And a warm welcome to Electrolux Third Quarter 2020 Results Presentation. With me today, I have our CFO, Therese Wieberk and our Head of Investor Relations of the Arneos. 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. This has been an unprecedented year with great uncertainty where markets and operations have been strongly affected by the pandemic. But after a weak first half with significant downturn in market demand across most regions, we now have experienced the 3rd quarter with strong in organic growth of 15.2%.
The strong demand in all main markets in the quarter was to a large extent a result of pent up demand after previous store closures and restrictions as well as government stimulus programs. Due to pandemic restrictions during the first half of the year, we entered the quarter with unusually low inventory levels, which have remained throughout the quarter despite high production levels, at home during the pandemic has resulted more intensive use of appliances and higher share of household budgets allocated to home improvement. This has has resulted in a category spending shift towards more premium appliances, driving favorable product mix and sales volumes. We had good traction from our premium brands on several markets. Net price realization was quite favorable as there were less promotions and discounts in several markets.
We also actively raised prices mainly in Latin America. For similar reasons, we also saw strong growth in aftermarket sales across all business areas. I'm pleased with the result in the quarter. We reached a record high EBIT of SEK3.2 billion and a margin above 10%, strongly driven by the volume growth, but also by higher prices and mix improvements. Raw materials and currency combined had a slightly negative impact year over year.
And the record high operating income translated into a strong operating cash flow after investments attractive products built on deep insights and consumer needs and opportunities. And let me give you some examples of how we're driving sustainable consumer experience innovation. So first of all, we know that consumers are very concerned about food waste. And also from a sustainability perspective, we know that over a third of all food produced gets wasted. And we are driving innovation to help consumers to reduce food waste, waste.
And particularly, our multi door refrigerators that we're launching around the world now offer very innovative solutions to prolong the life of fish, meat, produce and dairy products. And we have a strong ambition to grow the value market share of multi door refrigerators, driving the extremely good benefits in terms of reducing food waste. Another key initiative for us is to grow in aftermarkets. As we mentioned before, our objective is to double our aftermarket share of sales to 10% by 2025. And one key initiative for us is to increase our penetration in aftermarket sales done by our own or authorized service technicians.
And one way to do that is by offering fixed price repair services, which we've done in Europe since 2017. This gives consumers more certainty, more peace of mind and a stronger reason to choose our authorized service technicians over independent agents. So looking at our business areas performance in Q3, starting with Europe, we saw strong organic sales growth of close to 16%, mainly driven by pent up demand and resulting in higher volumes across all categories. Mix continued to develop favorably, primarily from built in kitchen and laundry products. The premium brands, Electrolux and AEG, gained value market share and aftermarket sales increased as well.
Our sales to the important kitchen retailer channel, which was heavily impacted by the pandemic in Q2, increased in the quarter. The electrical retail channel grew even faster as this channel mainly supplies replacement products and was able to shift more of the sales online. Sales of air care products and cordless vacuum cleaners increased substantially in the quarter as well. I'm very pleased with the earnings performance in the quarter. We reached an EBIT of SEK1.5 billion and a margin of 12.4%.
The organic contribution in the quarter was strong and will continue to improve mix through our premium brands. A slight currency tailwind and lower cost for raw materials also had a positive impact in the quarter. Let's have a look at the European market. In the 3rd quarter, overall market demand in Europe increased by 13% year over year. In Western Europe, demand increased by 14 percent and in Eastern Europe by 11%.
Oil markets increased with many recovering strongly after the lockdowns in Q2 resulted in demand This confirms that household appliances are essential for our daily lives. And as we said before, over 60% of the market demand is driven by product replacement. In September, the European market continued to report a positive development, although at a somewhat slower pace. Now let's look at our business in North America. Organic sales increased by 8.6%, supported by volume growth.
We could however not fully meet the high demand due to previous quarters production and supply constraints, resulting in low inventory levels as we enter the quarter. These the market was low, which had a positive impact on net price realization. Aftermarket sales grew significantly driven by a favorable demand trend as well as our own own strategic growth initiatives. Operating income increased significantly to SEK990 1,000,000 corresponding to a margin of 9%. This was a result of the positive price development, higher volumes and mix improvements combined with good cost control.
We've seen good traction from our Star product focus, improving the product mix. One great example is the Frigidaire Gallery air fry cooker that has recently the 2020 Innovation Award across all categories at The Home Depot. The air fry cooker delivers a significantly continued to somewhat impact the progress of our ongoing manufacturing consolidation in Anderson as well as Springfield. Lower material costs more than offset higher tariff costs from increased source product linings. Now let's look at the U.
