Electrolux Capital Markets Day 2012 - Presentation Keith McLoughlin and Tomas Eliasson

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Electrolux Capital Markets Day. November 14, 2012, Stockholm, Sweden. Together with senior management, the President and CEO of Electrolux, Keith McLoughlin will present the Group’s strategy to create further sustainable economic value at today’s capital markets day.

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Electrolux Capital Markets Day 2012 - Presentation Keith McLoughlin and Tomas Eliasson

  1. 1. Agenda Electrolux Capital Markets Day, November 14, 2012SESSION 1 Keith McLoughlin, President and CEO09:00 – 10:30 Tomas Eliasson, CFO10:30 – 10:45 BreakSESSION 2 Jan Brockmann, Chief Technology Officer10:45 – 11:45 Alberto Zanata, Head of Professional ProductsSESSION 311:45 – 12:15 Q&A12:15 – 13:00 Buffet lunchSESSION 4 The Innovation Triangle13:00 – 16:30 MaryKay Kopf, Chief Marketing Officer Jan Brockmann, Chief Technology Officer Stefano Marzano, Chief Design Officer Electrolux Grand Cuisine Carina Malmgren Heander, SVP Electrolux Grand Cuisine and team Product Launches in Europe Jonas Samuelson, Head of Major Appliances Europe, Middle East and Africa and teamSESSION 516:30 – 17:00 Q&A and Wrap-up
  2. 2. Key takeaways• In a difficult environment, we are delivering on all objectives that were communicated at last year’s Capital Markets Day: top-line growth, launches of new products, leverage from the Innovation Triangle and operational excellence.• In the afternoon workshops, you will get tangible evidence on how Electrolux has changed over the last years: how the Innovation Triangle operates, leverage from our Professional heritage through the launch of Grand Cuisine and discover the new range of high-end Electrolux products for the European market. Walk the talk
  3. 3. Capital Markets DayStockholm, November 14, 2012Keith McLoughlin, President and CEOTomas Eliasson, CFO
  4. 4. Electrolux Grouppresentation• Business update• Strategic review• How to maximize and sustain our cash flow generation 1 Growth Organic Acquisitions 2 Gross margin Product innovation Operational excellence 3 Asset velocity Working capital improvement Capex 4 Tax and financial net• Summary 5
  5. 5. Business update 6
  6. 6. This is what we said inthe beginning of the year • Less headwind from • Volatility / Uncertainty commodities • Currency fluctuations • Price increases • Weak core markets • Product launches (mix) • CTI + Olympic Group Full Year • Global Operations / Modularization • Investing in profitable growth (CapEx) • Investing in Marketing, Design and R&D • Maintain Balance Sheet Strength 7
  7. 7. 2012 so far (Jan-Sept)Organic growth EBIT increased to Intensive launch Solid cash flowabove our target: SEK 3,554m period4.6% • 5 of 6 sectors • Europe: high-• Strong volume ≥6% margin in Q3 end appliances 3,333 growth in Latin • Europe: Lower under the SEKm America and Asia prices and Electrolux brand• Price increases negative country • Globally: launch in North America mix of Electrolux• Negative organic Grand Cuisine growth in Europe in London 8
  8. 8. Our six business areas EuropeNorth America Asia/Pacific Latin America Professional Products Small Appliances 9
  9. 9. Executing in a tough environment 10
  10. 10. Weak demand in North America…Full year expectation flat to down 1% US quarterly volume growth y-o-y15%10% 5% -4% FY -2% YTD 2011 2012 0%-5%-10%-15%-20% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2006 2007 2008 2009 2010 2011 2012 11
  11. 11. …but earnings improvementfor Electrolux• Price • Currency • Commodities• Market share • Mix • Transportation and sourced products 0 12
  12. 12. Negative demand in Europe… Full year expectation of flat to down 2% Quarterly volume growth y-o-y 10% 5% -2% YTD 2012 0% -5% -10% -15% -20% 2006 2007 2008 2009 2010 2011 2012 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3W. Eur. +4 +1 +1 +5 +1 +1 -1 -5 -4 -4 -5 -8 -9 -9 -4 -2 +1 0 0 0 -2 -2 -3 -3 -2 -4 -2E. Eur. +1 +9 +6 +7 +14 +5 +5 +10 +6 +5 +4 -15 -31 -30 -26 -17 -7 +1 +5 +13 +13 +12 +7 +9 +5 +3 +2Market Development % 13
  13. 13. …and price/mix isdown for Electrolux• Operational • Volume • Price/mix Excellence • Commodities• Market share 0 14
  14. 14. Latin AmericaStrong organic growth of 20.4% YTD YTD Mix Positive customer and product mix 5% Strong volume growth mainly due to Volume incentive program in Brazil 14% Price Price increases in Brazil 2%Strong development in Latin America with positive contribution from CTI acquisition 15
