Good morning, and thank you for joining the presentation and discussion of Electrolux's 2nd quarter results. With me today, I have our CFO, Ann Olsen Layon, and our Head of IR Aunias. Before we start the presentation, I'd like to mention that this session is recorded and will be available on our website as an on demand version. Now let's kick off the presentation with our business overview, including the quarterly highlights. In the second quarter, we continued focusing on executing on our profitable growth strategy, and the group delivered good growth across most of the business areas.
Our reported sales were up 1.3 percent to SEK31.4 billion. Price increases and improved mix in core brands resulted in an organic growth of 0.4%. Adding acquisitions, sales growth was 0.7%. I'm pleased that we in the quarter gained market shares in all key regions and continued to take market share in our core products and brands. Despite significantly higher raw material costs and currency headwinds, we delivered solid earnings and the performance in the 2nd quarter was in line with our overall expectation operating income was SEK 1,600,000,000, excluding the provisions in EMEA of SEK 564,000,000 related to the Competition Authority investigation and SEK254,000,000 to the unfavorable court ruling in France that we announced yesterday.
Adjusted for these nonrecurring items, the margin was 2% compared to 6.2% last year. We intensified our cost actions and reprioritized some activities to mitigate the increasing currency headwinds. In addition to cost efficiencies, higher prices and mix improvements also contributed positively to the earnings. Looking at our business areas, EMEA And Asia Pacific continue to deliver growth and solid earnings. I'm very pleased over professional products achievements.
They had a strong quarter really showing the essence of delivering targeted growth, 14.7% operating margin and 6.7% sales growth. Home Care SDA is in a transition phase and is investing for important product launches for the second half of this year. North America showed growth in core appliances on our own brands, while volumes, especially under air conditioners, but also private labels declined. Latin America delivered strong organic growth. However, earnings was impacted by cost inflation, currency and the nationwide truck driver strike in Brazil.
Turning to the very important innovation story that we're leveraging to drive mix improvements and profitable growth. We've talked a lot about the relaunch of the Frigidaire brand. In the second quarter, we celebrated 100 years of innovation under the Frigidaire brand. And we're really leveraging the design innovation launches that we have made targeting the Frigidaire consumer. We've introduced the market first affordable induction ranges and a range of affordable back stainless products.
And this is resulting in as I mentioned before, core branded market share increases in the first half of twenty eighteen. So we're extremely pleased with the success of the new Frigidaire range. In Europe, we're continuing our journey of profitable growth in premium laundry and in built in kitchen. We're focusing on closed care and leveraging our innovations and introducing connectivity solutions in our laundry products. Also in Building Cooking, we launched a new range of ovens with integrated cameras for greater consumer taste experiences.
And in connection with that, we also launched a collaboration with the California based food tech startup in it. In Latin America, we're investing to strengthen our positions in our core market sweet spots through product and manufacturing reengineering investments in primarily refrigeration and in food preparation. And in Asia Pacific we started the launch of an extremely important range of multi door refrigeration products that are featuring market leading innovations in taste and texture preservation in particular for produce meat and fish. Turning to major appliances EMEA. If we turn to the business areas looking at our operations in Europe, the business area's strong performance continued.
Organic growth was 4.2%. Overall, European market demand was favorable during the period, driven by Eastern Europe. Electrolux sales volume showed growth in built in kitchen and laundry and we continue to gain market share in our premium brands, thanks to innovative products. Product mix continued to be positive for the quarter. Operating income increased 8% year over year despite increasing headwinds and the margin was solid at 5.9%.
Excluding the provisions relating to the competition authority investigation and the unfavorable court ruling in France we received yesterday, that a reorganization procedure of a former subsidiary has been extended to our sales company for major appliances in France. We're surprised and disappointed and we'll now evaluate our options. We're working very hard to resolve this situation quickly, but in the second quarter, we took the one time charge of SEK254,000,000. Earnings was driven by good volume growth, the negative impact from increased raw material costs and currency. Let's move to the market development on the next slide.
The European market showed a stable demand trend in the quarter with total unit shipments up 1%. This was driven by the continued strong growth in Eastern Europe where the demand grew by 8% in the 2nd quarter, driven mainly by Russia. Markets in Western Europe remained at a high level, but declined somewhat demand in the UK, Italy and France was slightly weaker. We expect the European market to remain favorable in 2018 and reconfirm our full year growth outlook of 1% to 2%. In North America, sales was mainly impacted by the lower volumes of air conditioners due to lost listings which we previously called out, but also the continued decline in private labels and slower market demand.
