AB Electrolux (publ)

Good morning. My name is Jonas Samuelsson and a warm welcome to Electrolux's first quarter 2023 results presentation. With me today, as usual, I have our CFO, Therese Fridberg, and our Head of Investor Relations, Sophie Arnius. And we also have with us today Anna Olsson-Leon, our Chief Commercial Officer, who many of you have met both in this role and previously as the CFO of Electrolux. So welcome, Anna. She will be with us in these calls going forward. Before we start, I'd 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 the first quarter of 2023. We had organic sales growth in the quarter, partly as a consequence of strong price carryover, despite continued soft demand driven by inflation and higher interest rates in key markets. In North America and Latin America, we increased volumes and gained market shares, supported by new competitive product ranges and improved product availability. For the whole group, volumes, however, declined. We also benefited from solid aftermarket sales growth, taking us one step closer to our target of 10% of total group sales in 2025. EBIT improved sequentially, although still declining compared to last year as a consequence of lower volumes and remaining high cost levels in products sold from inventory. Although the business area in North America still reported a loss, earnings improved significantly compared to last quarter, showing that our turnaround activities are gaining traction. Our number one priority this year, the implementation of the group-wide cost reduction and North America turnaround program, is progressing according to plan, contributing positively to earnings in the quarter. This was also one of our focus areas in our capital market update in March, which I encourage you to check out if you have not yet had the opportunity. As mentioned, price remained solid and largely offset the negative impact from products sold this quarter that were produced and transported at last year's higher cost levels, as well as additional headwinds from external factors. Product mix was flat as the negative market pressure combined with the strong mixed execution last year offset the favorable impact of new product offerings. EVIT included a non-recurring item of 561 million SEK related to the closure of the Niri Jasa factory in Hungary expected in 2024. Therese will now walk us through the main drivers behind the change in operating income compared to last year.

Yes, we had a strong organic contribution to earnings in the quarter, driven by a solid price development based on price realization, mainly from increases during last year, while promotional activity was back on normal levels. Mix was flat in the quarter while volumes were down as a result of the large demand drop in our main markets. Our investments in consumer experience, innovation, and marketing decreased as a result of implementation of the cost reduction program. And we started seeing effects of the cost reduction program also through positive cost efficiency, despite the negative impact from the products sold in this quarter were produced and transported at last year's higher cost levels. And Jonas will come back to progress of the different components of the program in a couple of slides. Price was almost offsetting the negative external factors, which was also exacerbated by high-cost inventory from last year consumed in this quarter. External factors here, beside the negative raw material and currency, also includes headwinds related to labor inflation and energy cost increases. And now let's take a deeper look at our price and mix development. The EBIT margin accretion for the group from price and mix was 6.1 percentage points. This was mainly a result of strong price year-over-year, while mix was essentially flat in the quarter, as we do see some pressure on mix from polarization when consumers are mixing down from low-end segments to even lower price points. If we look at the business areas, in Europe we had a strong price performance on the back of increases done during 2022 and some additional increases implemented in the beginning of the year to offset the inflation. The focus on our premium brands AEG and Electrolux is delivering positive mix also this quarter. In North America, the promotional activity is back to normal levels, hence this is offsetting the positive effects from the price increases made during last year. Mix was negative comparing to a very strong first quarter last year. In Latin America, the price development was positive, mainly related to price increases done during 2022 and continuous increases in Argentina. In Brazil, we see that the promotional activity is back on a normal level. Mix is positive based on successful product launches and growth in aftermarket. Also in Asia-Pacific and Middle East and Africa, we had a positive price year-over-year related to increases during 2022 and additional increases mainly in Egypt to offset the inflationary pressure. Mix was slightly negative due to consumers mixing that. As we previously communicated, the Group-wide Cost Reduction Program and North America Turnaround Program is expected to have a year-over-year earnings contribution of 4-5 billion SEK in 2023 from cost efficiency and innovation marketing combined. And Jonas will give an update on the progress.

