and promotional activities to reflect this with the aim to offset cost inflation. In North America, on the other hand, reduced commodity and transportation market prices combined with lower consumer demand are predicted to result in continued high promotional activity following the increases we saw in Q4 2022. As a consequence, on a group level, we do not expect to fully offset the negative impact from external factors in 2023 full year with price. As mentioned, we expect external factors to be negative for the year, driven by energy and labor inflation, as well as currency headwinds, and most of this will impact Europe and Latin America. Although we foresee benefits from lower raw material costs, The positive impact on earnings is reduced as the higher share than normal of raw material procured at last year's rates will be consumed in 2023. This is as a consequence of higher inventory levels of supplies and reduced production rates in Q4 2022. The outlook for external factors in the second half of 2023 is difficult to predict if energy and plastic prices are volatile and a portion of steel prices are on price mechanisms. The expected positive Year-over-year earnings contribution of 4 to 5 billion Swedish kronor from cost efficiency and reduced investments in innovation marketing combined related to the group-wide cost reduction and North America turnaround program is reconfirmed. Total cost reductions from the program is estimated to be in excess of 7 billion SEK in 2024 compared to 2022. Investments to strengthen our competitiveness through innovation, automation, and modernization continue in 2023 And total capital expenditures are estimated to be in the range of 6 to 7 billion Swedish kronor.

And if we look at the facing of the impact of these items during the year, it is primarily three items I wish to highlight. Starting with price, the carryover from lift price increases implemented a year ago will taper off and mainly benefit the first month of 2023 for the group as a whole. Last year, promotional activities returned to normal levels in the second half from being at low levels in the first half of the year. mostly impacting North and Latin America, as these are the two most promotional intense regions. External factors are, just like Jonas commented on, impacted by a higher share of the normal of raw material produced at last year's rates that will be consumed in 2023. This lag will mainly negatively impact the first quarter. And finally, a few words on the timing of the impact of the group-wide cost reduction and North America turnaround program. The activities implemented under the program will gradually contribute to earnings over the course of 2023. And an important element of the program is reducing logistics costs and sourcing of components, especially in North America. Just like with raw material, the higher inventory level of components results in a lag before the measures we are taking will have an earnings impact. In terms of logistics, contracts are in general negotiated around this time of the year, and the new rates are implemented during the second quarter. Also relevant for the facing of the earnings contribution from a year-over-year perspective is the baseline, where cost efficiency and innovation and marketing combined last year was less negative first half of the year compared to the second half of the year.

So, to sum up the quarter and the strategic drivers we've delivered on, Needless to say, this has been another very tough quarter, with a further weakening market environment and cost challenges, but there are also highlights. I'm very pleased with the way we continue to drive mix through successful product launches, also in this environment, with lower consumer purchasing power and confidence levels. Our strong price realization continues in all regions, and we have been able to fully offset the significant cost inflation phase this year. We have now also gained traction from our efforts to reduce the high inventory levels we built up during the period with significant supply chain constraints and high market demand, and are overall back to normal levels when it comes to our finished goods. Activities under the group-wide cost reduction and North America turnaround program, instrumental to reestablish stability and profitability, are now well underway. This while we simultaneously progress on our long-term strategy. As these cost actions take hold during the upcoming year, we will be able to take advantage of our record-strong product lineup as inflationary pressures on consumer confidence and purchasing power gradually subside. I'd like to take this opportunity to remind you of our upcoming capital markets update, where we will share more of our progress on the program, especially in North America, where we will have a deep dive into how we create stability in this business area to pave the way for sustainable growth and profitability in the region. The other focus area for the capital markets update will be on how we harness the growth opportunities in the aftermarket, while gaining deeper consumer insights and relationships via new touchpoints. You're very welcome to join on March 20th, either in Stockholm or digitally. If you have not yet registered, you can do so until March 1st on our corporate website. With that, I leave the word to Sofie.

Thank you, Jonas. We will now open up for Q&A. And I know that there are many that want to ask questions. So please limit yourselves to one question per person. And if time allows, you can go back into the Q&A queue and hopefully ask a second question. With that, I leave the word to our operator.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will now go to our first question. One moment, please. And your first question comes from the line of Andre Cookman from Credit Suisse. Please go ahead, your line is open.

Hi, good morning. Thank you for taking my question. I wanted to just unpack the external factors a little bit more. Could you talk about how much is in there for the excess labor inflation and for energy versus raw materials? And on raw materials within that, could you help us understand that kind of phasing of H1, H2 between that kind of effect of carrying over excess or abnormally high inventory and the And then hence, kind of how much of a swing can we see in the second half as you mark the market to the spot prices?

