Hello, everyone, and welcome to this presentation and discussion of the Electrolux first quarter results for 2014. With me today, I have our CFO Tomas Eliasson and our Head of IR Catarina Ihre, who will help us moderate this conference call. Let us start our presentation. Q1 highlights, we started the year, as you can see, by generating a solid organic sales growth of 4.5%, with growth importantly in all business areas. Both price and mix contributed positively to the sales growth. Following a long period of market decline, European demand for appliances improved during the quarter. The work to reduce costs and restore profitability in Europe continued and is now gradually impacting the financial performance and results of that business.
In North America, volumes in January and February were impacted negatively by the harsh weather conditions in that market, but volumes recovered strongly during March. Demand continued to slow in Latin America, mainly as a result of the slowing economy in Brazil. In addition to the overall weak market, our results in Latin America were negatively impacted by currency. Operations in small appliances and professional products showed solid underlying results. We continue to invest in future growth and expand in new markets, geographies, and channels, as well as in new products. During the quarter, Electrolux showed strong cash flow improvement, mainly as a result of improved working capital productivity. Now let's switch slides and take a look at our sales development in the various geographical regions. The next chart, you see the sales, and this is the sales of all operating units in each geography.
It's a mixture of major appliances, professional, and small appliances by geography. You can see that Europe showed positive growth and continued to improve on a sequential basis. Several countries in the central and southern parts of Europe are showing signs of improvement, with increased volumes and better mix. Growth in North America, as I mentioned, was impacted by the weather conditions early in the year, but picked up strongly in March. Although growth remains positive in Latin America, there has been a slowdown in the volume development, mainly due to the weak Brazilian economy. Our growth in Asia continued and was up 21%. The Middle East re-region was affected by continued political unrest and declined somewhat. I'd like to give you some market highlights before we get into the overall business area results.
If you flip to the next slide, which is titled New Products Drive Mix, a few of the highlights. If you go back to the middle of 2012, you recall that we began the first major launch of the Electrolux premium branded products in Europe as part of our profitable growth strategy. Our focus to grow in areas where Electrolux had a strong market position and offers best-in-class products are continuing. During the quarter, we increased our sales within the built-in segment in Europe and gained market share there. In small appliances, floor care, we have successfully launched the new generation of the Ergorapido Instant Clean under the name Nova. Excuse me. After the success in Japan, the Nova is, for the first time, now being launched in the Nordic region and will thereafter be rolled out across selected European markets.
One of Electrolux's most important launches was initiated in the second half of last year with the brand new premium products being launched in China. We are repositioning the Electrolux brand and will, over time, strengthen our foothold in the Chinese premium appliance market. Finally, I highlight that professional products have continued to do a really good job by bringing best professional appliances into the marketplace with a new lineup of both food service and laundry products. If you go to the next slide, you'll see that the company's sales growth in local currencies over the past years, and we can see clearly that our organic growth, and sales is on the rise. Sales have often been fueled by acquisitions that we made at the end of 2011.
Combined with acquisitive growth, Electrolux has in total generated 12% growth in the last 2 years, well above our strategic growth target of 4% annually. Now let's go through the business areas, and we'll start with Europe. Major Appliances, EMEA, achieved organic sales growth, driven by a combination of higher volumes and improved mix. Volumes grew in several important markets, such as the Nordics and Eastern Europe, but we also saw positive trends in France and Spain. New product launches across Europe and the focus on strengthening our presence in areas such as the built-in segment contributed positively to the top line. During the quarter, Electrolux was able to gain market share in some key product categories. Prices continued to decline in the 1st quarter, while mix continued to improve due to the good response to our higher-margin branded product offerings.
In the quarter, our results increased by 131 million SEK versus the previous year, mainly as a result of improved product mix and lower costs. Our efforts to reduce costs and enhance efficiency within operations have started to show effect and are contributed positively to our earnings. Unfavorable currency and price pressure continue to negatively impact operating income. Let's talk about the overall market development in Europe. On the next slide, you see that for a long period of declining markets, the overall European market for core appliances showed a year-over-year improvement and increased by 3%. Demand increased in most regions. Western Europe increased by 2% and Eastern Europe by 4%.