  15. 15. Business areasProfessional Asia/Pacific Small AppliancesProducts • Continued strong • Weak start of the year• Stable margin in a growth in China and Southeast Asia • Seasonally stronger tough market in Q4 • Solid margins in Australia, soft demand 16
  16. 16. Strong momentum - YTD +10% Top line - YTD +40% Bottom line
  17. 17. Bridge of sales and EBITYTD 2012 Nine Sale of Nine Net organic Acquisitions/SEKm months Currency assets months development Divestments 2011 and other 2012Net sales 73,229 3,355 190 4,035 80,809Net sales % 4.6 0.3 5.5 10.4EBIT 2,539 969 -80 266 -140 3,554EBIT % 3.5 28.9 -42.1 6.6 4.4Dilution/ 1.1 -0.1 0.1 -0.2Accretion % 18
  18. 18. EBIT bridge2012 YTD (SEKm) 5 000 4 500 4 000 4.6% 4.4% 3 500 3 000 3,500 3.5% 2 500 2 000 2,500 1 500 1 000 500 0 2011 Price/mix Volume Raw material Cost saving Organic Currency Acquisition Divestment 2012 YTD Efficiency development YTD 19
  19. 19. Cash flow YTD 9 months 9 months SEKm 2011 2012 Operations 4,185 5,338 Change in operating assets 653 1,257 and liabilities Capital expenditure -3,070 -3,262 Cash flow from operations 1,768 3,333 20
  20. 20. Will momentum continue next year?
  21. 21. 2013 over 2012In accordance with forward-looking statements around Q3earnings release and previous official statements 2013 Comments Growth in emerging markets and North America. Market volumes Positive Great uncertainty in Europe and Australia weak. Price/Mix Positive Product launches in all business units. Steel: Positive Raw-material costs Tailwind Plastics: Negative Increased R&D spend Group-wide. R&D and marketing Higher Electrolux launches continue in Europe. Launches in China. Global operations, manufacturing footprint Cost savings SEK >1bn and overhead reduction. Transportation and Higher Cost increases for logistics and transportation. logistics 22
  22. 22. The core strategy is the same…
  23. 23. A consumer marketingdriven company Consumer marketing driven Growth company Innovation Operational Excellence People Manufacturing engineering company 24
  24. 24. Four strategic pillarsProfitable Innovation Operationalgrowth – Product excellence – Brand – Design People 25
  25. 25. Addressing drivers and trends in our offering is imperative DRIVERS GrowingNeo-urbanization Changing lifestages Connectivity Sustainability middle class TRENDS Eco for the Time, experience, Hyper-The smart home masses tradition are luxury ersonalization Professional A new quality Co-consumption consumers standard ELECTROLUX IMPLICATIONS The modern consumer is tech-savy, empowered, socially conscious, and consequently demanding. The companies that succeed in addressing the empowered lifestyle stand to set themselves apart from competition. Capturing the prevailing trends in its product and service offerings will help make Electrolux a customer-centric company. 26
  26. 26. Electrolux competitiveadvantages Glocal presence Consumer insight Design Professional legacyScandinavian heritage Wide product range Sustainability leadership People & culture 27
  27. 27. Growth will come from value share incore markets and expanding in emergingmarkets, new channels and adjacencies Emerging Markets New Products and MARKETS/ CHANNELS New Channels Markets / Channels Existing Electrolux New / Adjacent 2011 Products Categories Enhance Products/ Ranges Existing New PRODUCTS 28
  28. 28. Will pursue the alignment of our brandarchitecture, connecting business modelsto brand, product and distribution EU NA LA APNICHEPREMIUM (Australia)MASS (Brazil) (Australia) Tactical Brands 29
  29. 29. Will pursue our dual businessmodel while leveraging global scaleand operational synergies Shared global strength Sharp customer focus Premium Benefits of scale in: • Manufacturing Focus on differentiated • R&D branded product offer • Purchasing • Modularization Low cost, • Common processes lean go-to-market and shared services Market set price Mass 30
  30. 30. Recognition ofsustainability leadership Sustainability sector leader in the world (2006–2012) Component of the World’s Most Ethical Companies (2011–2012) 31
  31. 31. Attracting, retaining and developingthe best people is fundamentalin realizing our strategic objectives Values Passion for Innovation Customer Obsession Drive for Results Foundation Respect & Diversity Ethics & Integrity Safety & Sustainability 32
  32. 32. Four strategic pillarsProfitable Innovation Operationalgrowth – Product excellence – Brand – Design People 33
  33. 33. How will Electrolux createsustainable economic value?