S. Market. During industry shipments of core appliances in the U. S. Increased by 9% year over year, and previous industry supply constraints were reduced, resulting in a catch up effect and government stimulus programs, which ended during the quarter, impacted positively.
The market has also been supported by improving macro indicators. The unemployment rate has decreased for 5 consecutive months since the peak in April, and we've seen a pickup in consumer confidence and the housing market is currently very strong. Market demand for all major appliances, including microwave ovens and home comfort products increased by 14%. Let's move on to Latin America. In our largest market, Brazil, demand picked up strongly in the quarter, driven by government incentives, low interest rates and pent up demand.
Demand in Argentina declined affected by quarantine measures and product shortages, while demand in Chile increased, supported by government stimulus programs. The organic sales growth in Latin America was 37.8 percent to a large extent driven by strong volumes, mix and price in Brazil. Mix improved as a result of increased sales of high end products such as multi door refrigerators. We continue to increase prices to offset the significant currency devaluations across the region. Lower promotion activity also contributed.
Online sales continued to grow to record levels in all main markets. And EBIT improved significantly to SEK 4 $40,000,000 and the margin reached 9.2 percent driven by the strong organic contribution. Increased currency headwinds as well as raw material cost increases in the quarter driven by FX were fully offset by the price increases. Finally, turning to Asia Pacific, Middle East and Africa. During the quarter, Australia, our largest market in the region, continued to grow, supported by government incentives and increased home improvement spending.
South Africa and Egypt recovered after a decline in the 2nd quarter, while Southeast Asia and Middle East continue to be affected by recessions and lockdowns due to the coronavirus. We reported an organic sales growth of 9.7%, mainly driven by the good development in Australia, while sales in Southeast Asia continued to decline. The increased sales in Australia were mainly driven by good traction from newly launched products and the repositioned Westinghouse brand, driving favorable volume, price and mix. I'm pleased that also in APACMEA aftermarket sales increased double digits. Operating income improved to SEK459 1,000,000 corresponding to a margin of 11.7%.
This was mainly a result of the strong performance in Australia. Lower costs for raw materials also contributed positively. With that, I hand over to Therese.
Thank you, Jonas. Looking at our financial overview, I would like to comment on a few items. We reported a strong organic growth of 15.2% in the quarter. Volumes were significantly higher in all four business areas as markets recovered strongly after lockdowns were lifted, driven mainly by pent up demand as well as government stimulus programs. Positive price development and mix improvements also contributed to the sales growth.
The gross operating income defined sales minus cost of goods sold improved compared to last year. The gross operating margin of 22.6% for the Q3 this year increased by 7.4 percentage points year over year. Operating income increased significantly. The strong organic growth with increased volumes as well as positive price and mix was the main driver for the higher earnings. So now let's look at the drivers behind this year over year change.
The volumepricemix contribution was strong in the quarter. We saw volume growth and mix improvement in all business areas. Price also increased across most business areas. In Latin America, we raised prices to offset currency headwinds and cost inflation. And in North America, price developed positively as promotional discounts were low.
The combined impact from raw tariff cost increase in North America as well as negative indirect currency impact in Latin America. Tariffs had a negative year over year impact as we sourced a large amount of product from China to North America to meet the high market demand. Currency continued to have a negative impact on EBIT, and I will come back to that later in the presentation. Net cost efficiency was negative compared to our initial expectation of a favorable contribution. This was mainly driven by higher logistics costs where express freight increased due to the supply constraints.
And we also decided during the 3rd quarter to retroactively implement wage increases from July as our visibility for the remainder of the year improved. Production inefficiencies related to the pandemic also had a negative impact in the quarter. And if we then take a deeper look at the price and mix development, the EBIT margin accretion from for the group from price and mix of 3.2 percentage points in the quarter, mainly premium brands, while prices declined slightly. In North America, price developed positively as promotional discounts were low, but we also had a positive mix related to increased sales of premium products. In Latin America, we had a good contribution to earnings from price as we increase of higher end product.
In APAC and EMEA, price impacted positively mainly related to Australia, but also to Middle East Africa. I'm also very pleased to see that our product launches in Australia continues to have good traction, resulting in an improved mix. And now let's look at the currency effects. As highlighted in the EBIT bridge, currency had a negative impact of SEK248 1,000,000 on our earnings in the Q3. Overall, the major negative effects in the quarter year over year are related to weaker currencies in Latin America.