The market recovery was particularly strong in Germany, where demand increased by 3%, the Iberian countries by 13%, Italy by 6%, and Poland by 12%. The Nordic region and the Benelux countries also improved, while Switzerland declined. Looking into the full year of 2014, we now estimate that the market for appliances in Europe will increase by 1%-3%. Now let's go to North America. Major Appliances North America showed slight organic sales growth in the first quarter, mainly driven by price and mixed improvements. Sales volumes, which declined in the quarter, were impacted by the weak start of the year. However, there was, in fact, strong recovery and volume growth in March. Our strategic focus and expansion in new distribution channels and segments continued in the quarter and contributed positively to earnings.
Overall, the operating income in North America declined in the quarter, mainly due to the lower volumes, while improved product mix contributed to the results. The consolidation of cooking product production to Memphis, Tennessee, from L'Assomption in Canada, is now in its final stage, and it was decided to close the factory in July of this year. Now, let's turn the slide and talk about the market development in North America. In the first quarter of 2014, market demand for core appliances in North America increased by 1%. The pace of growth was, however, affected by those winter conditions in January and February, with a pickup in March. The underlying market for appliances in North America is healthy, and we continue to see consumer confidence and the macroeconomic environment to be positive for future appliance demand.
For the full year 2014, we estimate that the North American market will increase by 4%. Now let's go to Latin America. Market demand for core appliances in Brazil declined somewhat in the first quarter. The slowdown in the macroeconomic environment continued to have a negative impact on market volumes. Demand in the corresponding period last year was also partly driven by government incentive program for appliances. Several other Latin American markets, however, displayed slight growth during the quarter. All in all, our operations in Latin America reported a strong organic growth of 15%, exclusively driven by higher prices, and improved mix in most regions. Our earnings were negatively affected by the lower demand in Brazil, as well as from inflationary pressures and continued currency headwinds. Price increases in the improved mix largely offset the currency headwinds and the high rate of inflation.
Actions, including cost reductions, have been taken to compensate for the weaker market environment. The implemented price increases in the Brazilian market will continue to positively contribute to our earnings. New product will also help further improve our price mix. Now, let's turn the slide and talk about our operations in Asia Pacific. Our operating margins in Asia Pacific declined in the first quarter compared to last year. The lower profitability was mainly due to the negative country mix effects between Australia, New Zealand, and Asia, but also for costs associated with marketing and product launches in China and Southeast Asia. Our operating margin in Australia was negatively impacted by the ongoing ramp-up costs related to the consolidation of refrigeration production to the new plants in Rayong, Thailand, from Orange, Australia. Increased prices and better mix contributed positively to earnings, while unfavorable currency had a negative impact year-on-year.
Market demand in Southeast Asia and China grew at a high level. Our operations posted growth across all categories. In Southeast Asia, volume growth had a positive contribution to earnings. In China, the launch of the new product range continued. The cost of these launch activities had a negative adverse effect on earnings. Now let's talk, continue with small appliances. Organic growth in small appliances was 2% for the first quarter. Sales increased in all regions except in North America, where volumes were affected by the weather. Increased sales of vacuum cleaners in Europe and small domestic appliances in Latin America and Asia Pacific products improved the product mix. Operating income improved in the quarter, supported by favorable price mix and from product launches throughout 2013.
The unfavorable currency effects, particularly from the operations in Latin America, were, to a large extent, mitigated through price increases and better product mix. We have intensified marketing efforts for new product launches in Asia Pacific and North America, and this also had a negative impact on earnings in the quarter. Now let's turn the slide and talk about our professional business. Market demand for professional products improved our strategic growth markets during the quarter. The organic growth rate of 13% was mainly driven by strong sales in the US ,and emerging markets, but also in Western Europe, which still accounts for about 60% of this business unit's sales. Operating income and margins improved in the quarter, primarily as a result of higher sales volumes and a positive price trend. An improved cost structure also contributed to the results.
Now I'd like to ask Tomas to give his thoughts about our overall financials and then to go into and talk about our cash flow in the quarter. Please, Tomas?
Thank you, Keith. Let's start with the financial overview as well for the first quarter, 2014. As you can see here, in the quarter, reported sales was up 1.2%. Organic growth was a healthy 4.5%, in line with our strategic growth ambitions. Currency, though, had a negative impact on the top line, with 3.3%. The EBIT grew by 4% versus last year and amounted to SEK 749 million. The margin increased from 2.8% to 2.9%. Operating cash flow after investment in the first quarter was significantly higher than in the previous year and was minus SEK 123 million. I will discuss the details on that later.