Thank you, Therese. We have already presented our Group-wide Cost Reduction Program extensively, so I will mainly provide some highlights on the progress. Overall, we're fully aligned to our plan to achieve 4 to 5 billion SEC of net savings to the P&L in 2023 and achieving a savings run rate of 7 billion SEC in 2024. Some of the initiatives, such as reducing premium freight and spot buys and reducing sourcing and logistics costs, are almost fully executed, with the P&L benefits occurring once older inventory produced at higher cost is consumed. We also have very good progress on stabilizing manufacturing output and improving productivity, mainly in North America, leading to reduced headcounts, with blue-collar reductions of 58% of the targeted reduction achieved in the quarter. Also, in other areas, we are progressing to plan, with 70% of the white-collar reductions achieved. Switching topics, sustainability is at the core of our strategy and a key element for our innovation. This is as sustainability is becoming increasingly a premium qualifier for our consumers. And through strong, consistent work, we have already in 2022, as one of the first companies globally, achieved ambitious 2025 science-based sustainability targets. And this is not just the right thing to do, but it also drives profitability, as our most sustainable products are also our most profitable. With the 24% of sales representing our most sustainable products, contributing 39% of our gross profit in 2022. And we know from research that 93% of consumers want to live more sustainably, and now we can provide consumers with a strong return on investment on their sustainable choices through lower energy bills. We're now in the process of setting new and challenging science-based climate targets for 2030. Let's have a look at our cash flow and liquidity today.

Cash flow after investments was negative 5.1 billion SEK in the quarter, which is very similar to last year, as we normally have a seasonal outflow in the first quarter. And as you remember, we significantly reduced the inventory levels in the fourth quarter, and this quarter has been very focused on stabilizing the inventory level while continuing to optimize raw material and component stock. This has resulted in a significant reduction in payables in the quarter, which is driving the negative cash flow. As we said in the capital markets update in March, our aim is to have a positive cash flow after investments for the full year in 2023. And looking at our liquidity and maturity profile. From a balance sheet perspective, we have solid liquidity with 28.7 billion SEC in liquidity, including revolving credit facilities as of the end of March. We have no financial covenants and we have a well-balanced maturity profile. And the 2 billion loan maturing in 2023 was repaid now in April. And the target is to maintain a solid investment grade rating by delivering on the cost reduction program and generating a positive cash flow after investments in 2023. And Anna Olsson-Leon, our Chief Commercial Officer, will now go into the business areas performance in Q1, starting with Europe.

Consumer demand was weakening in the quarter, and business area Europe had an organic decline of close to 5%, driven by a substantial decline in volumes. However, price carryover from pricing activities last year did offset some of that volume loss. The business area has a continued focus on driving sales related to the premium brands Electrolux and AEG, and a more premium product offer. This resulted in a positive contribution also this quarter. In the market, we're experiencing a polarization with some consumers mixing down, but yes, there are consumers in Europe striving for more premium and innovative products. Earnings excluding NRI for the quarter was 520 million Swedish kronor, which is a decline versus last year of close to 14%. The organic decline was partly offset by contribution from the group-wide cost reduction program. Most of the headwinds from external factors impacted the business area, including energy, labor inflation, and certain raw materials. EBIT margin excluding NRI came in at 4.6% versus 5.2% last year, a decline of 0.6 percentage points. Now, let's look at the European market. The market demand in Europe continued to decline throughout the first quarter, and was down 10% excluding Russia. Western Europe declined by 9% and demand in Eastern Europe by 18%. The market demand continued to also be at lower levels than before the pandemic, declining by 7% compared to the first quarter of 2019. The consumer confidence remained slow, with consumer demand being negatively impacted by the geopolitical tensions and the high general inflation in combination with increased interest rates really starting to bite. We assess the inventory levels at retailers as being at normal levels, but still being carefully managed from a working capital perspective, including order placement given the weak market. Let's continue with our business area of North America. The business area gained market shares in the quarter, on the back of increased volumes from the strong product offers in cooking, refrigeration, and dish. Price was flat, with the positive impact of last year's list price increases offset by higher promotional levels. The organic performance resulted in a growth of 4% in the quarter. The turnaround program that was initiated in the fall of last year contributed positive returnings in the quarter with traction in stabilizing manufacturing output and improving productivity in combination with structure cost savings. However, sales of products produced at last year's elevated cost levels continue to impact earnings negatively. Product mix was unfavorable in the quarter as last year's contribution was strong. The earnings for the quarter excluding NRI came in at a loss of negative 439 million Swedish kronor with a margin of negative 3.8% versus a positive 96 million last year. The turnaround program is also making progress in achieving stability across business processes and operational planning and execution. To conclude, as Jonas just mentioned, the turnaround program is progressing according to plan and is of highest priority. Looking at the U.S. market, the industry shipments of core appliances in the U.S. decreased by 5%, but increased compared to the first quarter of 2019 by 18%. High general inflation and increased interest rates impacted consumer sentiment negatively. and the reduced purchasing power started to show in consumers shifting to lower price points. Retailer inventories are assessed to be fairly normalized. Market demand for all major appliances, including microwave ovens and home comfort products, decreased by 10% year over year. So let's move on to Latin America. Latin America had a strong organic growth of 20% in the quarter. The volumes grew significantly with market share gains in Brazil and Argentina. Price and sales mix was also contributing positively to the organic growth in the quarter. From a market perspective, we saw decreased demand in Brazil and Chile. In Argentina, however, consumer demand was strong on the back of the hyperinflation environment. The strong organic contribution was also positively impacted by strong aftermarket sales. And the business area had a negative impact from carryover of last year's high cost levels, as well as additional headwinds from external factors. This effect was partly offset by contribution from the group-wide cost reduction program. So the earnings in the quarter came in at 236 million SEC and a margin of 3.8% versus last year of 85 million. Finally, turning to Asia Pacific, Middle East, and Africa. The business area had an organic sales decline of 5.5% on the back of decreased consumer demand resulting in lower volumes. Specifically in Australia, consumer confidence dropped with the market slowdown as a result. Mix was unfavorable as consumers mixed down within product categories. The business area had a positive price contribution, largely offsetting the negative impact from carryover of last year's high cost levels and increased currency headwinds. The earnings was positively impacted by contribution from the group-wide cost reduction program, and the EBIT for the quarter came in at 124 million CET, with a margin of 3.3% versus last year's of 284 million. And now I'll hand over to Jonas for the market outlook.