And then looking ahead, we calculate the Q4 to have a negative year over year impact from currency, mainly related to Latin America of approximately SEK 400,000,000 but also headwinds in Europe of SEK 100,000,000 due to weakening Russian ruble and British pound. And for the full year 2020, we expect around SEK 1 point 7 billion in currency headwinds for the total group. And these calculations are based on current exchange rates as per October 15. And then looking at operating cash flow. Operating cash flow for the quarter was very strong and amounted to SEK6 1,000,000,000.
This was mainly driven by the strong earnings development in the quarter, but also favorable development of working capital. We had some significant movements in working capital due to the strong recovery in the quarter with higher sales and production. And as we could not fully meet the high demand, we built less inventory than what we normally do in the 3rd quarter. A lower level of investments also contributed positively to cash flow. And with that, I hand back over to Jurgen.
Thank you, Tristan. Looking into the 4th quarter, visibility remains limited as demand is affected by several opposing drivers, especially as the pandemic is still very much a factor. However, we currently anticipate that consumer demand will normalize gradually going forward. Considering this and the catch up effect during the Q3, we have revised outlook for the full year 2020 upwards. We anticipate that the European market shipments will be slightly positive for the full year.
Retail inventories are in general low. And so currently shipments remain solid. However, more countries are again imposing restrictions triggered by have been strongly supported by the now ended government stimulus programs. And a second stimulus package is under negotiation, but with the presidential election just around the corner, this adds to the uncertainty of the outcome of the size and timing of such a package. However, macro indicators such as GDP, as for the full year driven by Brazil.
In Chile, we look for relatively flat development, while Argentina suffers an overall market reduction due to the pandemic and economic turbulence. We still expect overall demand in our main markets in Asia Pacific, Middle East and Africa to be negative for 2020. This is mainly driven by Southeast Asia and Middle East that are impacted by the pandemic and recessions. However, demand in Australia has so far been strong, and we expect this to be the case also for the full year, supported by government incentives. Turning to the business outlook.
In the Q4, we anticipate favorable organic contribution. As mentioned, we entered the quarter with low inventory levels and that is in general also the case for our retail customers. This in combination with a continued solid consumer demand for the time being is the main driver demand as well as production and supply chains will be impacted by the development of the pandemic and related restrictions and government actions. If stimulus programs are not from pent up demand in the Q4 compared to the Q3. Additionally, we need to bear in mind that the Q4 is normally promotional season, primarily North and Latin America.
This year, we're looking at less promotional intensity, which on the margin impacts consumer demand negatively, but it's beneficial for net price realization. We've continued we have a continued positive mix view on our mix also for the Q4. Net cost efficiency for the 4th quarter is expected to be unfavorable and this is a catch up in strategic initiatives to strengthen our presence in, among others, e commerce and aftermarket. These activities were put on hold during the first half of the year due to the pandemic. Lastly, just as we saw in the Q3, we expect production inefficiencies and higher logistics costs related to the pandemic to impact also the Q4.
Looking at the full year 2020, we revised our organic contribution outlook to favorable, given the strong recovery in the Q3 and the favorable outlook for the Q4 strong recovery in the Q3 and the favorable outlook for the Q4. We now expect net cost efficiency for the full year to be unfavorable as we start investing more in marketing and strategic initiatives to improve our brand strength. Supply chain strains related to the pandemic and increased costs for the ongoing manufacturing consolidation are only partially anticipated to be offset by the cost mitigation activities in the first half and continued dollars 1,000,000,000 in 2020 compared to the previous estimate of approximately $300,000,000 to $600,000,000 This as we now expect a larger indirect currency headwind in Latin America as well as an increase in tariffs due to a higher volume of sourced products. Currency of $1,700,000,000 for 2020 is based on currency rate as we per the 15th October compared to the $1,400,000,000 that we saw a quarter ago. Our business outlook for the full year 2021 will be presented in the Q4 report.
So in summary, we're well So in summary, we're well positioned to create value. We continue to execute on our strategic drivers in Q3. We saw mix improvements with very high profitability. We continued our consolidation of the with very high profitability. We continued our consolidation of the U.
S. Fridge and freezer production and are increasingly stabilizing and increase the output from our Anderson facility. And we remain agile and flexible short term while keeping a strong focus on long term value creation. Before we open for Q and A, I want to take the chance to invite you to our virtual Capital Markets built in kitchen area and how this has boosted earnings. I recommend that you register well ahead of the meeting to avoid any IT related issues.
With that, we now open for questions. Sophie?