  34. 34. Value creation potential EBIT Margin >6% ROIC GROWTHCapital Turnover >20% 4% 4x 35
  35. 35. 1990-2011 Total shareholderreturn: 15% Cash flow productivity 13% Top line 1% TSR 15% CAGR Margin 0.5% Multiple 0.5%Source: BCG 36
  36. 36. A strong track record ingenerating a solid cash flow SEKm Operating cash flow (rolling 12 months) 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2008 2009 2010 2011 2012 37
  37. 37. Even in a tough environment we areable to sustain a strong cash flowRolling 12 month cash flow statement(SEKbn) 1 Growth; organic and acquisitionSales 109 2 Gross margin: Product innovationEBITDA 8.3 and operational excellenceChange in working capital 1.7Other 0 3 Asset velocity: Further potential to improve WC and capexCASH FLOW FROM OPERATIONS (CFO) 10.0Capex -4.7 4 Optimizing our tax positionFinancial net and tax -2.2 and leveraging from being a BBB+ companyCFO AND INVESTMENTS 3.1 38
  38. 38. 1Growth strategy Organic growth - Emerging markets - Core markets - Product launches Acquired growth
  39. 39. Electrolux strategic growth initiatives EMEA NA LA APAC Prof. SA Geographic expansions Segments/channelsGrowth Product expansion M&A 40
  40. 40. Organic growth Emerging markets Core markets 41
  41. 41. Growth history Net organic sales growth (in comparable currencies) 5% 4% Target 0% -5% 2006 2007 2008 2009 2010 2011 42
  42. 42. Emerging markets 43
  43. 43. Growth in emergingmarkets 44
  44. 44. Profitable growthElectrolux exposure to emerging markets % of Group sales Emerging markets 50 40 35% 30 20 15% 10 0 2006 2012 YTD 45
  45. 45. Electrolux growthin BrazilElectrolux Net sales in Brazil(SEKm)16 000 14,633 CAGR: 20% 2012 YTD +22% 2,858 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 46
  46. 46. Electrolux growth inSoutheast AsiaElectrolux Net Sales Southeast Asia(SEKm) 2,500 CAGR: 11% 2,000 2012 YTD 1,500 +21% 1,000 500 0 2007 2008 2009 2010 2011 47
  47. 47. Fully utilizing organic growth opportunity– more than half of our sales could be in emergingmarkets by 2017 Today Growth 2017 Mature markets Mature markets 1-2% 50% 65% Emerging Emerging markets 7-10% markets ~50% 35%Note: Estimated figures 48
  48. 48. Core markets 49
  49. 49. US recovery?