Yeah. So if we start with the favorable drivers, we have obviously seen a significant decrease in market prices for steel and also plastics, the drivers for plastics. So those will be favorable for the year. As mentioned, we are still sort of consuming both materials and contracts from the prior year that will sort of delay these favorable impacts into the second quarter. So that's one significant headwind in terms of realizing these new more favorable raw material prices there. So clearly we'll see, you know, if current marking conditions are maintained, we'll see some fairly noticeable favorability in the second half of the year on steel and plastics. Then I think it's important to mention normally we don't talk so much about other metal commodities and so on but here we have a fairly significant headwind mainly from lithium. We use or our suppliers use a fairly significant amount of lithium mainly in glass cooktops to increase the hardness of that. So that's a fairly significant headwind to take into account on the raw materials side. Then we have fairly substantial headwinds also from currencies, the way they currently stand. Obviously, that changes over the course of the year, but right now, based on current outlook, that's a fairly substantial negative. And then, as you indicated, we have these elevated levels of salary inflation, which We haven't really had much to report of that in external factors because we typically say that normal salary inflation we just deal with in our ongoing cost efficiency. But here we have, as you know, in many markets like in Eastern Europe, like in Latin America, very, very significant salary cost inflation that we report here in external factors. And then finally, energy, right? So So this is mainly a European factor, although there are some energy head cost headwinds in other regions as well. But in Europe, it's a combination of last year, we were pretty much on locked energy prices, both for electricity and gas for the full year. So we were enjoying very favorable prices from, let's say, the 2021 levels, which is true for lithium, by the way, as well. And then, you know, despite the market prices having come down from the peaks we saw in the fall for gas and electricity, for example, it's still a very significant increase both for us and for some key suppliers that have highly energy and gas intensive production processes. So we report that combined effect in external factors here as well. So, you know, having said that, There is a significant amount of uncertainty as we go through the year, especially into the second half, on energy prices, on plastics prices, and on, let's say, the open portions of our steel and other metals contracts. So given that high level of uncertainty, that's why we're not giving a detailed range as we historically have. As you understand, there's these fairly significant positives and negatives that combine to give this negative guidance overall for external factors.

Sure, I understand. If I may just follow up on this. So if we carry on at the current spot rates, second half becomes kind of a smaller negative, or is there a scope for that to turn into a net positive?

Yeah, I mean, there's a lot of uncertainty in the second half, so I would refrain from giving a specific guidance there. But, yeah, no, I think there's a lot of opportunities for that total equation to look different in the second half than in the first half, for sure.

Great. I'll respect the one-question follow-up rule, so I'll go back in line. Thank you for your time.

Thank you very much. Appreciate it.

Thank you.

We will now go to our next question. And the next question comes from the line of Johan Ellison from Kepler.

Please go ahead. Your line is open.

Hi, Jonas, Therese, Sofie. Good morning. Good morning. Just coming back a little bit to this carryover inventories and high cost, etc. It sounds like it will be a very tough start for you in Q1. will it still be a loss-making quarter on the group or potentially just North America?

Yeah, so obviously we don't give earnings guidance in that sort of level of detail, but to your point, we have some positives and some negatives kind of rolling over into Q1. So as As mentioned, we have high inventory levels of components. We're still operating on, let's say, last year's contracts in general for logistics. Those typically flip over in the second quarter. And it takes time for these cost reduction initiatives that we've initiated to fully gain traction. So all of those would be negatives for the first quarter and also to remember that last year first quarter we were in the opposite situation where we were sort of benefiting from more favorable contractual levels in the first quarter compared to what we saw over the course of the year. So that year-over-year impact becomes fairly negative. Then we have a positive which is that obviously we're still seeing the benefits from the price increases that we implemented throughout last year throughout the first quarter, even though promotional levels have increased in the fourth quarter compared to certainly where they were in the first half of last year. We also expect that to continue at a fairly high level, but on the other hand, we have positive year-over-year impact from the list price increases we executed during the year. So it's a bit of a mixed bag, but clearly there are some remaining cost headwinds that will impact the quarter, especially in North America to your point. And also time required until these significant cost reduction initiatives that we're implementing run through the P&L.

And are you still confident that the North American business can sort of return one day to your target margin level for the group?