Yes. So we will open up for questions. And to allow as many questions from you, we ask you to limit yourself to 1 question per person. And then if time allows,
Our first question is from Andreas Willey from JPMorgan. You may begin the
the cost savings and your restructuring program. You didn't include the chart in this presentation, but in the past, you showed an improvement incremental savings from your cost program of $1100,000,000 in 'twenty one over 'twenty. So you go from minus 600,000,000 percent impact to +500 And is that including all the reversal of the negatives we have seen this year in Anderson and the related extra costs? Or is there anything on top? And I would also like to better understand why we have the big step up in 2022 rather than in 2021 in terms of the timing of Anders and then the new work that begins in Memphis that could disrupt 2022 again?
Yes. So our outlook for savings is unchanged. Of course, there are always minor things that are moving up and down, but in general, it's unchanged for 2021 and beyond. So if we take it piece by piece, 1st of all and we don't talk as much about that, but we have solid improvement also from our reengineering programs in Brazil. So this is not just about North America.
Secondly, of course, we have these significant disruptions, particularly in the first half of the year from the Anderson transition in 2020, and those will not reoccur in 2021. So we expect to ramp up continued significant ramp up throughout the year. However, we still will keep our legacy factory for the first half of next year to ensure that we're able to supply our customers without disruption. So there's still some extra cost in 2021 from Anderson, while we generate a lot of the anticipated benefits next year. And then, of course, we start up our new factory in Springfield starting, let's say, mid year or Q3 next year with the first launches.
And that's from that factory, we will launch products during essentially a 1 year to 1 point 5 year period following that first launch in the mid of 2021. And so gradually we'll start to see those benefits into 2022. And of course, there are some duplication costs from keeping the 2 legacy facilities as well as the new facility open during that transition period. So there are some period while we're ramping up until we get those full benefits. And in the meantime, we're continuing with our reengineering programs again in Brazil and in Latin America.
And that's all reflected in the graph that we showed last year. So no last quarter. So we're not indicating any difference versus that.
Thank you very much.
Sure.
Thank you. Next question, we have Johan Eliason from Kepler Cheuvreux. You may begin your question, sir.
Yes. Congratulations to really good result. On the pricing and the promotional activity, you mentioned it will continue to be lower sort of in the 4th quarter as well. How long do you think the pricing regime will remain as solid as it is right now? Will it last into next year as well?
Or do you expect normalization already Q1 or Q2? Well,
I think a fair expectation is that we'll continue to see a relatively benign pricing environment for still some time to come. Exactly how long is difficult to predict. It will depend both on, of course, on the continuation of the consumer demand and as well as the supply from us and our competitors on that sort of supply and demand equation. But I think it's fair to assume that it will continue into next year.
Thank you. Next question, we have Andrea Kukhnin from Credit Suisse. You may begin the question, sir.
Good morning. Thanks very much for taking my question. I wanted to ask whether you could quantify at all the kind of degree of the catch up in this quarter versus the underlying more favorable trend from the stay at home, spend at home intentions? And maybe just a quick follow-up on the previous question. On the industry capacity, you've made it very clear where you are.
But in terms of industry capacity, what's your assessment on how far it's caught up?
Yes. Starting with the industry capacity, I think we're inventory levels are short still, I would say, in most markets at our retailers for most manufacturers. And I think we see that in Europe and in North America and Latin America as well. So that's why my prediction is that, that will continue for some time to impact sort of the supply and price and demand equation in a favorable way. Sorry, now I forgot the first question.
Thank you.
It was about the catch up versus underlying
Yes. Now it's I mean, we'd like to know that as well, right? So I think it's probably fair to assume that a really significant part of the volume sort of lost in the Q2 for the industry as a whole, a lot of that was recaptured in the Q3. And at the same time, we do see and
we do see continued good demand,
this impact from people staying at home, using their appliances more intensively. We see very good development in aftermarket revenue as well as demand for new products. So we think that that's a real factor and that will continue. People are just reallocating their household budgets away from travel and eating out and entertaining to improving their homes. And I think we are really benefiting from that and I think especially benefiting from it with our strong focus on consumer experience innovation, right.
It's really helping people to try new things when they cook and reduce the risk of failure, extend the useful life of product store in their fridge, caring for people's stoves, really useful innovations that help us drive favorable mix. And that I really see, I mean that's a long term trend that we've seen very favorable mix development for a number of years. That's accelerating and I think that acceleration will continue to be beneficial for us. Some of the other effects are a little bit more transient, particularly the catch up of course and the stay at home trend I think will continue for quite some time though.
Thank you. But it's difficult to piece it apart.
We're not able to do
that obviously.
Thank you. Next we have Leon Inarson from Dankersbank. You may begin, sir.