It's however encouraging to see that this partially offset by our growing core branded appliance business. In the quarter, we continued to gain market share in our core branded products. Previously announced price increases is starting to generate a positive effect. Our average sales price were roughly 2% higher compared to last year, but were partly offset by promotions related to the 100 year anniversary of Frigidaire. Operating income in the quarter declined mainly as a result of the the lower aircon business.
In addition, we also faced higher costs for raw materials, sourced products and logistics. We're focused on mitigating these headwinds through price increases, but also through cost measures. Following the first round of pricing, we announced price increases that we aim to implement towards the end of the third quarter as a result of continued cost inflation as well as the recently introduced Section 301 Tariff on certain components. Now let's turn slide to the market development in North America. Market demand for core appliances in the U.
S. Is estimated to have declined by 5% in the second quarter, while demand for microwaves and home comfort products was up 5% year over year. The weak demand can partly be explained by good growth the same period last year. But in addition, we also saw a pre buying impact from retailers before the price increases in the first quarter. We estimate that the retail sellout to be unchanged in the quarter.
The macro environment in the U. S. Has in general been quite favorable consumer confidence index in the U. S. Is high.
The unemployment is at record low levels. And in addition, growth in the housing sector remains positive although we've seen growth slowing down somewhat. Based on this and higher price increases in the market, in combination with ongoing uncertainty around trade actions, we now estimate U. S. Industry shipments to grow by 0% to 2% for the full year 2018.
Now let's turn to the next slide and talk about Latin America. The second quarter started with good consumer demand similar to previous quarter. However, political and economical uncertainty increased towards the end of the quarter especially in Argentina, while the market experienced a slowdown. Consumer demand in our largest market in Brazil is estimated to have decreased in the quarter and the country was heavily impacted by the nationwide truck driver strike lasting for almost 2 weeks in the end of May. The FIFA World Cup event also had an adverse impact.
Based on the FX and political uncertainty and the resulting market price increases in Argentina and Brazil, we now expect a slightly weaker market demand for the full year of minus 2% to +1 percent. On a positive note, we continued to gain market shares in all three regions and achieved an organic growth of 21%. This was a result of improved volumes, mainly in Brazil, supported by higher prices. Operating income, however, declined in the second quarter year on year. Firstly, our earnings were negatively affected by higher raw material costs and increasing currency headwinds.
And secondly, the truck driver's strike in Brazil significantly impacted the in and outflows in operations. We expect profitability of our business to recover in the 3rd quarter and in July, we began implementing further price increases in Brazil and Argentina that should come into effect during the third quarter. In the Asia Pacific region, our operations continued to perform well and achieved an organic sales growth of 2.8%. Sales growth was supported by a favorable demand trend in East Asia. Towards the end of the quarter, however, we saw the Australian market slowdown We took market shares in all our key regions: Australia and New Zealand and East Asia.
As a result of the weaker housing and demand outlook, we have adjusted down the full year outlook for Australia to flat from previously 1% to 2%. The higher sales was mainly driven by East Asia and especially in laundry. Our operating income declined somewhat year over year primarily due to the increased currency pressure, but also higher raw material costs. Higher volumes and mix improvements contributed positively, while the ramp up costs for the JV in China impacted earnings negatively. Despite the headwinds, our margins remained at a solid level of 8.1% in the quarter.
Let's continue with Home Care and SDA. Home Care NCA continues to execute on its strategy and is in a transition phase preparing for upcoming launches. In the quarter, market demand shift towards the cordless category continue to accelerate, while demand for corded vacuum cleaners declined. The market shift in vacuums impacted the business area sales negatively as the important product launches in the cordless category are scheduled for H2 2018. The business area reported an operating income slightly lower than the 2nd quarter in previous year, increasing spending in innovation and marketing related to the upcoming major product launches had an adverse impact on operations.
Higher price and mix offset to some extent the lower volumes and currency effect. In the quarter, Arnova had negative result impacted by investments and product launch delays. This was more than offset by an earn out adjustment of roughly SEK100 million in the quarter. Let's turn to our Professional business. Professional Products had a strong quarter where the business area continued to deliver on the Targa growth strategy and posted a sales growth of 6.7 percent in the quarter.
Sales increased across our segments and the volumes growth was especially strong in laundry, also contributing to mix. Sales grew in most key markets and continued positively contributed positively to the top line. Earnings increased compared to the same period last year and benefited from a strong volume price and mix contribution. Operating margin was at a record level for the 2nd quarter and improved to 14.7%. This was achieved despite ongoing investments for new product launches.
With that, I'd like to hand over to Ana to go into the financials and the cash flow in the second quarter.