Yeah, very much so. And I think the the fact that we've had a challenging journey here recently in North America is less about the market, and it's more about, unfortunately, our performance in the market. And I would say the good news here is that the massive efforts that we've put in place to significantly improve our product offering, innovation level, and automation they will come true. It's just a question of how quickly. And here, clearly, we have not met our own expectations or the market's expectations on the speed of implementation of that. But that's what we're now putting out all of our efforts in with new management, strong focus from the group to support it. And the US market is very attractive. High purchasing power, consumers that are continuing to invest in their homes and their kitchens. We have a bit of a cyclical weakness right now, but that underlying strength is definitely there and will come back. So we're very committed to and very convinced around the turnaround program for North America. And we'll talk much more about this, just another bit of marketing here. We will really deep dive in North America in our CMU on March 20th.

Excellent. Looking forward to it. Thank you. Thank you.

Thank you. We'll now go to our next question. And your next question comes from the line of Gustav Haag from SEB. Please go ahead. Your line is open.

Thank you. Thanks for taking my questions. If I can start with the cost reduction program and the facing of that. Just to be clear, what will be the exit level as you budget now for those savings, the exit level for this year?

Exactly. The run rate as we go into 2024 will be 7 billion.

Okay. And you will basically have no impact of this in Q1?

I wouldn't say no impact because we are reducing discretionary spending. We did implement headcount reductions already in Q4, but as it works its way through inventory and things like that, it takes a little while to hit the P&L. And then, of course, we have actions that continue to accelerate throughout the year. So, no, I mean, it's true that the impact will be limited in Q1.

Great. And if I can have a follow-up on the promotional level that are normalizing, as you say. Do you believe that promotions will continue to rise now in the U.S. or are you rather thinking that promotional activity will stay a bit muted for the longer period as some other companies have indicated through different purchasing patterns and so forth?

Yeah. It's true that that in the fourth quarter, we saw quite high promotional levels, especially during the sort of black November period. But of course, that is from substantially higher starting points than before. So the net prices realized in North America are significantly increased. So what we're referring to is more of the promotional intensity from that high level and and that was quite high in you know during the quarter partially of course or i would say maybe significantly um because both retailers and and industry participants focused on destocking inventory levels and then as we go into to 2023 with you know relatively subdued market demand uh it's it's and In many cases, we see costs for, for example, ocean freight and steel and so on, as was mentioned. A combination of these factors will most likely lead to continued fairly high levels of promotional activity, probably less because of destocking, which we had in Q4, and more because we're seeing these sort of lower costs coming through. And so our estimate, our guess is that that will lead to continued fairly high promotional levels. Now the actual sort of promotional calendar in the first half of the year is less intense typically than in the second half of the year. So in that sense, the actual promotions are typically lower in the first half.

Great. Thank you. Sure.

Thank you. We'll go to our next question. And your next question comes from the line of James Moore from Redburn. Please go ahead. Your line is open.

Yeah. Morning, everyone. Hi, Jonas. Thanks for taking my question. On price mix, you're talking about a positive price globally in 2023. It sounds like negative in North America. I understand your US tier is a bit more North American than but they're seeing more like a sort of minus two and a bit. I just think, do you think that's the same as market pricing? Or do you think that you're going to end up pricing above the market, which I guess runs some elastic risk on volumes? And if market pricing is less in Europe and Latin America than your ambition, will you come down with the market or will you try and hold on to that?

Yeah, I mean, I struggle to, and I would refrain from comparing pricing to competitors, of course. But, you know, generally speaking, I would say that there will likely be significant regional differences in terms of pricing. In Europe, we see the bulk of the impact from, you know, as we indicated, energy cost, salary inflation, Also, this impact of lithium, for example, is mainly a European impact. And because of high energy prices, we also see much less favorability in steel prices and plastics in Europe as well. And the same more or less applies to Latin America. So there, I would be surprised to hear if anybody sees that that's going to be a significant positive combined effect of those factors for those two regions. And as usual, we are committed to attempt to offset external headwinds through pricing. So that's what we're predicting to do in Europe and in Latin America, which are very important regions, as you know, for us. I'll refrain to comment on what I think market prices will do, but that's what we will do. And then in North America, to your point, we do expect year-over-year price or net price compression as a consequence of higher promotional activity, mainly during the first half of the year, right? So most of our list prices happen in the early part of 2022 increases, and then, you know, as promotional patterns are normalizing, then year-over-year impact will be negative on net price for North America. And As indicated, we see less of the inflationary pressures in North America from energy and so on. We also see fairly substantial reductions in steel prices and in ocean freight in particular in North America. So it's, I think, a fair assumption to say that the market conditions for reduced net price realization are definitely higher in North America than in Europe and Latin America. The balance of these factors are kind of the main drivers behind our guidance.