Our earnings per share, excluding any items affecting comparability, grew by 5% and came in at SEK 1.55. Now, let's flip page and look at the sales and earnings bridge for the first quarter. Starting with organic growth, we had SEK 1.1 billion in sales increase in the quarter. EBIT increased with SEK 646 million, meaning a very strong EBIT leverage of almost 59%, and this meant 2.3 percentage points in accretion to the EBIT margin. Currency continues to have a negative impact on the top line, minus SEK 800 million in the quarter, and the total gross impact on EBIT was SEK 620 million, both translation and transaction.
Just as the previous quarters, it's been very much a question of South American currencies here, Brazilian reais, Argentinian pesos, and Chilean pesos, but also Australian dollars was big in the quarter. However, we should stop here for a second now and comment a little bit on these two, the organic growth and the currency effects here, because organic growth and currency are, of course, not independent from each other. As currencies move the wrong way, we try to compensate through pricing and mix as much as we can, and this means that when we do that, the organic leverage, of course, becomes inflated. And this is the case in Q1. The leverage of 59% includes a big chunk of compensation for the negative currency impacts.
If you take that out, the leverage is still very good. The EBIT margin went from 2.8% to 2.9% in the quarter. That was leverage. If we just take a quick look on the currencies as such in the quarter, on the next slide here, we see that the negative year-over-year effect continued in the quarter. Although, we have to say that the depreciation of some of these currencies against the US dollar and the euro, Brazilian real being one of them, seems to be sort of cooling down a little bit here now. Having said all that, regardless of what happens with the currencies, don't forget that we, over time, mitigate the currency effects.
Short term, there can be some volatility here. There can be a time lag between the currency effect, and the mitigating effects, but over time, we mitigate. Looking forward for the second quarter, taking the currency rate as we have today, we expect the transactional currency effect to be around -SEK 300, so about half of what we have in the first quarter. Let's move to the cash flow, and the operating cash flow after investments was -SEK 123 million, compared to -SEK 2.7 billion a year ago. A significant improvement. Higher EBITDA contributed, lower CapEx contributed, but the really big one was improvement in working capital.
If we put this into a little bit of a longer perspective, we can move to the next slide here and look at the cash flow by quarter over the last four years. What has really happened here in Q1 2014, is that we have returned to the level of cash flow that we normally have in the first quarter in a year. Q1 is always the weakest quarter from a cash flow point of view, and Q2 is normally much, much higher. You can see in 2011 and 2012, it's around from, let's say, from zero to minus SEK 500 million. The thing here is that Q1 2013 was a really bad quarter with a lot of problems or challenges in working capital.
Don't expect the same kind of improvement every quarter going forward for the rest of the year. With those words, I would like to hand over to Keith for summary and conclusions.
Okay, Tomas, thank you. Let's move on and try to summarize this overall presentation with an outlook and summary for Q2 in 2014. If you go to the outlook chart, looking ahead into the second quarter, and the full year 2014, we believe that growth will continue for Electrolux and for the appliance industry. We expect market demand in Europe to recover and be slightly up, which will impact our businesses positively in that region. We anticipate continued growth in North America in 2014, supported by the gradual recovery in the overall housing market. We also continue to see solid growth in our emerging markets, with Brazilian growth numbers normalizing over time. In terms of price mix, we expect a slightly positive impact from price mix in both North America and Latin America during the quarter.
Prices continue to be under pressure in Europe, but will, to some extent, continue to be offset by better product mix. We expect raw material costs to be close to flat in the second quarter as steel prices remain stable, while we will have some on costs for plastics and petrochemicals.
...In line with our strategy, 2014 will be a year of significant product launches, requiring increased investments in marketing and product development. We will utilize the positive momentum we have in North America and small appliances to increase investments in brand building in those regions and businesses. We are, as we speak, having a major product launch in China, and we'll continue to support that launch throughout 2014 to establish the Electrolux brand in that market. We'll continue to reduce costs going forward, and in combination with already implemented actions, we will take measures to structurally reduce our cost base, particularly in Major Appliances Europe. We expect overall cost savings in 2014 to amount to approximately 1 billion SEK.