Thank you very much, Anna and Therese. We expect consumer sentiment in 2023 to be negatively impacted by high inflation in the interest rate environment, although with regional differences. In Europe, although energy inflation has not been as high as feared, overall inflation is running above prior assumptions. In the Asia-Pacific region, we see consumers in general less pressured by inflation and interest rates, although consumer sentiment in Australia has weakened considerably recently. 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 maintain our market outlook and expect demand for appliances in 2023 full year to be negative for Europe, for North America and Latin America, and neutral for the Asia-Pacific, Middle East, and Africa region 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 then look at the business outlook. The business outlook for year 2023 provided in the fourth quarter 2022 interim report remains unchanged. On the back of the market outlook, we estimate our volumes in 2023 to decline year over year, partly mitigated by mix improvements from our strong offering. 2023 will be another launch intensive year, although less so than in 2022. I'm very pleased with how well received the new products have been in 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 improvements from. Looking at price, We anticipate differences in the price dynamic for our business areas, given the regional variations in cost inflation and demand outlook. 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 in Q4 2022. This was also the case in Q1. 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 headwind. So far in 2023, the currency headwinds have accelerated. Although we foresee benefits from lower raw material costs, the positive impact on earnings is reduced as the higher share than normal of raw materials procured at last year's rate will be consumed in 2023. This is a consequence of higher inventory levels of supplies and reduced production rates in Q4-22. The outlook for external factors in the second half of 2023 is difficult to predict as 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 SEK from cost efficiency and reduced investments in innovation and marketing combined related to the group-wide cost reduction program and North America turnaround is reconfirmed. Total cost reduction 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 list price increases implemented a year ago will taper off and have mainly benefited the first month of 2023 for the group as a whole. And 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 more promotional intense regions. External factors are, just as Jonas mentioned, commented on, impacted by a higher share than normal of raw material produced at last year's rates, but will be consumed in 2023. This lag has predominantly impacted Q1 negatively, but will also impact Q2 to some extent. And finally, a few words of 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 costs for logistics 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, contract negotiations take place in the first part of the year and the new rates are implemented during the second quarter. Also relevant for the facing of this earnings contribution from a year-over-year perspective is that the baseline where cost efficiency and innovation and marketing combine last year was less negative in the first half of the year compared to the second half of the year.