That's very helpful. There's a quick follow-up on mix. Is the one billion that you've done over recent years sensible or is that a different story this year?

Well, I think we'll definitely see favorable mix. I think it's again, given the uncertainties in the market, I wouldn't commit to a billion, I think it's going to be favorable. I think it can be fairly substantially favorable because we have a really all-time high, let's say, level of innovation and product freshness, both with what we launched here in 22 and the further launches in 23. And that's playing out, as I mentioned, in our consumer star ratings. We're at at 4.64 globally, and I'm particularly impressed by our significant increases in North America where these new products are very well received. So as we get our cost structure in place, I think we're quite favorable, quite positive in our ability to continue to drive mix globally and particularly in North America.

Very helpful.

Thanks. Sure.

Thank you. We will now take the next question. And your next question comes from the line of Martin Wilkie from Citi. Please go ahead. Your line is open.

Yes, thank you. Good morning. My question was around cash flow. Obviously, you've not proposed a dividend for this year. I understand that's a technical formula, giving you a negative net income in 2022, but you've also said that the buyback didn't continue in Q4. What should we read into your cash expectations in 2023? I know that there was some improvements in inventory in the fourth quarter, but obviously there's a lot of moving parts in terms of

the inventory built last year the market still a bit challenging at the beginning of the year but a lot of these supply constraints easing to be good to understand just how you see those building blocks of cash flow in 2023 thank you yes so maybe starting with one uh one topic then on on capex whereas you saw our guidance then is six to seven billion so that's of course one component of of the cash flow and then as indicated we've been going through very volatile period in our working capital levels over the last two to three years actually i mean we have come down as you saw substantially in inventory in the in the last quarter here in in 2022 As indicated, we still have an imbalance in our inventory where we are now at normal levels in terms of number of units in our in-house produced products. But we will still need to go through a period here in the beginning of 2023 to normalize our supplies inventory and also some parts of the sourced finished goods. Of course, what we also then saw at the end of 2022 was a sharp reduction in the payables to actually adjust them to the correct inventory levels going forward in the new market demand. And this will continue specifically during the first part then of 2023, when we will also need to recalibrate our inventory levels going forwards. So there will still continue to be some volatility, I would say, in the working capital levels. But as it normalizes the conditions and we come back to a more stable production rate, this will also then stabilize during the year. That's our aim.

So overall, I think the conditions for favorable cash flow are much better going into 2023 than we had in 2022. Yes.

Okay, that's helpful. And obviously you've got a very efficient, if we look historically, you've been very efficient with working capital. There's no reason to think that there's a structural change if we look sort of over a multi-year period, but we're just in this sort of temporary difficulty just now and that you aim to get back to those ratios once the world sort of normalises.

Yes, that we can confirm. We have no structural changes. Of course, we've also had the impact in the working capital from the high inflationary pressures. I think all of the values, both in terms of payables and inventory, has also been impacted by the inflationary pressure. But if that also then goes back, then we structurally don't see any differences in our working capital as we have it right now.

Great.

Thank you very much.

Thank you. We will now go to our next question. And your next question comes from the line of Akash Gupta from J.P. Morgan. Please go ahead. Your line is open.

Yes, hi. Good morning, everybody, and thanks for your time. My question is on financial expense. If you look at Q4, it increased significantly, also given the increase in gross debt. When we look at for 2023, I mean, last year you had 1.5 billion roughly in financial expense. Can you guide us or can you indicate what level should we expect for full year 2023 in terms of incremental also giving your plan to potentially reduce gross debt over time? Thank you.

Yeah, we don't give specific guidance, but of course with that level that we have now, that to your point has increased, even though we are expecting cash flow then to turn positive into next year, but it wouldn't significantly change the current level as we have it currently, I would say. So I think to look at them the later part of the year would be a good indication also for the full year of 23.

Thank you. Thank you. We'll now go to our next question.

And your next question comes from the line of Olaf Sederholm from ABG Sundarkolle. Please go ahead. Your line is open.

Good morning, everyone. Just one follow-up to some other questions. Can you talk a little bit more about the facing of the volume price mix outlook? It's negative for the year, but I assume that volumes will be stabilizing towards the end of the year. You mentioned that, Jonas. And how about mix in that respect? If you could just talk a little bit more about that. Thank you.