Thank you Jonas. Let's look at the financial overview. As Euna said, higher prices in combination with improved mix in our core branded products resulted in an organic sales growth of 0.4%. 4 of our 6 business areas showed organic growth. EMEA, Latin America, Asia Pacific And Professional Products.
Sales growth, excluding currency, was up 0.7%. Gross operating income, defined as net sales minus cost of goods sold declined year over year to SEK 5,900,000,000, corresponding to a margin of 19%. The gross profit profit was impacted by increased costs for raw material, logistics and sourced products, together with currency headwinds, which were only partially offset by cost productivity and price increases in the quarter. Operating income excluding NRI was slightly lower year over year comparing with the strong quarter last year. We managed to partly mitigate higher cost inflation and unfavorable currency effects with pricemix improvements and cost efficiency.
The EBIT margin, excluding nonrecurring items, decreased one percentage point to 5.2%. Reported earnings per share decreased to SEK 1.80 versus SEK 4.49 last year. Earnings per share, excluding nonrecurring items, was SEK 4.35. Let's look more closely at the EBIT bridge on the next slide. Volume price mix combined had a positive impact on operating income in the quarter.
Sales volumes were negative, mainly due to significantly lower volumes in air care in North America. Price in the quarter was slightly positive as the price increases mainly in North And Latin America have started to come into effect. Moreover, we had a good leverage from mix across our core categories. That contributed positively to the organic development. The headwinds from raw materials was $434,000,000 in the quarter as forecasted.
In addition, the negative currency impact intensified during the quarter and was in total SEK 247,000,000 mainly related to currency headwinds in Latin America and EMEA. I will come back to this in more detail. During the quarter, we intensified our cost actions and reprioritized activities. We achieved a net cost efficiency of close to SEK 300,000,000 where of earn out for Innova was approximately $100,000,000. We continue to track well on our variable product cost activities, but faced challenging cost inflation related to source products and logistics costs.
We continue investments in R&D and have reduced spending structure costs, mainly related to sales and admin. The acquisitions had no major effect on the group. Adjusted for nonrecurring items of $818,000,000, the operating income was 1.645 1,000,000,000 corresponding to a margin 5.2 percent. In the quarter, we had SEK 265,000,000 in negative currency effects year over year. This is mainly a result of emerging market currencies in Latin America with weaker Argentinean Peso and Brazilian real.
Versus the strength in U. S. Dollar in combination with headwinds in Europe, with dollar denominated import and weaker Swiss franc and ruble versus the euro. The translation effect was positive EUR 18,000,000. At current rates, the negative transaction effects would continue to impact Latin America and EMEA negatively.
All our business areas contributed to the 0.7 points EBIT margin accretion on a group level from pricemix. EMEA had a favorable mix fueled by market share gains in premium brands, particularly driven by built in kitchen and premium laundry. The price erosion continued, but at a lower level. In North America, the positive contribution was driven by price improvement, In the quarter, we saw price increases taking effect and sequentially improving versus the first quarter. Total price increase in Q2 was approximately 2%.
This was partially offset by the planned promotional spend for the 1 100 year anniversary of Frigidaire. Mixed contribution declined partly relating to Shift in the product mix. In Latin America, the implemented price increases are also taking effect and had a positive contribution We continue to go for price and announced in Q2 further price increases in Northern Latin America as well as Australia, that should be implemented before Home Care and SDA benefited from both price and mix across most regions, also professional showed positive price and mix in Q2, on the back of price increases being implemented. Cash flow after investments, but before acquisitions came in at one point $1,000,000,000 and was at a lower level versus previous year. Explained by lower EBITDA, combined with lower contribution from working capital and a higher intervaluing 12 months net sales remain unchanged at 4.3% versus last year.
Overall, the focus of working capital throughout group is continuing and the working capital has now started to flatten out on good levels as predicted. Investments in the quarter was slightly higher versus last year due ongoing investments in reengineering, innovation and automation, mainly North And Latin America. With that, I would like to hand over to you, Jonas, and to review our outlook and conclusions for the quarter.
Thank you, Anna. Let's move on to the outlook and start with the market view. So we expect the positive demand for home appliances across our markets indicated slightly softer market demand outlook for North America, Latin America and Australia. For the markets in Europe, we reconfirm our total market increased by 1% to 2% full year 2018. This will be driven by Eastern Europe, which we expect as a whole, to grow strongly.