  50. 50. Recovery in North America k units Market volumes in North America 60 000 Down 25% 55 000 from peak 50 000 45 000 40 000 35 000 30 000 25 000 1990 1995 2000 2005 2010 51
  51. 51. USA:Financial obligations andinventory of unsold homes% Household financial obligations ratio months United States, Inventory of unsold homes (Debt payments to disposable personal income)18 14 Existing- home17 12 sales, months supply of homes 10 on market16 815 6 New home14 sales, ratio of 4 houses for sale to houses sold13 2 90 92 94 96 98 00 02 04 06 08 10 12 02 03 04 05 06 07 08 09 10 11 12 Source: Reuters EcoWin 52
  52. 52. USA:Low interest rates % US mortgage rates at record lows 8 Home mortgage 7 30yr Jumbo national average 6 5 4 Conventional 30yr mortgage rate 3 2004 2005 2006 2007 2008 2009 2010 2011Source:FRB, Haver Analytics, Blomberg Finance LP, DB Global Markets Research 53
  53. 53. USA:Homebuilder sentiment Share of Index Homebuilder sentiment index suggests that housing GDP, % could add 1.5% to GDP over the next 12 months 84 7 Residential investment as a 6 65 share of GDP (rs) NAHB: 5 Homebuilder 46 sentiment index (12 m lead, Is) 4 27 3 8 2 02 03 04 05 06 07 08 09 10 11 12 13 54
  54. 54. USA:Unemployment % Total unemployment 10 9 8 7 6 5 4 3 90 92 94 96 98 00 02 04 06 08 10 12Source: Reuters EcoWin 55
  55. 55. Recovery in Europe? k units Market volumes in Western Europe 90 000 85 000 Down 16% from peak 80 000 75 000 70 000 65 000 60 000 55 000 50 000 1990 1995 2000 2005 2010 56
  56. 56. Germany:Consumer confidence Index Germany, consumer surveys, ICON consumer confidence index, SA, Index 90 110 100 90 80 70 96 98 00 02 04 06 08 10 12 57
  57. 57. Euro area:No growth in disposableincome %, yoy Euro area real household income and spending 3 2 Real disposable income 1 0 -1 Real consumption spending -2 2006 2007 2008 2009 2010 2011 2012 58
  58. 58. Launchingnew products 59
  59. 59. ElectroluxInspiration Range
  60. 60. ElectroluxInspiration Range 61
  61. 61. Zanussi Quadro
  62. 62. AEGNeue Kollektion
  63. 63. Frigidaire
  64. 64. UltraPower 65
  65. 65. Electrolux GrandCuisine launch 66
  66. 66. Above the targetin 2012 Net organic sales growth (in comparable currencies)Financialtarget 4% 4.6% YTD 2006 2007 2008 2009 2010 2011 2012 YTD 67
  67. 67. Acquired growth 68
  68. 68. Acquisitions = integratedpart of the growth strategy Emerging Markets New Products and MARKETS/ CHANNELS New Channels Markets / Channels Existing Electrolux New / Adjacent 2011 Products Categories Enhance Products/ Ranges Existing New PRODUCTS 69
  69. 69. Global major appliancemarket still very fragmented Whirlpool Electrolux >40% are Haier Others smaller companies BSH LG Midea Sanyo Samsung Mabe GE Sharp Indesit Panasonic Arçelik 70
  70. 70. Key success factorsDeal flow In house M&A key Ownership What to pay competencies• Short term you can • Be in control • Don’t mix up • Up-front, earnout, slow down if there corporate expertise firepower are too many – but in M&A processes short term it is with future difficult to ownership of accelerate if there acquired are too few... companies 71
  71. 71. Acquisitions ofCTI and Olympic Group 72
  72. 72. Acquisition ofOlympic Group – Egypt Olympic Group’s position • Normalized sales of around SEK 2.5bn • Leading in Egypt, North Africa and Middle East • Complementary product portfolios and strong position in water heaters • 30 years of cooperation with Electrolux • 7,000 employees • Strategic fit • Financial fit 73
  73. 73. Acquisition of CTI– Chile and Argentina Juárez Snapshot of Combined Business  Combined Electrolux sales in Latin America of SEK 20bn Manaus  Leading in Brazil and Southern Latin America  Strong brands and complementary product portfolios São Carlos Curitiba  Seven manufacturing facilities Cerrillos Rosario  >12,000 employees Maipú  Strategic fit  Financial fit 74
  74. 74. Total growth YTD 2012 Net sales growth (in comparable currencies) Total 10% YTDFinancialtarget 4% 2006 2007 2008 2009 2010 2011 2012 YTD 75
  75. 75. 2Gross margin Product innovationOperational excellence
  76. 76. Product innovation 77
  77. 77. Accelerate innovationand time to marketIncreased focus on the Innovation Innovation TriangleTriangle, new members ofGroup Management1. Develop best-in-class products2. Speed up product innovation3. Continue investing in premium brands R&D 78
  78. 78. Develop best-in-class products• Identify consumer needs and segments• Develop products with innovative design and relevant functionality• 70% preference rule