Absolutely. So, yeah, I think it's fairly reasonable to assume that the demand levels that we saw in the second half of 2022 is kind of the new run rate. And that, of course, means that we will see some fairly noticeable changes unfavorable volume impact in the first half of the year, and then more of a normalization or flattening out in the second half of the year, unless something significant happens in one direction or the other. But that's the assumption that we're guiding for. In terms of mix, I don't see any significant differences on a quarter-to-quarter basis. I think that should be a contributor throughout the year.

Excellent. Thank you. Thank you.

Thank you. We'll now go to the next question. And your next question comes from the line of Yuma Samlin from Bank of America. Please go ahead. Your line is open. Hi.

Good morning, everyone. Thank you for taking my question. So my question is on the market share development in North America and Europe. So from your report, it seems like the product launches that have started to see some momentum. So I was just wondering, what are the market share development that you see in North America and Europe in the past quarter? And what do you expect in 2023? And I guess for Europe, I was also wondering that in the light of the recent combination of the Whirlpool EMEA operation and Beko, what are your plans for production in Europe? Are you worried about the market share erosions in Europe?

So I would say that in both Europe and in North America, we did lose a little bit of market share last year. I think that was unfortunately a consequence of us being quite heavily hit by supply disruptions throughout the year. So we were able to protect our more recent product launches to some extent. from these supply disruptions, but they definitely had an impact. So I think, yes, we did suffer a bit more than the market on average there. As we go into this year, though, I would say those supply constraints are past us. We're sort of rebalancing our inventory, as Therese mentioned, so we should be in good conditions to really leverage the great new products that we've launched over the past year and into 2023. So I don't see that as a headwind continuing into 2023. If we then look at, let's say, the market conditions in Europe, I would say that the, let's say, segmentation of the market is quite significant there, where, you know, with our main offering in Electrox and AEG is playing at, substantially higher price points than the competitors that you mentioned. So we don't expect to have a significant impact frankly from that combination.

That's very helpful. Thank you very much.

Thank you.

Thank you.

We will now take the last question. And the last question is a follow-up from Johan Ellison from Kepler please go ahead your line is open.

Hi again just to follow up here you mentioned mix being positive now typically when consumers are facing difficult times they tend to trade down and I think sort of in North America that's been a little bit in favor of you trading down to the Fritida brand but In Europe, you've obviously moved to these higher premium brands, Electrolux and AEG, to a big extent. So overall, how do you see this potential trade-down among consumers impacting you this time around?

Yeah, I think if you look at Europe, there clearly was some mixing down in the market, but that was predominantly English. they say inside of the more mass market price points. So I would say in the premium of the market, we didn't really see any noticeable mixing down. So I think it, of course, has to do with how inflation impacts the sort of different income groups in Europe. So we haven't seen that. In North America, we actually haven't seen any significant mix down at all. I think it's more, there I think it's more a question of that the, call it the segment of the population that is heavily impacted by inflation are typically renters, so typically not buying appliances as frequency. So it's more an impact on volumes than on mix. Now I'm speculating frankly here, it's not something I have solid data on, but that's the indication that we're getting.

So you're not worried that it will impact your mix?

No, I mean, I think we would have even better mix in a more favorable market environment, but we saw here in the fourth quarter that despite some quite challenging demand conditions, we continue to deliver solid mix improvement. So I think that's an indication that we can continue to do that.

Okay. Thank you very much.

Thank you, Johan.

Thank you.

Go ahead.

Sorry, sir. I was just going to say thank you. That was our last question. I will hand back to you.

Thanks, operator. So we're now leaving this very challenging year behind us. And that was, of course, not least visible in our financial results. However, We also have very positive aspects that I think are important to recognize. 2022 was a very launch-intensive year, partly enabled by the ongoing re-engineering investment initiatives, and I'm very satisfied with how our new products are being received by consumers, contributing to our positive mix development. Another part is our price execution that fully offset the significant cost inflation during the year. We also took strategic steps, such as establishing new commercial and consumer journey organizations, Our attention has been on better products, more targeted brands, and increased manufacturing efficiency. We now add a focus beyond the product itself to all interactions we have with our consumers, including the aftermarket. To me, it's vital that we also, in challenging times, progress on our long-term strategy of consumer-centric sustainable innovation. Thank you very much, and see you soon again.