Demand in Western Europe is expected to decline slightly given the weak outlook for the UK and political uncertainty in countries such as Italy. We anticipate demand in North America to show positive growth, supported by continued good consumer confidence and macro environment based on recent developments related to higher prices caused by higher input costs, however, We expect growth in the market to now be in the range of 0% to 2% for 2018. Markets in Latin America started the year with good consumer demand, but we saw a slowdown during Q2 and also a tendency that consumers mix down into lower price categories. This was mainly related to increase political and economical uncertainties combined with volatility in the currency markets. We therefore expect full year 2018 demand for the region, including Brazil, Argentina and Chile to be minus 2% to plus 1%.
The overall demand outlook in East Asia remains positive, but in Australia, seen a stabilization in the market after several quarters of good growth and therefore now expect the market to be flat for 2018. Looking at our business outlook for third quarter the whole year 2018, we expect a positive organic trend across our businesses. Average prices are expected to be of the year. We have as already mentioned, announced further price increases in these regions that should be implemented towards the end of Q3. We have now more visibility on our raw material exposure and therefore revised our view to the upper end of the previously communicated range of SEK1.6 billion to SEK1.8 billion.
For Q3, we expect raw material costs to increase year over year by approximately SEK 500,000,000. As Ana showed, currency headwind for this year is roughly SEK 750,000,000 based on currency rates as per the 13th July. For the full year, We're determined to mitigate these raw material and currency headwinds with price increases and cost efficiency measures. Therefore, we continue to focus on cost management and we expect full year positive cost efficiencies, although we see higher inputs costs by Section 301 in the U. S.
And also slightly higher or higher inflation in Latin America. We will mitigate this with higher prices, although with a lag For Q3, we expect a neutral impact from net cost efficiency as we're increasing our brand investments and marketing for upcoming product launches. A stronger product portfolio and investments in consumer experience innovation are key elements to drive profitable growth. Activities to strengthen our competitiveness through reengineering projects are also ongoing and the CapEx outlook for $6,000,000,000 remains unchanged for 2018. So at the beginning of this year, we announced that we're moving towards the next stage of our journey on targeted growth on the journey to profitable growth.
And as I mentioned, we are extremely pleased with the success of our newly launched products and our focus on our key categories and brands resulting in market share gains in all of our key regions. Our investments in brand and innovation and planned product launches in EMEA home care and SDA and in professional are ongoing. Based on the cost headwinds, we saw positive pricing in North America and Latin America, and we will see further price increases going into the second half of the year. And we're continuing to drive positive product mix, driven by our own core branded products and a great slate of new launches. Again, with the higher cost inflation, that we're facing both in raw materials, logistics and driven by tariffs as well as the strong currency headwinds.
Of course, we will remain strongly focused on cost efficiencies. And of course, we will continue the procedure
questions. So please try go ahead for
Our first question comes from the line of Andreas Willey of JP Morgan. Please go ahead. Your line is open.
Yeah. Good morning, everybody. I have a question on the trade impact. You mentioned it in the press release. Have you done any quantification, what it could mean for you in terms of cost impact, both from some of the products where you have the tariff on imports, like back cleanness or air conditioners, I guess, for that, it's more next year given the season, but also then in terms of general component cost impact, and how you expect that to phase in as we go forward in the next few quarters
Yes. So to start with the Section 232 tariffs, which mainly impacted in steel and aluminum, that's captured in our raw material outlook for the year. The Section 301 tariffs that came into force here in the beginning of July will affect our net cost efficiency. For this year, what's currently in place is in the range of $10,000,000 plus for the rest of this year. Then the most recent $200,000,000,000 list it's not yet confirmed, it's not yet in place.
So it's a little bit difficult to accurately assess what the impact is. You may know this, we're talking about a potential of 10% tariffs on a wide range of components and products. We expect the impact on this year if it goes into effect to be relatively limited, but and that's not fully included in our current outlook. Say because we don't really know exactly what's going to happen yet.
And a follow-up question just on the growth in Europe, you mentioned UK and Italy, but it's still surprising Western Europe hasn't grown now for the market demand for pretty much 6, 7 or 8 quarters. Despite a very good economy, what do you see in terms of kind of how the market breaks down, the replacement market, new construction, Can it all be just explained by the UK or wise, the Western European market not growing at a time of near record consumer confidence and good GDP growth at least for Europe?
Yes. The UK was the main explanation up until the early part of this year. And in Q1 as well as in Q2, we saw softer, let's say, softer demand or certainly not much growth in countries like, as I mentioned, France and Italy, but also Germany So I would say it's a little bit different stories and different places Italy. Of course, we see a little bit of an impact from the political uncertainty Germany is a market that has been at a relatively high level for quite some time. And France, I think, has been impacted by a few sort of short term impacts such as trains you're aware train strikes and we had some weather events in the first quarter.