So, to sum up the quarter and the strategic drivers that we've delivered on, the implementation of the group-wide cost reduction and North America turnaround program is progressing according to plan, and the underlying EBIT improved sequentially, driven mainly by business area North America. This is our most important priority this year. Our new product ranges continue to be very well received by consumers, And I'm very pleased that we, this quarter, gained market shares both in North America and in Latin America. For the group overall, we managed to keep mix in line with a strong quarter last year, despite the current market pressures with reduced consumer purchasing power. The aftermarket business is an important part of our profitable growth strategy, but this quarter increased sales well above our finished goods, aligned with our aim to reach approximately 10% of total group sales by 2025. With that, I leave the word to Sofie.

Thank you. So, we have now come to the Q&A session, so we will open up for questions. And you know the drill, one question per person, so we allow as many of you to be able to ask questions. And then, of course, if time allows, you are more than welcome to go back into the Q&A queue again. So with that, I leave the word to our operator. Please go ahead.

Ladies and gentlemen, we now begin the question and answer session. If you wish to ask a question, please press star 1 1 on your telephone. We are now taking the first question. Please stand by. And the first question for Andrew Cookin from Cadiz Swiss. Please go ahead. Your line is open.

Hi, good morning. Thank you very much for taking my question. Thank you for the details on the phasing of H1, H2 across the key drives of performance. I just wanted to check a bit further on that on the external factors on H1, H2 given that kind of timing effect from purchasing agreements and high inventory. Do you think there's a chance that those external factors are not a negative in the second half of the year?

So we don't get exact guidance on that, but let's look at the different elements here. So raw material like steel and plastics, we see a good chance of that turning positive in the second half of the year. However, the year-over-year impact of inflationary pressures, of currency, And also of energy, despite the energy pressure being a little bit less than we originally feared, it's still significantly negative year over year, also in the second half. So those pressures are significant also for the second half. So I think the focus shouldn't be too much on just the steel.

Got it. Thank you. If I may, just a very quick follow-up on something you said on the turnaround program in the US. The 58% reduction that you achieved in Q1, that's 58% of the total planned reduction for the year you've achieved in Q1.

Yes, yes, yes.

And I guess the rest in Q2?

Yeah, pretty much. There's one element that takes a little bit longer, and that is the consolidation of our production in Springfield. which will only happen towards the end of the year, where we will phase out the old factory and phase in the new one. But beyond that, it's mainly Q2.

Perfect. Thank you very much. You're welcome. Thank you. Thank you for your question. We are now taking the next question. Please stand by. And the next question from James Moore for Redburn. Please go ahead. Your line is open.

yes morning everyone um i'm hoping well i wondered if i could follow up from andre on the very complex moving parts behind profitability for the year and margins as we move across the year i mean when you i guess the overarching question is when you when you boil it all down do you think margins will demonstrate the normal seasonality as the year progresses but if you can't say that i wondered if you could talk about what the margin impact was in the quarter from the carryover of last year's costs in the first quarter, and what the savings run rate is in the first quarter versus what you expect for the full year. And also on mix, I mentioned it would be less this year than last year. Could you remind us what it was last year? I think you said that the capital market was 6 billion over three years.

I'm just trying to understand the space. So well done in putting that into one question. So we'll see if I can untangle it. So if we look at the... I mean, clearly there is a normal seasonal pattern to revenue and cash flow. The challenge, of course, is the year-over-year, to your point, where last year was a little bit of a... of a Tale of Two Cities where the first quarter of 2022 was still very much sort of driven by the, call it the post-pandemic logic, right? With relatively low cost and high demand and low promotional activity. Then, even though the underlying realities had already changed, that was kind of the flow through of inventory and all those things in Q1 of last year. You know, in Q2, we kind of started to get into this new paradigm with sharply lower demand and increasing costs while we were able to offset a lot of that through aggressive pricing. And we had positive mix to a point as well. So then as we go into this year, in Q1, we still very much have the same sort of paradigm. You know, high cost headwinds from still purchasing contracts at last year's levels, high inventories, and also the carryover impact of good price, of high price. And then, of course, year-over-year is then a quite negative demand environment that provides for the net reduction in earnings, if you will, year-over-year, as we mentioned. As we go through the rest of the year, the year-over-year dynamic changes quite significantly, where where we'll still see lower demand year-over-year in Q2, which is a clear drag. But as we go into the second half of the year, that natural demand element, unless something further changes, shouldn't be as big of a negative. At the same time, we start to cycle then the raw material cost drivers, if you will, with lower raw material costs starting to impact gradually in Q2 and beyond. Q1, we really didn't see any of that because we were still at the old prices. So that then turns more favorable. On the other hand, mirroring that, we also see year-over-year substantially higher promotional pressure, which is normal. We always talk about that, that the market tends to adjust to changes in input cost over time. So higher promotional pressure, lower lower pressure from raw material cost. But again, we still have these other inflationary items, both salary inflation, energy costs year over year still substantially higher, and quite unfavorable currency. So I understand that it's tricky to analyze these different elements, but if you basically say, yeah, there is a fairly normal sort of underlying seasonal pattern, And then you have to understand how these different year-over-year effects play out. And it's difficult for me to give more precise guidance than that, but hopefully that gives you a picture of how this will play out over the course of the year. Thanks, I'll try and work through it.