Finally, as previously communicated, there will be some temporary cost increases until the second half of the year as a result of consolidating our production of cooking products in North America. Catarina, by that, I'm open for questions.
All right. Good morning, everyone. As Keith just stated, we open up the floor for questions. May we just ask you to state your name and the company you represent when posing your question, and also just a friendly reminder to take one question at a time, please. By that, please, Operator, could we have our first question, please?
The first question is from Mr. Andreas Willi, J.P. Morgan.
Yeah, good morning, everybody.
Good morning.
My first question is on the strong price increases you have implemented in Latin America and the mix improvement there. If you could comment a little bit more there in terms of pricing, is this an industry-wide effort and prices are sticking because you generally see competition doing the same in Q1? On the mix improvement in Latin America, if you could tell us a bit more what you're doing there to have this strong improvement in mix. On Asia, if you could give us some indication how the sell-out is going in terms of what you have sold into the distribution in your product launch. Lastly, on Italy and the restructuring, is there any update there in terms of proceeding with the plans? Thank you very much.
Okay, Andreas, that was your one question? Okay. Let me answer those.
You captured the whole geography.
That's fair. I mean, everybody's interested in all those subjects, I think it's fair. Let's just cover them all. Latin America, to your point, very strong quarter in terms of price and mix. To separate those, of course, prices were up substantially. As you know, in this type of business, you don't raise prices independently and still sell, right? The market had to be up in order for us to achieve our objectives on price. As you know well, the prices had to go up, as Tomas referred to, relative to the currency headwinds we've been facing all over the last several quarters in the Brazilian real.
I'd say they're up, and they had to go up, and depending on what happens, they may continue to need to go up, but the market is up, and we're up there on price. Also, to your point, very, very strong quarter in terms of product mix. Part of that was, you know, good, strong presentation, particularly in what we call the T3 category, so cooking and refrigeration and laundry, and a little bit lower sales in air conditioning. There was a product overall category, positive mix effect. But in addition to that, there was a good, strong placement of that pipeline of products that, you know, this business unit just does a really good job of continuing to launch new products. We think that mix effect will continue. That's kind of the summary of Latin America.
Asia, good placement, as we talked about, at the key retailers of the new line. Still probably too early to get overly excited and declaring victory. It's gonna take time to transition. If you recall our discussions around the Inspiration launch in Europe, and I remember back in the launch in the U.S. several years ago, just that retail transition takes time, you know, to get the product on the floor, to get the merchandise materials, to get the sales agents trained with the new benefits. We're in that process of transitioning. I'd say so far, so good. Lots of heavy lifting to do, lots of hard work. You know, retail is detail kind of stuff that's gonna have to happen, and we'll just continue.
You know, we're, you know, we're investing in and positioning the Electrolux brand here for the mid to long term. I'd say, so far, so good, but still lots of work to do, Andreas, going forward. Update on Italy, we're almost six months to the day of when we announced this, and you recall, when we announced, we said we'd anticipate sorting things out within six to nine months. We've got less than 90 days left to have it sorted out, and we're relatively pretty optimistic that that's gonna happen. We are in detailed and challenging discussions, negotiations with all the constituents and stakeholders here, including federal, state, local government officials, local and national union officials.
I think we're not, we are making progress, and I'm optimistic that we'll have an agreeable solution to the Italy plan here in Q2.
Thank you very much. Sorry about, I forgot about the one question only.
No worries, Andreas.
No worries. No worries. Could we have our next question, please?
The next question is from James Moore, Redburn.
Do I get a few?
Morning, James.
Good morning, everyone. It's James at Redburn. one on savings. I think the run rate has really stepped up on savings, and if I was to annualize it, you might be more like a billion and a half. My question is: Is there a timing issue or comp issue on the savings that seemed quite good in the first quarter?
Yeah, I think, James Moore, what you're seeing, and I know appropriately, everyone's expecting, as we are, is the traction that we're starting to see in Europe, right? You recall that of the SEK 4.4 billion that we announced, you know, SEK 1 billion of that was the write-off, but say SEK 3.4 billion-SEK 3.5 billion. You know, a big chunk of that we took in last year, late last year, that was related to the overhead cost reduction needed in Major Appliances Europe. What you're starting to see is traction related to that. Yeah, I wouldn't get too froggy, but I think there's good traction in Europe. We still have lots of work to do throughout the rest of the year across the other sectors.