I think those are more temporary. So I think it's a little bit different as you go country by country. But As you know, we don't expect a ton of growth coming out of Western Europe because it's mainly a replacement market in general.
Our next question comes from the line of Lucy Carrier of Morgan Stanley. Please go ahead. Your line is now open.
Hi good morning. Thanks for taking my question. I will have two questions. The first one is overall on your expectation for underlying profitability this year. I think I remember that earlier in the year, you were kind of saying you were expecting underlying profitability to remain stable year on year despite the headwind.
Of course, we are seeing now a bit more FX headwind coming through. Some, you know, some increase, you know, raw materials or impacts from tariffs was what if you could comment a bit more holistically on how you think about the whole profitability complex for the year?
Right?
Yes. So
I think absolutely we are seeing more headwinds on cost inflation in general as well as currency. And we are raising prices to offset that. And that's, I would say, working well in the market. Of course, the consequence of that those price increases are slightly lower demand, slightly lower demand outlook as we've guided for here. And of course, there's also a time lag in the implementation of those price increases.
So overall, we're very, very, let's say, committed and convinced in our ability to offset these price and sorry, these cost headwinds and currency headwinds, but there is a lag in the implementation of those. So that, of course, poses some additional pressure on our total full year numbers, even though sort of the catch up is coming as we go.
But just for me to kind of understand your point here, are you still expecting underlying margin to be stable year on year or you're saying there might be actually a lag and you might not be able to achieve that?
We're expecting margins to remain quite stable. We don't give exact guidance of course, but we're expecting stability in our margins.
Okay. And the second question I had was around LatAm. I mean, you've mentioned actually quite a lot of headwind markets slowing down, but if I look at the organic growth in the quarter, this is actually quite impressive. So I have a bit of a challenge to kind of reconcile the more cautious comments with the performance you posted?
Yes, I can see I can understand that. Of course, it's important to note that Q2 last year was very soft in Brazil, in particular, because we actually also performed internal reasons because we implemented a new EP a new system in there in Brazil in Q2 last year. So there's a comparison effect that's quite positive. But we did execute quite well on the volume side We have a lagging effect here as well on price increases. So as we see towards the end of the quarter and coming into this quarter, price increases coming into effect, we see a market reaction to those price increases.
And we and of course, we also see the general sort of turbulence, both in Argentina and Brazil, that causes us to be a bit conscious about the overall market outlook. So it's a you have to put those kind of various points in imbalance there. But I understand your point because we had a fantastic growth in the quarter.
Our next question comes from the line of Andrew Kukhnin of Credit Suisse. Please go ahead. Your line is now open.
Good morning. Thanks for taking my question. The question I have is more in detail on North America. Pricing, you said you saw 2% underlying in the quarter and that was partially offset by Frigidaire celebrations How should we think about this into the rest of the year? Firstly, when will the Frigidaire promotions and whether there is scope for a further price increase in North America later
in the year given that the
raw material price is continue to ramp up. And just related to that, the Frigidaire 100 year celebrations related promotions, what is the end benefit of that in your view and when will we see that?
Right. So I guess a bunch of different things there. But So starting with the price increases, the 2% that we've seen in the market, excluding them, these particular promotions, we expect to stick, going forward and to be sort of net realized, going forward. The further cost challenges, in particular, of course, any effects from the 3 year 1 tariff we do intend to price for also in the going into the second half of the year. So yes, we have actually already announced further price increases following these additional cost inflation headwinds.
When it comes to the Frigidaire 100 year anniversary, Of course, we really want to lift up the Frigidaire brand further in terms of the brand attractiveness and desirability. This is of course an extremely strong heritage brand in North America and we want to really lift sort of that heritage of strong middle American values. And we're doing that as part of the 100 year We have a great new range, fantastic products targeted at the Frigidaire consumer sort of mass price points, but great design, great features. And we're really seeing that work. So we talked about our market share gains that we saw already in the second quarter and 1st quarter as well.
In our core Frigidaire range. And we expect, of course, and want to continue to drive that going forward. The promotions around 100 year are over. They've been over for a month. And we're continuing to see good traction in the market.
So we're extremely pleased with this new range of products.
Our next question comes from the line of Martin Wilkie of Citi. Please go ahead. Your line is now open.
Yes, thank you. Good morning. It's Martin from Citi. Just a question on cash. I mean, during the first quarter, you had lower cash flow and you pointed to some seasonality or some adverse impacts, in Q1 that you expected to reverse of the year, progressed.
And that's not happened in Q2. So, you've not seen a sort of a sort of catch up effect, if you like, during
the second quarter.
And I know you pointed that some of the ratios on working capital are about stable, but should we expect that sort of undershooting Q1 to sort of catch up later in the year or just a comment on cash conversion would be helpful. Thank you.