Thank you for your question.

We are now taking the next question. The next question from Bjorn Henderson from Danske Bank. Please go ahead.

Thank you. And I continue on seasonal pattern looking at the cash flow in the quarter. It looks like a normal Q1, but we also had coming from a very challenging quarter. So if you can talk a little bit about how you expect the different components in cash flow for the rest of the year. Thank you.

Yes, I think it's mainly then around working capital. And as you know, during last year, we wanted to bring down inventory, I would say, from the second quarter. And we then had a very, very high focus on doing that during the second half and then had a large reduction in the fourth quarter. As we mentioned then, we were still not completely satisfied with, let's say, our quality of the inventory. We had quite a good balance when it comes to our produced goods, but we still had the high component stock. As we said, it's also the main reason for the delay effect of getting to the cost efficiency. So, what we then said is that we will take some time now to recalibrate the inventory in a proper manner, so to say, to rebalance the taking down the component and raw material stocks. and thereby then getting through the cost efficiency to the bottom line. So of course this is what we are doing and we are still pleased in the cash flow with that inventory is kept on a total almost flat level compared to the ending point in Q4. Of course we should remember that this is still done in cash quite sharply negative market. So it still means that we are holding back on our purchases really to as well cope with the declining market. So what we saw here in the quarter was very much I would say that activity with us still holding back significantly on purchases and therefore payables has been a very high outflow in the quarter. Of course, with the inventory now becoming more and more rebalanced, that trend will also turn. So, in short, I would say we will also start building our payables. So, there's nothing underlying in changing payment terms or anything like this. I would say it's quite a normal seasonal pattern, of course, with some different dynamics, but As I said earlier on as well, we aim at having a positive cash flow after investments for 2023 and this will come gradually during the year.

Thank you. Thank you for your question. We are now taking the next question.

The next session from Gustav is from SEB. Let's go ahead. Your line is open.

Thank you, guys. This is Gustav. If I can turn to the pricing environment in the North American market, you say that inventories are rather balanced there, which in retail, which I assume will help your pricing position. But then again, we also see some input costs coming down year-over-year. So can you let us in a little bit on the discussion with the retail in terms of pricing? Do you see further campaign pressure into Q2, or has that eased sequentially? That would be helpful.

Yeah. This is Anne here. Maybe I can comment on that a bit. We did see, of course, here promotional activities normalizing in Q4 and from having been at lower levels prior to that. So that is something that we will continue to experience a year over year, you know, higher promotional activity, relatively speaking, but still on a normalized kind of level versus, I mean, if you think about it, pre the pandemic. We increased prices in the beginning of last year in North America and of course then the year-over-year effect will now of course be tapering off here also as Therese mentioned earlier. So that's the current situation.

We don't expect a sequentially big difference in a change in promotional activity right now.

Right, but a year-over-year impact of prices for the season. Yeah, yeah. Okay, thanks.

Thank you for your question.

We are now taking the next question. Please stand by. The next question from David MacGregor for Longbow Research. Please go ahead. Your line is open.

Yes, good morning, everyone. Jonas, congratulations on the progress in North America.

Thank you. For us as well.

I'm sure. I guess I wanted to ask about some of the higher cost inventories that have been transitioning, sort of the 2022 costs that were impacting 2023, cost of goods sold. What was the impact of the higher cost inventories on the first quarter margins, if you could quantify that? And then you mentioned the higher cost inventories transition out. to Q, what's the expected second quarter sequential benefit?