Tomas, do you have any comments on that at all?
No. Well, I can just underline and what you said here, Keith, that yes, we do have good traction in Europe, of course, but we shouldn't jump to any conclusions now after the first quarter because we still have three quarters to go, and there's a lot of challenges. There's a lot of new projects that are starting and et cetera, et cetera. A good start, but be a bit careful.
If I could just follow up, it feels like mix has been another massive contributor in the quarter across built-in in Europe, premium in the U.S., channel in the U.S., product in LATAM, and makes it so hard from the outside. It's probably quite hard from the inside, but do you see anything that makes you feel like this is an aberration on the upside, or do you think this strength can roll through the rest of the year?
To your point, James, it has been a very particularly strong quarter for mix, pretty much across the board. I mean, virtually every operating unit had a strong mix. I think it was good. I think it was strong. I think there was some category implications because for example, we talked about air con in Latin America. Air conditioning was also weak in the U.S., given the weather conditions, so I think there was some category implications. The majority of the positive mix was just what you would expect. There were better, more premium, newer products coming out there, and we're seeing what you would expect to see from us after all the investments in R&D. We're seeing the pipeline of new products having a positive impact.
There was also some category effects as well, in terms of fewer air conditioners and more T3 or refrigerators, cookers, dishwashers. Yeah, I think good. I expect the mix to be positive for the year as we've communicated.
Great. Thanks.
Thank you.
Thank you, James. Our next question, please, operator.
Next question is from Mr. Domenico Ghilotti, Equita.
Good morning. I have a question on situation in Western Europe. In particular, I was surprised to see the strong indication from Eastern Europe. I wonder if you expect this market to remain healthy and what is embedded in your, in your revised full year guidance, given the macro situation and the uncertain political situation?
Yeah. Of course, it's a dangerous game here to predict Europe, given the, you know, recent turmoil and again, current turmoil, particularly on the eastern side of Europe. You know, I think it's it's prudent for us to kind of just say straight ahead what do we see. As we began to communicate at the end of Q4 last year, we started to see the market bottoming out and perhaps having a nominal positive turn going forward. Just to kind of string that together, when we communicated that in Q4, we said: Look, 2014 could be flat to up to 2%.
Mm-hmm.
We've got 25% of the year behind us, and Europe's up 3%, so we think it's... When we look at it, and you go country by country, we're seeing good performance in many strong parts of Europe, including Western Europe. In addition to the strength of Eastern Europe, we're seeing countries like we're seeing Spain, France, Germany, the U.K., Nordics, you know, we're seeing positive movement there. Italy was positive. When you start to see Italy, Spain, and France moving to positive direction, we are cautiously optimistic that, in fact, Europe has hit the bottom and is turning positive, and therefore, we're updating our forecast from flat to 2%, given the 3% increase in the quarter to up 1%-3%. Again, a little bit of, I would say, cautious.
Okay. I can say that, your higher confidence is mostly coming from Western Europe, basically, and the trend in the, in core Europe and in Western Europe.
That's right.
Okay.
That's exactly right.
Okay. Thank you.
Okay. Should we continue with the, our next question, please?
The next question is from Martin Wilkie, Deutsche Bank.
Yeah, good morning, it's Martin.
Hi.
Morning. It's Martin from Deutsche Bank. A quick question, just going back to pricing. Historically, once you've seen the European market having a volume recovery, has that usually been a leading indicator for where pricing would then follow? Do you think the European market is gonna be structurally under pressure for pricing, and the benefit you get over the coming couple of years is essentially volume and mix, as you launch your higher price point products? Just if you could give us some sort of sense of history in terms of ordinarily what we'd expect from Europe with pricing potentially following volume. Thank you.
Yes. It's a, it's a good question, and I think the challenge is where we're coming from, right? If you look at the peak to trough drop in Europe, down 20%+ percent from the peak to the trough. The good news is we're starting to see the recovery, you know. The bad news is from the base from which we're starting to see it, and therefore, there is significant underutilized assets throughout Europe because of that decline in the market over the last couple of years. I think over time, your point is right. You know, there'll be a correlation between volume and demand and price. I think in the near term, near term being in the next, you know, I don't know, four to six quarters, we're not anticipating a positive inflationary environment in Europe.