Yes. We we have guided before on working capital, we are seeing this trend now flattening out. As you might see, we were slightly lower on the inventory levels, year over year. This is mainly related to the business model in North America. And we see we will see this come down.
But however, the contribution from working capital will flatten out year over So that will be at a lower level. What's also worth pointing out here is that we have guided for SEK 6,000,000,000 in CapEx and that we have not there's a seasonal effect in that as well. So we will have more CapEx spend in Q3 and Q4 here. Of that of that SEK 6,000,000,000. And then we have some other Yes, I'll stop there, I think.
Yes. I think the big the big point I think here is that last year, certainly in the first half, we had massive positive contribution from working capital and this year, we don't, right? So that's the big swing. And of course, that we don't expect to reverse out per se because we're talking about flat. We're in capital.
I think that's the key point. Okay.
So I guess I have a sort
of follow-up to that. Obviously, over the last decade or so, some of these working capital ratios have obviously seen phenomenal improvement and it's been a big a big support to your free cash flow. I mean, have you got to the point where with suppliers and so forth that the risk payable terms and so forth begin to creep back, against you and towards the suppliers or, so I realize that you're saying that these things lacking out, but is it possible that could become an adverse impact over the next few years?
No, no, we have a very strong program of working capital and across the group. And we don't see that as a risk at this point. It a lot of focus on it, but we don't see that risk.
Thank you. Our next question comes from the line of Johan Eliason of Kepler Cheuvreux. Please go ahead. Your line is now open.
Yes. Hello. This is Johan, Kepler Cheuvreux. Just a question about this announcement last night where you took a charge reports of this, bankruptcy of your previous subsidiary. Now, I understand that for us to carry your sales organization in France in bankruptcy as well.
This, I think, is, relating to turnover more than SEK 4,000,000,000 Swedish krona per annum in France, is that a quick now, or how should I understand that situation?
No, this is a technical effect because the this subsidiary, former subsidiary was declared bankrupt some time ago. And then, the court ruling basically says that this company should really be viewed as part of Electrolux Home Products, France, our major appliance subsidiary there. And as a result, technically, that insolvency of that subsidiary gets extended to to the major appliance business units. But this will this is just an administrative matter, the company solvent, We expect or we are continuing to operate the business as more or less on a normal basis with some administrative work, which is painful, but it's not impacting our business per se. We expect to get out of this situation quite quickly.
Okay, good. Then just on North America, I think you mentioned a slight negative mix over there Is that anyway related to the private label and the public products still going down and the the volumes that you're growing is is more in in the cold product areas or what's what's the really or what's it just aircon that's behind this comment.
It's mainly Eircon, which is of course in the peak season, typically very profitable, right? And then over the year, that's a lower effect, but in the sort of peak quarters, it's an effect.
Okay. And private label, how much is that now?
Yes. It's continuing down. I mean, we're talking about around 12% of net sales.
Thank you.
You're welcome.
Thank you. Our next question comes from the line of Bjorn Anderson of Danske Bank. Please go ahead. Your line is now open. Bear with me a moment.
We're having a brief technical issue. Okay, Bjorn, you may now go ahead and ask your question. Yes, can you hear me?
Hey, yes, I have a question on the net cost efficiency and where you are. I mean, we had a couple of good years behind us and the exception was strong last year. Now you have talked about the 2018 as a little bit of efficient year. But if you look ahead, what are your normal level of support from savings on net the efficiency when it normalize past this year?
Yes, I think I wouldn't say that we are in a transition year actually on efficiency. We're continuing full speed ahead. And Anna showed this in quite some detail at the Capital Markets Day and we're not really deviating from that at all. I think what is a little bit particular this year is that we are seeing some significant sort of how should I say, out of the ordinary cost inflation, driven by tricky logistics, where we see fuel and fuel price increases and driver shortages. And also, these Section 301 tariffs that get in, get baked into our net efficiency the way we display it.
And thirdly, and also, quite importantly, with these big currency effects that we see in Latin America also drag with them, cost of inflations outside of this or a mine currency. So in that sense, we are getting more pressure on that reported line, let's say, but the underlying cost efficiencies are continuing more or less on the same path that they were in were last year in terms of product cost efficiency and so on.
And quantifying that is roughly?
We talked we showed it is around around SEK2 billion per year in that sort of underlying productivity.
And the previous review that you were talking about on North America and production, etcetera, has that changed anything or you're still with your 6,000,000,000 CapEx outlook?
I can see.
Yeah, yeah, for sure. The discussion about Springfield is on does not this year's CapEx at all. This is any way further out in terms of timing.