Yeah, so we don't, of course, give exact guidance of that. But if you look at the external factors in Q1 overall, a significant part of that was carryover effects. And also the fairly, you say, limited impact on on bottom line from cost reduction activities was significantly absorbed by the fact that we were selling inventory produced last year. So net-net, not much at all of the cost reduction activities or the lower raw material environment had a positive impact in Q1. But then on the flip side, we saw a very significant positive price impact. So that's for the group as a whole. Specifically in North America, it was even more of a negative year-over-year effect of raw materials because there we had very attractive prices in Q1 last year. and still having those sort of fairly unfavorable pricing environment impacting Q1 2023. So the year-over-year effect in North America of these factors was quite significant. But on the other hand, pricing had, you know, we had favorable list price effects, but the higher promotion environment still continued into Q1. So that's sort of the Q1 factor. If you then project that forward to Q2, we are... So we will start to see significant benefits of the cost reduction activities and also starting to see the lower raw material costs, even though that's sort of phasing in over the quarter. On the other hand, we see a full sort of wash through of the higher promotional activities in Q2 because we don't really have much year-over-year favorability from pricing anymore, as Anna mentioned. That's, to some extent, washing out. And the real sequential improvement should come from the impact of the cost reduction that we're driving. That's sort of the biggest sequential impact from Q1 to Q2 if you net everything out. So it's... Yeah, go ahead.

Sorry. Maybe just to ask the question maybe differently then, how much of the $4 billion to $5 billion of expected 23 cost savings you think are already in place as of today? You've achieved the headcount reductions.

Yeah, so that's what we tried to provide some light on, let's say, in the first slides here. So, again, on the logistics side, which was a significant headwind with all the inefficiencies we had last year, that is all done, right? P&L impact in Q1 was limited. Q2 is coming much more significant. Also, as mentioned in North America, the manufacturing stability is now by and large achieved, which is, again, last year we had a lot of disruptions, as you will recall, both from supplies and from our own production. That's basically behind us as well, which means that we've been able to take out a lot of production shifts that were very inefficient last year because we are now able to just produce in a smooth manner. So that's where a lot of those, the 58% of the total headcount reduction target received in Q1 is coming from that stability effect. So both of those factors will favorably impact Q2 in 2023. So that's the main sort of net benefit going forward. going sequentially. Most of the other things are sort of washing out between cost and net price.

Thanks for that Jens.

Thank you for your question. We are now taking the next question. The next question from Martin Wick from CT.

Please go ahead. Thank you. Good morning. It's Martin from Citi. I have a question on market share, and it might be part of the next question as well. It looks like you had some good benefit from new product launches in the quarter. You've also talked about some market share gain. I think during the course of the supply chain shortages, there were some market share losses from some players, including yourselves, simply because you couldn't place the product that you wanted because of shortages and presumably the reversal of that as supply chain ease, but knowing that you have your own product launches as well. I was wondering if you could just talk through those two dynamics and to what extent they both added up to some share gain. And relative to where we were pre the shortages, and I understand it's very different from country to product and so forth, but is your share generally back to where it was before we had all these product shortages? Thank you.

Yeah, so if you look at the biggest sort of year-over-year release of availability happening in North America, because there, as you recall, we had just a very, very challenging period last year. And the fact that we're now pretty much full availability gave us the opportunity to recover a big chunk of the market share lost during that. during the challenging period. There are some categories here and there that we have, if you will, let go of a bit on the air con side and so on. We've talked about that previously. So there is a structural reduction of sales there of some unprofitable categories. But beyond that, we're recovering a lot. Same with Latin America, very strong recovery of previously lost market share. Europe is a little bit different because there, as you recall, we are in this continuous process of mixing away from our low-end tactical brands into our more premium brands. So we tend to look a little bit less at volume share there and more at sort of the quality of the value share. And there we're, as mentioned, Diana, we're delivering positive mix and strong price in the quarter. So it's less about the volume. It's more about the quality of revenue there. which has improved significantly now that we have more availability and more to come there, as we also, as Therese mentioned, have worked hard on rebalancing our inventory to be more aligned with market demand in Europe, with, as you know, obviously a fairly complex environment with many different markets there. So, overall, very pleased with the recovery in North America, Latin America. Europe's slightly different focus. And then APAC, we are, I would say, by and large holding market share, but in a challenging market in our important Australian market in particular. So the market there is challenging, which kind of overall region perspective is a negative mix and volume driver for us as we are more dependent on Australia than other bigger Asian markets in general.