In fact, we're anticipating that it will be, continue to be deflationary because of where we're starting from.
Do you think that... I mean, that makes sense in terms of the utilization levels, but also, not just the established players, of course, there's a lot of new entrants or somewhat new entrants in Europe as well. There's no sense that it's gonna get incrementally worse. It's just not that it's gonna get any better. Is that fair?
That's, that is fair, yes.
Okay. Thank you very much.
Thank you.
Thank you. Thank you. Should we continue with our next question, please? The next question is from Ben Maslen, Bank of America.
Yeah, thank you. Morning, everybody. Just a quick one on the North American margin, which was down year-on-year. Keith, how much of that would you say is the impact of the kind of the drag from weather? Assuming that, you know, Q2 weather's fine and, you know, we go back to growth, would you expect the margin in North America to be higher year-on-year, given that you know, you have good momentum on mix and price? Thank you.
Yes, I would say that the two primary drivers of the North American margin decline was, one, to your point, the under absorption and low volume and driven by the weather in January and February, the first 8 weeks, that was a significant part. The other, as you know, is, you know, we've got the two factories running, and we've got duplicate costs there, at least through the first two quarters up until July. Those are the two primary drag. I would expect, given the March volume for us and the industry was up significantly.
Assuming that Q2 is a healthy market, which we expect it will be, we expect the volume headwind or depression on earnings will be mitigated, will be relieved, will go away, but that the duplicate plant costs will remain in Q2, and then that will go away again in Q3.
Got it. Thank you. In terms of the growth rate you saw in North America in March, I mean, do you think that's the underlying run rate going forward, or do you think there's some catch up in March for the fact that, you know, you had a weaker January and February?
I think there's some of that. I think there's some catch up. I mean, we were double digits in March, right? We don't think that's the normal rate. We think the rate, as we've talked about, is going to be more in the 4% range for the full year. Yeah, I think there was some catch up.
Got it. Thanks. If I can, just Tomas, a quick kind of admin question on the currency impact you had in the quarter, which was a bit bigger than you guided. Is that effect all a kind of P&L effect, or was there a one-off, you know, balance sheet effect as you revalue your receivables at the end of the quarter? If there's any split, you can give us around the breakdown of what is a, you know, a big number.
I wouldn't call it. It was not. The majority of it was just normal transactional flows. Yes, it was a little bit different than what we had guided, but on the other hand, the guidance we gave was with the currency rates that we had at that point in time. No, normal transactional effects.
Got it. Thank you.
Yep.
All right, if that answers your question, I think we can continue with the next one. We have a question from Daniel Cunliffe, Nomura.
Hi there, it's Daniel Cunliffe at Nomura. Returning to the price and mix. First of all, just really trying to understand how to think about this for the rest of the year, in particular, North America, where you had sort of strong volume declines, clearly a positive mix. As that sort of volume is recover, should that mix start to move the other way and, in fact, weaken? I guess, if pricing, Asia Pacific stood out this quarter, was particularly weak, was that due to stronger China and a mix there?
... Because I know that last quarter, it was the reverse. You had a very strong pricing, in Asia. If you just help us understand the price outlook for Asia and then the mix outlook for North America, that would be helpful. Thanks.
Yeah. Let's start with North America. As we talked about, we expect the combined price mix for North America to be positive for the full year. I don't think the mix going forward is gonna be quite as strong as in Q1, mostly because we'll get into the air conditioning season, and it'll start to level out a little bit. We certainly expect both the price and the mix and that combination to be positive for the rest of the year going forward. I think your question is a good one. I don't think the mix can be or will be quite as strong in Q2, three, and four as it was in Q1.
Almost certainly, based on everything we can see, we see positive price mix development continuing in North America. In Asia, yes, you have a couple things happening there. One is we have the country mix effect of China growing at, you know, 30+% and Australia being flat, right? You got that fairly significant country mix effect happening relative to the margin. On top of that, of course, we have the China launch, which is continuing and will continue throughout most of the year. We also have our duplicate plant. You know that we're closing the plant in Orange, Australia, and ramping up a plant in Rayong, Thailand, refrigeration plant.