And what could potentially be the outcome?
Well, I mean, we're still trying to optimize these investments based on these tariff regimes and what we see the requirements for the market. But we have time. That's the key point, right? We're this is an announcement that we made in the beginning of the year for a product that we'll be launching in 2, 3 years' time. So we have time to optimize these investments to make sure we're competitive in the market.
And based on the tariffs and all the things that are going on.
Thank you. Our next question comes from the line of Krista Magnaikov of DNB. Please go ahead. Your line is open.
Good morning. Just some more questions on pricing and the comments you made earlier about stable profitability to start with on pricing. What kind of price increase are you implementing here in late Q3 in Latin America and North America?
Yes. Latin America is very significant price increases, notably in Brazil and in Argentina, we're talking about high single digits to low double digit in several cases. So, that's also, of course, the reason why we're calling down a bit because it's not just us, it's the market, right? The cost pressure is there, we're calling down the market outlook a bit. In North America, it's more about getting these 2% that we've raised to stick and some, at this point, at least more marginal further increases on top of that.
So we're not talking about massive additional price increases at this point. We'll see what happens with Section 3 or 1 tariffs and so on going forward and we need to and we are retaining flexibility to address that depending on the outcomes.
But you previously talked about the earnings growth in the second half. And now you're talking about the stable profitability for the full year, which this will mean that you should see earnings growth in the second half. Is that still valid or given that your comments about cost inflation and lagging price increases?
Yes. I mean, obviously, we don't give exact earnings guidance on a quarter by quarter basis, right? So my comments are around, yes, stable profitability levels. That's kind of what we're seeing going forward.
And then finally, just a quick question on you have launched a couple of partnerships here over the quarter last quarter, within it, Lekotum and 5G, for instance. Is this a new strat or what should we expect here?
Yeah,
yeah, I think this is partially a new strategy. And of course, as we see sort of particularly in the cooking area, these sort of new networks coming into place where people integrate their overall sort of shopping preparation, cooking, and sharing experiences, we see lots and lots of opportunity around that in really helping consumers to make more innovative, better tasting healthier food. And we're super excited to work with with great partners to develop that further and make that into a number of platforms for for food and taste enjoyment that we will play a very important role. And we see a lot of value creation opportunities there.
Our next question comes from the line of James Moore of Redburn.
Yes. Good morning Jonas and SOC. My my line was cut off for a couple of minutes earlier. So apologies if I'm repeating, but with outputting hard numbers on it, which I guess you won't want to do. Can you say if the revenue drop and the EBIT drop in North American air conditioning were of a similar magnitude to that that you saw in the first quarter or they worse or a bit better than that.
Similar.
Okay. And on the promotional expense, I guess I could maybe try and calculate back from the 2% to a more modest price, but be able to quantify that the promotional expense that you took in the 100 year, anniversary promotion and how much, if any, will carry on into the 3rd quarter or the second half.
I would say we probably sort of in the order of magnitude of half of that price increase were kind of offset by the by the 100 year celebrations. And going forward into the second half of the year, those are over right? So we're talking about realizing that full price increase benefit.
That's clear. And just lastly, your million central line, if correct. Seems quite low.
Yeah.
And are there any exceptional positives in there and what sort of quarterly run rate should we think about going into the second half or next year? Is that a new normal or is it exceptional number?
It's not there are no sort of particular one off events in there, but there are some timing differences. And so this is for sure lower than what we expect the run rate to be, but we do see our our full year group common costs to be lower than or in the low end of the range that we communicated of 1000000 to 1000000 for the full year.
Our
next question comes from the line of Johan Eliason of Kepler Cheuvreux. Please go ahead. Your line is open.
Yes, thank you for my follow-up here. I was just wondering, I didn't quite understand the Anwarba accounting. Said there was a loss in the quarter, but that was compensated by an earn out. Was that sort of that was released from the balance sheet from previously issued price for Nova? Or how should I understand it?
That's correct. So basically the way as we then continuously assess the likelihood of that sort of additional purchase consideration being paid out or not, we have to then sort of make an evaluation of that. And if that changes, then you have to take that through earnings. And of course, we had a weak quarter So we had to release some of that. And that's the
And that was 100,000,000 positive then from the balance sheet.
That's correct. Yeah.
Okay. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Andreas Wili of JP Morgan. Please go ahead. Your line is open.
Yes, thanks for allowing a follow-up question. I just wanted to ask about private label in the U. S. Into Nick year, maybe you could give us an update where we stand, I think you have a contract that may or may not expire year and the business is currently or Sears is currently in discussions about their future and maybe you could just provide some information on how you think about the business as we go into next year and the risks and opportunities from all these changes.