Thank you. Just to drill into that European piece, I mean, obviously you've got a lot of new product lineups, as you say, tilting more towards AEG and some of these premium brands. If you could put a sort of percentage on how far along that journey you are, I mean, yeah, I know there's still more to come, but are you sort of halfway through that product refresh, or how should we think about where you are in that?

Yeah, no, it's frankly a continuous journey for the last 10 years, effectively. And... We come from a starting point where we were kind of sort of half-half, sort of middle of the market position with half of our volume coming from the more sort of mass price points and half from the more mass premium price points. And now I would say that exposure to the mass market is probably down by 60-70% compared to what it was 10 years ago, and in the meantime, we've also gained substantial share in the premium end, certainly value share. So we're, I would say, a good part of the way through that, but that doesn't mean the mix journey per se is over, and it's because there's two different elements. One is to say, let's sell less of our mass market, private label, tactical brand product, and more of our premium, That's one sort of mix element. The other mix element is let's innovate and bring more innovative, high-featured, attractive products in the premium brands. And there we have much more runway to go. And that's where these new investments are playing in. So the first piece, we've done most of it. The second piece, we have a long runway to go. Anna, would you add to that?

No, I think it's very clear. And of course, the The MIX journey will continue with new product launches and innovation coming.

As well as growth in the aftermarket business, which is a significant sort of, as we reported as part of MIX, in Europe in particular, we have a very good traction. Great, thank you very much.

Thank you for your question. We are now taking the next question. And the next question from Hakash Gupta from JP Morgan. Please go ahead. Your line is open.

Yes, hi. Good morning, everybody, and thanks for your time. My question is on utilization rate and operating leverage in manufacturing, and I'm wondering if you can comment on that. I mean, last year you had high production rate or utilization rate, which you tapered down in the second half when demand was coming down, and Since then, we have seen slower, weaker volumes. So maybe if you can say where we are and when we look at the bridge, the impact of operating leverage, any comment that you can provide us there that would be helpful. Thank you.

Yeah, I mean, clearly the operating leverage is impacted by the lower demand environment. That's very clear. And that's all in line with what we what we saw and what we predicted when we initiated the cost reduction program in the fall of last year. So the work we're doing to take out shifts and to reduce our cost envelope is all driven by the fact that we have a lower demand environment and in combination with the fact that we need to take out all these inefficiencies that we had coming out of the pandemic. So yes, operating leverage is negatively impacted, but we're compensating for that with the cost takeout.

Thank you. Thanks. Thank you for your question.

We are now taking the next question. The next question from John Harrison from Cadre Chevreux. Please go ahead.

Good morning, Jonas, Therese, Anna, and Sophie. This is Johan at Capital Chevreux. I was just wondering about the market share gains you talk about. In North America, Whirlpool sort of alluded to regaining one percentage point, so are you in the same ballpark? And then in Latin America, is the market share gains you mentioned there also just a reflection of better supply or is your dual branding strategy introduced in Brazil some time ago starting to yield some structural benefits there as well? Thank you.

We don't give exact market share data but because it's just not very reliable frankly but I think, although I hate to speculate about other players, but I would say that the incumbents, like us, were quite heavily impacted by the supply shortages in the post-pandemic period, and some of our Asian competitors less so. As we now have full supply, and I assume most of our competitors do as well, it's sort of normal to see that a little bit adjust back, you know, and for us to regain market share both in North America, which is again heavily impacted, Latin America, which was impacted but less so, and in Europe for our premium brands as well. Now, the very good news in both North America and in Latin America is that we are seeing very, very good traction on our new and premium products that we're launching in both those regions. So we talked about that extensively during our capital markets day. The new products that we're launching in North America are market-leading in terms of consumer star ratings. So we have very, very good ammunition firepower to fight to retake those lost market shares particularly in the more premium, mass premium end of the market. Then specifically in Brazil and Latin America, as we're now launching new cooking and refrigeration products, we are, to your point, doing that with a dual brand approach. So the Continental brand that we acquired a number of years ago, we now have let's say, better product coverage for in line and in combined with very solid new products under the Electrox brand. So I think we're well positioned also in Latin America. But again, a lot of this was recovering lost volumes that we had because of these temporary supply challenges that we experienced. So it's a little bit difficult to piece apart which part of this is purely timing and which part is driven by the very attractive products that we're launching. But certainly we feel good about both of those.