I guess this was me, Bjorn Inarson, Danske. Can you help us with some more details on how you look about the North American situation.
I mean,
you have quite odd comps in Q4 and also in most part of the first half, of course, also before the pandemic, if you can add some details on that?
Yes, it's true. I mean we had a really, really negative impact from the ramp up challenges in Anderson in Q4 and as well Q1 Q4 'nineteen, Q1 'twenty. And of course, we don't expect those to repeat. We also and you may recall, we communicated about that in Q4 last year that we had a significant also inventory push by one of our largest retailers out of Q4, which had a negative impact on ourselves. So we have a very sort of depressed comparable in North America in Q4.
And of course, we expect to completely offset that since we're now up and running in Anderson. Plus, we have, on top of that, the favorable demand and price environment. So I guess that's as much guidance as I can give on that.
Thank you. Perfect. And if you can remind us about the inventory impact from Sears or the one of your customers?
I don't have it in front of me right now.
I can take that up.
Yes. It
was a smaller part of the USD 70,000,000 that we announced for Q4 and that the main part of that was relating to Anderson. Yes.
The majority that's we said, right. The majority was Anderson and a smaller part was, but yes, we have it in the release.
Yes, perfect. Thank you.
Thanks, Jon.
Thank you. The next question, we have Olof Dedekho from ABG. You may begin the question, sir.
Yes. Hi, everyone. It's Ulf from ABG. I just have actually one question at this. The pricing going into Q4, you were able to offset the FX in LatAm fully.
Will you be able to offset the FX effect also in Q4 in Latin America and elsewhere?
Yes.
That's a good question. Thank you very that's a good reply, I should say. The question, I leave to others to judge. Thank you very much, Ilham.
Thanks.
Thank you. The next question, we have Gustav Hajus from SEB. You may begin your question, sir.
Thank you, operator. Good morning, guys.
I'm a little bit curious about the mix in Europe. It's been a positive contributor now for some time. And I guess it coincides at least partly to your launch of the built in kitchen range in Europe. I think it Q4 last year, so about to annualize that anniversary. Going forward, I guess there was a gradual launch of the built in kitchens in Europe to start.
So maybe the midpoint isn't reached here. But how do you see that profile going forward? Are you confident that you could drive cost of mix in Europe also towards the second half of next year? Or what's your view there? Thanks.
Yes. No, we're absolutely confident in that. And I think it's of course, our favorable mix trend in Europe is so much more than an individual launch of a product range, even though it's an important one. So I mean, we're seeing positive mix in every product category, laundry, built in kitchen, home comfort products. So and we have all the intention to continue to drive that.
And I think very importantly as a part of that, we're investing behind growth of our premium brands, right, so Electrolux and AG. And inherently, as we grow those brands more than the, let's say, the business as a whole, that has a positive mix effect as well. So a lot of the discussion we have around, let's say, increasing marketing investment and increasing both our transformation and R and D spend, it's all about continuing to drive that favorable mix trend. And I think we're showing that works and we have all the confidence that it will continue to work.
All right. That's very clear. Thank you.
Thank you.
Thank you. Next question, we have William Turner from Goldman Sachs. You may begin the question, sir.
Good morning, everyone. You provided some interesting color on the September developments in Europe saying that it was positive, but somewhat lower pace. Could you provide a similar kind of sequential trends in the other regions, the U. S, Latin America and APAC? And how September was compared to the previous months?
Yes. I would say there's a fairly, I would say, common trend that June started to be positive, July August were very positive, September also positive, but at a slightly lower pace, right? So that's essentially the curve, if you will. And it's actually mirrored in many, many markets. And I think it has to do with the fact that, again, some of the growth that we saw in the quarter was driven by pure delayed shipments to consumers following the lockdown.
And some of the growth was driven by the shift in investment into home improvement that we're seeing. I think one factor that's worth noting and we said it, but it maybe it didn't come through as heavily. We see very, very strong very strong housing markets in many important markets. And if you recall, how we typically kind of look at the around 20% that's planned replacement and you have around 20% that's planned replacement and you have around 20% that's new construction. That's a typical split.
And the new construction is going well in money market. And as a lot of existing homes change hands, that typically means good pricing developments for homes. People feel that they have home equity and that makes them more willing to spend money on refurbishments of the kitchens, of the laundry rooms and so on. So those factors tend to be supportive of demand for us going forward. The tricky part, and of demand for us going forward.