Yes, no, I mean, I of course can't comment on our plans and negotiations with individual customers. So I think you have to kind of rely on the public information available. Sorry?
So this is the contract running out next year, the existing contract. Is that correct?
Well, the old contract that we had, yes, is running out, but that's, of course, we have ongoing discussions with all our customers about contracts. I mean, so, we don't in general have indefinite contracts with our customers. Those continuously renegotiated. Our
next question comes from the line of
I'm just following up on U. S. Top line growth. So first quarter, we saw organic sales growth minus 5 2nd quarter minus 10. I appreciate there's some private label in there.
12% sales maybe going back 20 or 30. So that's like a 2, 3 percentage point drag. Obviously, Aircon was weak. But how should we be thinking about the competitive environment? Because I hear anecdotes of higher stepping up pressure.
Obviously, Sam and LG have reassured. What should we be thinking, I guess, about your second half organic sales growth for that region? Thank you.
Yes. I mean, 1st of all, if you look at the AM numbers, right, they were plus 5% in Q1 and minus 5% in Q2. So that I would say accounts for that difference, let's say, in the growth rates between between the first and the second quarter. So there's nothing sort of extraordinary that's happened in market shares in between the two quarters. In quite the contrary, we're continuing to execute, as I mentioned, quite very well.
I would say on the new range of Frigidaire products in the core range and we're gaining market share there. So I would say there's nothing new or extraordinary to note in the competitive environment.
Thank you. Our next question comes from the line of Karri Rinta of SEB. Please go ahead. Your line is now open.
Yeah. Hi, Karri from Handelsbanken. Just a quick follow-up on the CapEx number because, after the first half, you're now at 1.8 spent so far. And you have mentioned a few times that you still stick to the SEK 6,000,000,000 guidance, but can you give us some specifics on where exactly you expect to spend those remaining SEK 4,000,000,000 in CapEx during 2018? That would be helpful.
Where in what regions or?
Yes, regions and any specifics that you can give
Yes. I think we have an ongoing program in Latin America, and We also have an ongoing program in North America. So I think in terms of the higher CapEx run rate for this year, those are the two regions that we've called out.
All right. And then a follow-up also on the input costs. I mean, now we are in July you have revised your input cost guidance slightly for this year, but this thereby is the 3rd potential tariffs that you mentioned that not fully incorporated in your input cost guidance. Is there any outstanding risk in any other maybe some metals and so forth? For this year?
Or are you pretty much fully set now for this year?
I think Methos in particular still, but Metals in general is quite quite tied whereas plastics, some of the chemicals, you basically can't hedge for, right? So in some cases, there's month to month pricing on the there's still some exposure there.
Okay, thanks. And then the small technical related to home care and DIA, you mentioned that in the second quarter, you had some losses related to upcoming launches in Anova, which were offset by this earn out adjustment. So now when you don't have this earn out adjustment in the third quarter, are you confident that you get those launches out the door and the sort of the underlying profitability will improve?
Yes, I mean, we have some really exciting launches in home care and SDA overall in the second half of the year. We have yeah, we'll talk about them after Q3 because some of this is not publicly launched yet, but we have some fantastic new cordless products. As I mentioned, the market is shifting very, very rapidly. We expected to shift, but it's happening more rapidly than we had expected to to cordless battery powered products. And we're a little bit behind the curve here in these launches.
And so we'll catch up on that in the second half. Also in Anova, we're actually we have started shipment of the new product there. So as we expect that to start to kick in in Q3 and but this these types of products, the these the Anawa products are very, very sort of Christmas season driven. So 4th quarter is really the peak for those products.
All right. Thank you.
Okay. We thank you for, for your questions. And start to wrap up this call. Thanks a lot for the interest. And of course, the main story today is that we're delivering on track despite the increasing headwinds that we're facing.
And we're continuing on our on our strategy of moving towards profitable growth. I made some of the highlights just a few moments ago, but we're really confident in the strength of our product offering. We've launched a great new products. They're gaining market share in the marketplace. We are acting from a position of strength as we're facing these cost headwinds and currency headwinds, which are driving us to raise prices.
And but again, we're doing that out of a strong position in the marketplace in against an overall quite positive economic backdrop. We are redoubling our efforts on cost efficiency. And we'll continue to do and drive that throughout the year. But overall, we're coming from a position of strength as we enter the second half of the With that, I thank you very much and wish you all a great summer and look forward to seeing you soon again.
Ms. Matt and Ken's our call. Thank you for attending participants. You may disconnect your lines.