Okay, good. You have to find out on the inventory. You said in Q4 that you were where you wanted to be on your finished goods the problem was with the components. Are you still sort of quite okay on your own finished goods inventory levels and the issue is still on the component part in the inventories today?

Yes, and I think even what we talked about in the Q4 release was that we actually saw that we were going to rebuild some of the inventory here on the finished goods side in the first quarter to kind of work ourselves through the component reduction. And that we have still managed not to do. So, yes, I can definitely confirm that we are where we would like to be on the finished goods produced side.

Okay, thank you. Thank you for your question. We are now taking the next question. Please stand by. The next question from Kerry Winter from Henze Bank. Please go ahead.

Yes, thank you. Good morning. I was curious about the sequential improvement in North American profitability, an improvement of 800 million while sales were down. I saw that you had some comments about this in the report, but can you give us some more color on the most important drivers behind this improvement and how should we think about those drivers going forward?

Clearly, Q3 and Q4 of last year were some of the worst performing quarters in North America. They were the worst performing quarters that we've ever seen. as a consequence of this compounding impact of very, very high inefficiency, high cost, and the sort of high promotional pressure. So the baseline is, of course, extremely stressed. And a lot of what we're seeing here in Q1 is more, again, a normalization, where promotional pressure is normal, but not excessive. we're starting to see just a more disruption-free production and supply. So I think that's very good. We're starting to see the benefits of reducing inefficient shifts in our factories, very inefficient logistics and ocean freight. So that's all moving ahead as planned. Having said that, we're still not happy with the results in North America overall, and we have a lot of additional efficiency gains to materialize that are progressing well. And, of course, we have these fantastic new products that are driving favorable mix and a stronger market position. But that is a step-by-step improvement game.

Great. And then very quickly on cash flow. In the last two years, you have had positive operating cash flow after investment of roughly $1 billion in the second quarter. Should we expect something similar this year as well?

I think we don't give that type of guidance. But, I mean, as you can imagine, then we have negative five billion here in the first quarter. And we are aiming at getting to a positive cash flow after investments for the full year. So, of course, yeah, gradually the cash needs to turn, let's say, in the coming quarters. And it will.

Perfect. Thank you. Thanks.

Thank you for your question. We are now taking the last question. And the next question for Olof Chedron from ABGC.

Please go ahead.

Your line is open.

Hello, everyone. It's Olof from ABG. Just returning very quickly to the price mix relative to external factors. You've said that know lots of things promotional activity worsening throughout the year etc um you've been a little cautious there but the you know the the gap between price mix and external factors was one billion negative in q1 um i would assume that this gap will narrow um is and it should narrow significantly is is that a correct assessment

First of all, we don't give detailed guidance on that, but let me just clarify one thing, and that is that the 1.2 billion of favorable organic contribution includes a significant negative component of volume. So price in itself was actually not far from fully compensating for the external factors. So as we mentioned, we had relatively flat mix, quite negative volume, and quite positive price. So that equation that we said that price partially offset our external factors as a full year outlook, Q1 was in that ballpark and the rest of the year will be in a similar relationship, where again, Europe, APAC and Latin America more or less fully offsetting and North America not doing that because of the higher promotional activity. And that's sort of the picture both for Q1 and for the rest of the year.

And I mentioned earlier in the presentation the price mix on the bottom line was 6.1% and the external factors was negative 7.1%.

Okay, excellent. That's a good explanation. If I then may, with one minute left or 20 seconds left, ask about the volume facing throughout the year. We heard some of your competitors talking about stabilizing demand in the second half of the year. That was maybe more about North America, but what's your view there? It seems like the decline has troughed and it's getting slightly, the cons are getting easier, etc. What do you say on volumes from here?

Q2 still has quite a bit of year-over-year pressure, whereas the second half of the year is more balanced in most markets. Excellent.

Thank you so much.

Thank you. And then to summarize, we have in this challenging market environment with high levels of volatility and uncertainty, delivered on our priorities in the quarter that we set forth. And we continue to progress in line with our solid long-term strategy for profitable growth. With that, I thank you all for a good session and look forward to seeing you soon again.