The tricky part is, of course, that we're still in the middle of pandemic. So what restrictions and other things as well as potentially stimulus packages will come out that. And of course, we're also still in a recession. So that has a dampening effect. And because we have so many different drivers, it's a little bit tricky to give a very precise outlook.
But I think in summary, we're pretty confident in the near term development here.
That's fair, Francis.
Sure.
Thank you. Next question, we have James Moore from Woodburn. You may begin your question, sir.
Yes. Hi, everyone. Ernest, Therese, Sophie. And my question is also on the savings. I'm really following up from Andreas earlier.
Can I confirm something and then ask a question? Can I confirm that when you say the savings are net of expected transition costs, just in plain English, does that mean that we get the remaining €3,000,000,000 of gross saving or whatever the number is and the €1,000,000,000 transition costs dropping out or whatever the number is, so that we get in my math something like €4,000,000,000 in the bridge by 2024? Or is it just the €3,000,000,000 My question relates
It's all in there, yes. That's the point.
It's the 2 together, yes.
It's all in the graph, yes.
And my question is really about Anderson and the transition costs. It was very helpful to have them. I assumed 50 out of the 70 in the Q4 was Anderson. And would it be possible to help us with sizing the year to date financial impact for the 9 months? And when you talk about that, do you think about both the volume impact from lost market share and the cost impact from double the costing or just one of those?
I'm just trying to get a flavor for where we're at this year.
Yes. No, I mean, we definitely saw significant negative impact from Anderson in the first half of the year, mainly in the Q1, but also into Q2. And in the case of Q2, it's a little bit hard to piece it apart from the, let's say, COVID impact. But we clearly didn't get output that we wanted out of Anderson nor from the other factories in the Q2. And now in the Q3, the combined output from the new factory in Amazon and the legacy factory is quite solid.
It's not frankly, And then gradually, as we continue to ramp up, And then gradually, as we continue to ramp up the new facility, we'll then ramp down the old one and then towards the second half of next year, then fully close it down. So there's this sort of very gradual or not very, but gradual progression of the benefits throughout next year. Would it be fair to think about that? We're not justifying the individual factory impact and so on. But suffice it to say that it was quite significant, particularly in the Q1 of this year.
And just on that, Janus, if I could, would it be fair to say that the Q1 was broadly similar to the 4th? Or was it much bigger or less than that?
It was broadly similar on pretty the Anderson impact, yes.
Yes. And is there a period when you expect that to be breakeven that you could help us with?
Sorry, say that again. Sorry.
So whatever the which quarter should we think about the negative impact, which I think of as getting less and less and less? At which point roughly does that get to being roughly breakeven?
Versus the history, let's say.
Yes, the Anderson piece. Do we have to wait for I mean, the Q4 with the comp?
Yes. No, I mean, it's a little bit tricky to kind of piece that question about. But I would say by, let's say, Q2 of next year, we shouldn't certainly not have any negative impact anymore from Anderson. And then the real sort of net positive contribution starts then in the second half, in fact.
Thank you. Thank you very much.
Thank you. Next question, we have Karri Rinta from Handelsbanken. You You will begin your question, sir.
Yes, thank you. I have a question about current trends and the mix. And more specifically, my thinking is that given the exceptional conditions that we have now with high amount of people working from home, this planned replacement that you mentioned is roughly 20 percent of volumes is probably higher or is probably a pretty good market at the moment. And at the same time, you also mentioned that aftersales is doing really well. So the question is that, of course, as long as we continue to work from home, these positive trends are sustainable.
But how sustainable are those beyond? And maybe more specifically about the aftersales opportunity, how much of the positive tailwinds do you believe are sustainable also going forward?
No, I think that's, of course, a very relevant question. And I think that there's just no question about the fact that the pandemic and the work from home and related issues and travel, let's say, restrictions are having a beneficial impact and we'll continue to have that for some time. What happens afterwards? Well, it's a bit difficult to predict. What I would say though is that we feel extremely confident in how we focus our strategy.
And I think that's that's I think the key message here, really focusing on relevant consumer experience innovation, helping people solve their daily problems favorable mix development. And frankly, that's what's driving our favorable mix development. And frankly, that's what's driving our favorable aftermarket development as well as we're investing in more capability to deliver So these these trends are there. They're accelerated by COVID. I think some of that acceleration will remain, but some of these effects are clearly temporary.
Difficult to give an exact guidance, but overall, I think that part of a very tragic pandemic is actually favorable for us also longer term.
Great. Thank you very much.
Thank you.
Morning, everyone. So you entered Q3 with lower inventories. And obviously, you've had some difficulty at least delivering products in North America throughout the year. Could you tell us something about what that has done for the competitive landscape? Has that impacted listings for you in some way ahead of next year?
