Electrolux AB

Good morning and welcome to the second quarter 2023 earnings presentation. My name is Jonas Emerson and with me today I have Therese Fridberg, our CFO, Anna Olsson-Leon, our Chief Commercial Officer, and Sofie Arnjus, our Head of Investor Relations. I'd like to mention that this session is recorded and will be available on our website as an on-demand version. Before we go into our performance in the second quarter, I'd like to take this opportunity to say a few words about the announcements we made earlier this morning. As a pure consumer appliance company, after the spin-off of our professional business in 2020, we're continuing our work to sharpen our strategic focus to grow profitably in home appliances in the mid and premium segments, primarily under our main brands, Electrox, AEG and Frigidaire. We have therefore initiated preparations to divest non-core assets with total potential value of approximately 10 billion Swedish kronor. This includes Zanussi and other non-core brands, water heaters in Egypt and South Africa, and also certain non-strategic real estate. Although the water heater businesses in Egypt and South Africa have developed well and are profitable, and the brands we are now looking at divesting are all well known in their respective markets, these assets do not have sufficiently strong synergies with our core strategy to warrant the required focus and investments from Electrolux. Therefore, we believe in the opportunity for greater value creation and growth under different ownership. In addition to an increased focus on core brands and categories, as well as complexity reduction, the intended divestments will provide resources to execute our strategy at speed and scale, as well as supporting the work to optimize our capital structure. We're currently experiencing a challenging macro environment, in which focus and strategic portfolio management are more important than ever. Therefore, we also evaluate further structural simplification and complexity reductions in order to execute our strategy with focus, scale, speed, and lower costs. This requires us to make tougher choices on where to invest in innovation, manufacturing technology, digitalization, branding, and distribution, and where to reduce or exit. It's too early to communicate on what choices we will do, and it is vital that this review is done thoroughly so we will not rush it, even if the intention is to keep a high pace in our work. We will share more information once ready to do so and cannot speculate on timing, areas impacted, etc. So, let's go into our performance in the second quarter 2023. The market environment continued to be weak, with lower consumer purchasing power, As a result, our volumes dropped significantly and our organic sales declined. The market was particularly challenging in the key category built-in kitchen in Europe. In light of this, I'm pleased that we managed to keep Mix flat in the quarter thanks to our attractive offering. Price was somewhat positive as the contribution from this price increases last year tapered off sequentially and promotional activity increased significantly year over year. Despite the significantly lower volumes, the underlying EBIT was in line with last year. The group-wide cost reduction and North America turnaround program continued to progress well and generated a substantial step up in savings sequentially. Our number one priority this year remains to deliver on this program, and I will later in our presentation come back on the progress more in detail. Raw material cost was neutral year over year, But deteriorating currency and higher cost inflation from labor and energy resulted in a combined headwind from external factors that to a significant extent was offset by price. EBIT included a non-recurring item of 643 million negative, mainly related to a provision for the French antitrust case. Therese will now take us through the main drivers behind the change in operating income.

Yes. We had a negative organic contribution to earnings in the quarter driven by a significant volume decline year-over-year as a result of large demand drop in most of our main markets. Price was positive year-over-year despite that promotional activity was back on normal levels. And this was based on price realization mainly from increases during last year, which also means that the year-over-year increase sequentially reduced compared to the first quarter. We managed to have a flat mix in the quarter despite consumers mixing down to lower price points and specifically weak demand in built-in kitchen in Europe. Mix was still back flat on the back of strong product innovation. Our investments in consumer experience innovation and marketing decreased as a result of implementation of the cost reduction program. And we saw very positive cost efficiency in the quarter with strong traction on the cost reduction program where Jonas will come back on the progress on the different components. Price was almost offsetting the negative external factors. And external factors here, besides raw material that was neutral or slightly positive, is impacted by the negative currency and headwinds related to labor inflation and energy cost increases. Also for the external factors, the effect was less negative year over year compared to what we saw in the first quarter. And now let's take a deeper look at our price and mix developments. The EBIT margin accretion for the group from price and mix was 2.2 percentage points. This was mainly a result of positive price year-over-year, while mix was, as mentioned, essentially flat in the quarter. If we look at the business area, in Europe, we had a positive price on the back of increases done during 2022, and some additional increases implemented going into 2023 to offset the inflation. Sequentially, the year-over-year increase is reducing. The positive mix from focusing on our premium brands and strong product innovation is in the quarter offset by consumers mixing down, which is generating a slightly negative mix. In North America, the promotional activity was high, and the effect is more than offsetting the positive effects from the price increases made during last year. Mix was flat in the quarter. In Latin America, the price development was positive, mainly related to price increases done during 2022 and continuous increases in Argentina. In Brazil, the promotional activity continues to be back on a normal level. MIX is positive based on successful product launches and growth in aftermarket. Also in Asia-Pacific, Middle East and Africa, we had a positive price year-over-year related to increases during 2022 and additional increases in Egypt to reflect. offset the inflationary pressure. Mix was slightly positive, driven by product availability being fully recovered compared to a year ago. The group-wide cost reduction and North America turnaround program is progressing well, and Jonas will now give an update on the progress.

As indicated, we are ahead of plan in terms of cost reductions, with cost reductions of 1.6 billion SEK impacting the second quarter. We had very good progress on supply chain cost, both through better efficiencies, much lower express logistics, and significantly improved rates, particularly on ocean transportation. Production output is now generally stable with improved efficiency, and 82% of targeted blue-collar reductions have been implemented. The big task right now is scaling up the new cooking factory in Springfield, where most of the new products have been launched and are scaling up while we're ramping down the old factory in the second half. Our structural cost reductions are also progressing to plan, with most headcount reductions implemented or announced. We're therefore confident that the year-over-year positive earnings contribution will be at least 5 billion SEK in the full year 2023, an improvement compared to our previous year of 4 to 5 billion SEK. And we're accelerating cost reduction activities to achieve above our 7 billion SEK target for 2024 compared to 2022. Let's have a look at our cash flow and liquidity interest.