Those are kind of the, you know, those are the moving parts that are impacting the Asian results.
Okay, useful. Thanks so much.
Thank you. Should we continue with our next question, please?
The next. We have a new question from Domenico Ghilotti, Equita.
Good afternoon.
Hi, Domenico.
Yeah. My question is, if you can update us on your current involvement in the dossier. You commented last time that you were engaged, and so I'm interested in understanding if there is still interest in the asset.
Yes. As you know, we indicated what our interest would be. We were initially not selected to participate in the in the auction process. That's kind of where it stands at the moment. No change, I guess, relative to what we talked about last time. There are portions of that property that are interesting to us, and there are portions of that property that are more challenging for us. We don't have any new news to report there.
Okay, thank you.
Thank you.
All right.
Ladies and gentlemen, we would like to remind you that if you wish to ask a question, please press zero one.
Do we have another question, please?
We have another question from Mr. David MacGregor, Longbow Research.
Yes, good morning.
Good morning.
Keith, yeah, Keith, you had talked, I guess, in the fourth quarter about having worked down some inventory in North America, and that had some adverse impact to earnings. I'm just mindful that with the bad weather in January and February, we may have had another inventory issue. I guess the question is, you know, we exit Q1 and enter Q2, how do channel inventories look in the U.S.? Does that have the potential to cause production curtailments, and be disruptive to the PNL?
Yeah, no, I think we learned our lesson on that one, David. But to be fair, I think there was a little bit of buildup in the pipeline because of the obviously very slow January, February. I think the good news is, with the very strong March, that helped mitigate a lot of that buildup, and of course, we were adjusting on the production side as well. I think the combination of the strong March demand and the adjustments necessary on the production side. It's probably a little bit, but there won't be anything that's material that you'll see on the PNL from an inventory channel buildup standpoint.
Okay, just as a follow-up, it seems as though you're getting pricing based largely on your ability to recover FX. At the same time, I'm mindful that you've launched a lot of innovation over the course of the past 18, 24 months. I'm just wondering if it's possible to achieve much over the balance of 2014 in the way of pricing, above and beyond FX. In other words, can you get paid for the innovation in this kind of an environment?
Just so I'm clear, David, are you talking specifically in the U.S. or globally?
Well, you could speak specifically to the US if you like, but the question was more globally.
Yeah, yeah. No, that's fine. That's fair. Yeah, no, I think that's a fair question. I think, as Tomas had said and reminds all of us, is, you know, it's, it's not a question of, is currency gonna make its way through to the marketplace? It is. The question is, and the challenge for us is, how do we shorten that lag so that it moves through, at least on one side, fairly quickly? I think as depending on what happens with currency, I think we've got, you know, after lots of hard work, the operating units have got enough momentum where we're gonna have to keep pushing it through, depending on what your forecast is for the currency. Will there be more price increases related to FX? Maybe.
If, you know, if currency forces at it, then we'll have to do it. The fundamental to your point is that, you know, we don't think that in many of our markets, that there's, you know, kind of an ongoing structural ability to raise prices over time. That's not the nature of this industry in general. You got to make it on the turn, you got to make it on the innovation, you got to make it on the mix. I would expect that we will continue to see a positive mix effect in all of the operating units going forward.
Okay. Can I just get you, quite finally, just to comment on the promotional level, promotional activity you're seeing globally?
That's a hard question to answer globally. As you know, you almost have to go market by market. But if you try to summarize it, I would say it's still the appliance business, right? It's a promotional category, and I expect that come the major holidays, you know, whether it's Fourth of July or other holidays around the world, we'll see good strong, heavy promotions, both from retail and from supported by manufacturers. But I don't think there's a tide change or a sea change. I think it's normal promotional appliance industry.
Great. Thanks very much.
Thank you.
Thank you. Do we have any more questions?
We have a next question from James Moore Redburn.
Yeah, hi, everyone. Just wanted to follow up on something. I'm playing around with some numbers for this quarter, and it strikes me that you've had some really significant, let's call them, tailwinds, in mix, in price, in some good savings. I'm trying to think more of the pressures, and you've been very clear about the FX, and there are the usual ongoing pressures of investments and inflation, whether salary or general or sourcing. Was there anything specifically negative that perhaps held the result back, that we don't see from the outside? I'm more thinking, how do these cost items progress Q2, Q3, Q4? Is there anything we should think about, and it follows up from David's question about marketing, but into the other key cost categories where you have lumpiness of costs.