No, I think, look, we're not pleased with our ability to meet market demand in North America, but frankly, that's an industry phenomenon. And I don't think we're soft than most others. So yes, it's we're working extremely hard to meet market demand and we are continuing to raise output as I expect our competitors are as well. But I don't see that we're at the specific competitive disadvantage from that.
Okay. Thank you. That's encouraging.
Sure.
Thank you very much. Next question is we have Andreas Willi from JPMorgan. You may begin your question, sir.
Yes. Thanks for giving me another go. Just two clarifications or a clarification on FX and the question on October, would you expect to be able to offset the €500,000,000 FX in Q4 on price, particularly the €400,000,000 in Latin America? And secondly, on the question you answered earlier on September, maybe you could just indicate a bit how October is developing. Is that another slowdown versus September or similar level?
Yes. First on the pricing, the answer is yes again. Yes, we will fully offset the FX headwind through pricing. On the demand trend in October, I did mention that we currently see a very solid consumer demand. And of course, retailer inventories are still low and we are effectively shipping what we can produce.
So yes, still favorable.
Thank you.
Thank you. Next question, we have Johan Eliason from Kepler Cheuvreux. You may begin your
Just some follow ups. On the cash flow, it was obviously very strong in Q3. Can you give us any indication of how the seasonality will be impacted for the Q4 on the cash flow trends? Then secondly, Brazil, I think you lost a bit share in Q2. Did you regain it all now you think?
I think Wolfell said they took market share also in Q3 in Brazil. And finally, automation investments, you talk about positives coming from North America and also Brazil, but I also understand there's automation program going on in Europe, which seems to be related to the new higher energy requirements or labeling practices. Is that energy transition taking off all that energy transition taking off all the positives for the potential automation in Europe? Should we worry about it for a similar situation that we saw in North America 4 years ago?
Thank you.
I should have written
all this down, but okay. I'll leave the cash
flow one too, Sousiris. But yes, I mean, we had 37% growth in Latin America in Q3. We're pretty pleased with that. So who took the most market share, I will leave to others to analyze. But we're extremely pleased with our development in Brazil and in the region.
The automation ongoing across the group, yes. So we've chosen in this sort of extra SEK 8,000,000,000 of reengineering that
we talk about, we've chosen to
focus on the reengineering that we talk about, we've chosen to focus on the really big ones, which is then Anderson and Springfield, Cooking and Refrigeration in North America. We have Cooking and Refrigeration also in Brazil that we're driving and then a major, as you mentioned, engineering program to enable us to really win in the new energy labeling environment in Refrigeration in Europe. And I'm really pleased to report that we're making solid progress on that reengineering program in Europe. The first product will be launched in the Q3 next year. I have no sort of negative deviations to report compared to what we already have indicated in that graph.
So and then on top of that, and that's really my point, we're continuing to invest in automation across the group, more as an ongoing initiative that we've been driving for many years. And that's a large reason for the underlying, I'd say, cost productivity that we drive on a quarter to quarter basis. But that's not part of that big reengineering tracking that we're doing. So yes, no, I'm very confident that our cold program in our food preservation program in Europe will be position us extremely well in that market. And that new very demanding energy labor environment that we will have there.
Also then cash flow, Therese?
Yes. And then on cash flow, yes, of course, the $6,000,000,000 was tremendous. But I think if we look at the cash flow year to date, it's on a little bit more normalized level. And I think we have had, of course, tremendous swings between the quarters in all is continuing and so we believe with cash flow.
Did I miss one? Okay.
No, I think we answered them all.
Yes, absolutely. Thank you very much.
Thank you. Next question, we have Andre Kukhnin from Credit Suisse. You may begin your question, sir.
Yes. Hi, again. Thanks so much for taking the follow ups. Just a couple. Firstly, on pricing in the quarter or kind of just gross pricing level, is an estimate of around 300 basis
0.2
there. And then price would be clearly the bigger one out of the 2. Would that be fair to say?
In terms of the leverage impact, let's say, on EBIT, the app price is a big one.
Right, right. And on the raw materials indications into 2021, is there anything you can say on that?
No, it's a bit early. And I think just in general here as well, we're seeing these sort of competing impacts where we have a global recession clearly and people saying that GDP will not be back to pre recession levels until earliest end of next year. At the same time, we also see a fairly rapid recovery right now and a lot of suppliers have reduced their capacity. So there's this sort of negotiations as we speak. And as normal, we'll give a better negotiations as we speak.