  79. 79. Speed up product innovation• Accelerate consumer insight- driven differentiation• Front-end loading and parallel development• Modularization Product Creation Process Primary Product development development 70%Strategic Consumer Launch Range Phase-market plan opportunities Concept Commercial execution management out consumer development launch preparation preference Intent Commercial Launch Process 80
  80. 80. Investments inpremium brands • Align Electrolux brand architecture and position globally • Invest in premium brands across all markets • Leverage our expertise in the professional business 81
  81. 81. Operational excellence
  82. 82. Operational excellencePresented November 2011 Total annual savings: SEK 5.3bn One-time costs: SEK 5.1bn Savings from Savings from Savings from Manufacturing Global Overhead footprint Operations costs 1.6 3.0 0.7 Full effect 2016 83
  83. 83. Manufacturing footprint
  84. 84. StatusCurrent status Electrolux journey since 2004• Total costs: SEK 9.1bn • 19 factories closed – Booked as items affecting • 5 factories downsized comparability • 9 new factories – Cash out: SEK 6.1bn – Write downs: SEK 3.0bn • Approximately 35% of production moved• Annual savings of SEK 3.2bn (since 2004) • 10,000 employees has left• 65% of capacity in low cost • 7,000 new employees hired areas 85
  85. 85. Restructuring timeline – Costs SEKm 10,000 LAssomption, Canada 1,000  Webster City, US 1,100 50  Alcalà, Spain 1,600 Nuremberg, Germany 400 400  Revin, France 400  Mariestad, Sweden 2,500 9,150  Schwanden, SwitzerlandGreenville, US 1,700 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total YTD 86
  86. 86. Restructuring timeline –SavingsSEKm3,500 250 600 500 200 3,250 1,700 0 2008 2009 2010 2011 2012 Total Forecast 87
  87. 87. Restructuring timeline –Manufacturing in low cost areas Percentage of Capacity in LCC 65% 62% 53% 55% 51% 43% 39% 31% 28% 2004 2005 2006 2007 2008 2009 2010 2011 2012 88
  88. 88. New production centers Eastern Europe Asia North America South America Middle East Africa • Reducing global manufacturing costs • Supporting strategic growth areas 89
  89. 89. Manufacturing footprintby 2015 Manufacturing footprint High Cost Areas Declining segments 5% Efficient and competitive 10% Low Cost Areas 30% 70% Regionally specific 15% products 90
  90. 90. Need to increase currentcapacity utilizationCapacity utilization  Decrease capacity  Shift capacity to Growth Today Future 85% Low Cost Areas 75% 0% HCA LCA HCA LCA 91
  91. 91. Global Operations – an update
  92. 92. Stick to our plan• Rigorous plan - confident in delivery• Visible results, now – Bottom-line impact from purchasing – Roll-out of modularization accelerated – Globalized governance in R&D
  93. 93. Global Operations Total savings 3 SEKbn
  94. 94. Savings from GlobalOperations Manufacturing 20% 50% Modularization 30% Purchasing
  95. 95. Savings from GlobalOperations SEKbn Savings (y-o-y) Investments 0,9 0,8 0,7 0,5 0,1 2011 2012 2013 2014 2015 -0,2 IT investments etc. -0,5 -0,5 96
  96. 96. 3Asset velocity Working capital Capital expenditure
  97. 97. Working capital Net operating working capital (NOWC) Average assets/Net Assets net sales 18 000 16,% Accounts receivable 17 000 15,% • Terms and conditions 16 000 14,% 15 000 13,% • Thorough credit risk control 14 000 12,% Accounts payable 13 000 11,% 12 000 10,% • Terms and conditions 11 000 9,% Inventory 10 000 8,% • Supply chain efficiency 200908 200910 200912 201002 201004 201006 201008 201010 201012 201102 201104 201106 201108 201110 201112 201202 201204 201206 201208 • Product range optimization 98
  98. 98. Structural change of capex100% • Going forward, capital Other expenditure will structurally changeProcess/ 65% • Capital expenditureFactories will be more related to launching new products 35% Product 0% 2008 Current 99
  99. 99. 4Optimizing our financial cost and tax rate
  100. 100. Financial net(SEKm) ~650
  101. 101. Tax rate ~25%
  102. 102. Strong track record ingenerating a solid cash flow…
  103. 103. Historical cash flowdevelopment SEKm Operating cash flow (rolling 12 months) 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2008 2009 2010 2011 2012 104
  104. 104. …and there is opportunity for further expansion
  105. 105. Grow organically by more than 4% 4% and carry out additional profitable acquisitionsCash flow statementSales Expand EBIT margin by more than 6% through launching new innovativeEBITDA products and continue to deliver onChange in working capital operational excellenceOtherCASH FLOW FROM OPERATIONS (CFO) Continue to improve working capital to keep capital turn-over rate aboveCapex 4xFinancial net and tax Turn investment more towards launching new products and createCFO AND INVESTMENTS top-line growth and gross margin expansion 106

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