Is there anything that was specific in the quarter or anything specific you can help us other than the points you made about the double costing dropping out as we go forward?
I don't think any different than what we've communicated, James. I mean, we have the, you know, we have the duplicate plant costs that will stay with us through July. We have some, we got the investment in the China launch that will continue through the rest of the year. We do have some, important launch costs in small appliances with some really cool products that we're launching in Europe and around the world. North America has got some ambitious marketing campaigns, but just nothing, Catarina, nothing different than-
Not, nothing specific, no.
When we add up the mix and the price and the savings in the first quarter, they strike me as quite a big number. Maybe the result, which surprised all of us, could have been even better. Was there anything on the negative side there other than FX? Because it feels to me that there needs to be to keep the number at 750.
Well, I mean, FX was SEK 600 million. Is that not enough?
I don't know. That feels like that matches my mix off, but not price and savings.
I mean, I think the good news is the price and the mix compensated for the currency, right? More than compensated.
I mean, we can tie that back to a little bit to comment on David's question here. Is there enough for or do we get paid for innovation? As Keith said here, the price and the mix compensated for the currency and also gave a change, if you would call it like that, for to be paid for innovation as such.
I see. Okay, thanks.
All right. I think we have room for a couple more questions before it's time to wrap up the call. Please, if there is another one on the line.
We have a further question from Ben Maslen, Bank of America.
Yeah, thank you. Keith, just a couple of follow-ups on the kind of mechanism for raising prices in Latin America in response to currency. What happens when currency goes the other way? Do you have to give these price increases back? Is the market react fairly quickly by normal market forces, or do you get to kind of keep the benefit and, you know, in theory, you should benefit at the margin from that. In terms of the weaker volume outlook you flag in Latin America, I mean, how much of that is a response to the fact you've raised prices, so the product is a bit less attractive in local currencies? Or does this reflect a change in underlying economic growth, financing, subsidies, things like that? Thank you.
Yeah. On the first question, you know, when currency starts going the other way, of course, with, you know, these big customers, they see it too. Over time, I think it works itself to the market both ways, honestly. I think there's a lag.
Okay.
I think there's a lag going up, and I think there's a lag going down, but I think it would be too optimistic and too lucky to think that when it goes the other way, we just hang on to it. I think over time, it works itself into the marketplace, up and down. I think the volume in Latin America has really got very little to do at the moment with the price. I think it's much more about the macro picture, the, you know, the overheated economies that have, with high inflation, that have to correct, right? I think the slowdown and rising interest rates to offset the inflation is a natural adjustment in the Brazilian cycle and Latin American cycle.
I think it's much more related to the macro picture than it is the micro pricing of appliances.
Got it. Thanks, Keith.
Thank you.
Thank you. Should we have a final question coming in? Thank you, ladies and gentlemen. If you wish to ask a final question, please press 01 on your telephone keypads now. There is no more question I would like to hand over to Keith. Is there one on there, or should we sum up?
Yeah, we'll sum up. That'd be great. We let people. I know there's lots of earnings reports coming out today. We'll let people get back to work. Let me just try to summarize the first quarter. I have a summary slide here at the very end you can refer to. As you know, we saw a continued good, solid organic growth for the group and for all business areas. Importantly, the market in Europe has, in our view, after several quarters of negative growth, bottomed out, which we saw in Q4, is now gradually recovering. Our earnings improved in the quarter.
The U.S. had a slow start, but came back strong in March, and we expect the market to continue to at a steady pace in that range of around 4% that we communicated. The professional products and small appliances continued to show good performance in Q1. We expect that to continue. We also have highlighted, we've seen a slowdown in Latin America, which has affected, as we just talked about, volumes in Brazil in particular. Finally, we showed in the quarter that we can in fact and will in fact increase prices to help mitigate the effects of currency headwinds over time. With that, let me just thank everyone for calling in. Again, I know it's a busy day. We appreciate your continued interest in this company, Electrolux. Have a great day. Thanks.
Thank you.
Thank you.