And as normal, we'll give a better indication once we have more of a feel for how that's going.
Got it. Thank you very much for your time.
Thank you.
Thank you. Next question, we have Gustaf Hageeos from SEB. You may begin your question, sir.
Thank you for giving the opportunity for a follow-up. I'm a little bit curious about the evolution of the reengineering program. You guided at the time, it was a $8,000,000,000 incremental CapEx income combination. I'm just curious, I appreciate that you pushed some CapEx from this year into next year by lowering CapEx guidance for the year. But when we start to approach the end of next year, how much of this CapEx will have been deployed?
And how much do you still recognize will be to be spent in 2022 and beyond of the $8,000,000,000 incremental? Thanks.
Yes. I think the bulk will been spent by the end of 2021, but there is still going to be an elevated level in 2022, and then we'll start to see it taper off a bit. Therese, do you want to help? Okay.
Thank you.
Yes. Thank you. Next question, we have Karri Rintza from Handelsbanken. You may begin your question, sir.
Yes. Thank you very much. One more about the manufacturing consolidation And more specifically, when it comes to Anderson, these ongoing supply constraints that you experience at the moment, are that do you see them as a risk or an opportunity when it comes to sticking to the time line that you have discussed, I. E, being able to close down the legacy plant by mid year next year? And then secondly, at what point should we get concerned about Springfield when it comes to these travel restrictions to the U.
S, I. E, are they or any other COVID related disruptions putting the sort of the Springfield plant launch Q3 next year at risk?
Yes. No, on Springfield, I think we did indicate basically a 6 month delay and that was including the expected continued impact from COVID. And so we have no reason to change that guidance. And it is actually it is possible to travel to the U. S.
Now with waivers and exemptions. And so we are able to bring suppliers in, not to the level that we would ideally prefer, but it's able to it's possible to continue the progress of the investments and installation of equipment and so on. That's happening as we speak. When it comes to then to Anderson, I think we're as I mentioned, I think we've actually ramped up production in the combined old new factory to decent levels and pretty good levels. It's just the demand is so high.
And I think that's again an industry wide phenomenon where the industry isn't able to supply to full demand. So it's always a concern to me when we're not filling consumer needs or demand fully and we're doing literally everything in our power to do that. But I don't think we are particularly exposed for it. I think that's an industry wide phenomenon.
Great. Thank you. Sure. Thanks.
Thank you. And for our last question, we have James Moore from Raiford. You may begin your question, sir.
Yes. Hi. Thanks for squeezing me in on a follow-up. I've got a couple. Can you talk a bit about your U.
S. Fridge freezer production levels, I guess, given you lost some share with the transition, you now have a fantastic market that must be helping. I wondered if you could give us a flavor for how much production units kind of all in U. S. Coal Electrolux fell from say a year ago before the problems.
Are we broadly back to where we were? Or is there a permanent impairment? Or indeed with the better volumes, are we above where we were, say, before the problems? That's the first one. And the second one is
I will hold on. Let's take this one
at a time maybe then. Yes. So it's just because otherwise we'll forget. No, so yes. So look, the combination so what we've done, just to recap for everybody, right?
We closed our freezer factory in St. Cloud and we outsource part of that production and we move part of that production to Anderson. That's actually been the more difficult part of the transformation. So I think it's even though we are actually supplying a lot of freezers out of both our own facility in Thailand and our other external suppliers. But yes, we've lost a little bit of share in freezers.
There's no way around that. In terms of the combined fridge freezers, there I think we're actually now producing at very solid levels. And I'm not particularly concerned about that development. We're progressing very well. The
retroactive pay hike you mentioned, the retroactive pay hike you mentioned fully impact in the quarter? Or Can we or should we expect a more significant sort of one time negative in the Q4 at any other stage? Or have we already embedded that?
Yes. We fully approved for that in Q3.
Great. Thank you very much.
Sure. Thanks. Thanks, James.
Thank you. As there are no further question at this time, I'll hand the session back to speakers for closing remarks.
Okay. Thanks everybody for very good questions and a good discussion. Just in summary, I think this quarter has proved with all this volatility that we are extremely well positioned to create value. We're continuing to execute on our strategy to drive demand and profitability through relevant sustainable consumer experience innovation. And this helped also in this quarter to further boost earnings.
Our innovation focus together with our reengineering initiatives, will result in more efficient manufacturing with great new products, setting us up for long term competitiveness. I'm very confident that Electrolux remains well positioned to create value. Thank you very much. Looking forward to seeing you all at the Capital Market Update, and have a nice day. Thank you.
Bye bye.