Good afternoon, everyone. As usual, we'll start this conference call with a 20-minute long presentations from our new CEO, Keith McLoughlin, and our CFO, Jonas Samuelson. Slides are available on our homepage, electrolux.com. After the presentation, we will start the Q&A session, and we will conclude the conference call around 5:00 Central European Time. My proposal is to use the Q&A session as efficient as possible and let everybody have the chance to put forward questions. Therefore, I would like each of you to ask only one question at a time. With these instructions, I would like to hand over the words to you, Keith, please.
Okay. Thank you, Peter, and welcome, everyone. Good afternoon, welcome to this discussion of the 2010 results. With me today, as you heard, I have our Head of Investor Relations, Peter Nyquist, and also our CFO and COO, Jonas Samuelson. Now, if you will, let's start the presentation. On to page 2. I'd like to start with some comments about the full year 2010. Today, I'm very happy, very pleased to present record-strong results for the Electrolux company. In 2010, we achieved the best results ever for our operations. I'm also pleased to tell you that we've exceeded our target operating margin of 6%, excluding items affecting comparability. Our strategy, based on three cornerstones, has strongly contributed to our performance. We have continued to launch new, innovative products to the market.
We have strengthened our Electrolux brand position, and our cost reductions have continued to generate savings for the group. It's something we are proud of. We have, during 2010, further strengthened our balance sheet, which has given the board the opportunity to increase the dividend from SEK 4 to SEK 6.50 per share. Now, let's look into the results in more details. On page three, our net sales for the fourth quarter increased by 1.6% in comparable currencies. Our sales volumes in Europe and North America declined, but strong growth in Latin America and Asia Pacific led to higher net sales. Operating income for the fourth quarter amounted to SEK 1.7 billion, excluding items affecting comparability. The operating income has been impacted by four major factors. One, raw materials.
Raw materials had an adverse impact on the fourth quarter of around SEK 300 million compared to the same period last year. Second, our manufacturing relocation program continued to generate about SEK 150 million in cost savings for the group in the fourth quarter. Three, price pressure. Campaign-driven price promotions in North America increased in the fourth quarter. In Europe as well, we have seen price reductions in Russia, Southern Europe, and in some Nordic countries. On the other hand, our mix continues to be favorable in the fourth quarter, primarily as a result of continuously launched new products. Now let me hand it over to our CFO, Jonas Samuelson, to talk about cash flow. As you probably already know, Jonas has, in addition to his CFO role, been appointed Chief Operations Officer, Major Appliances and Head of Global Operations.
I'm very happy he's agreed to take on this additional challenge, so please, Jonas.
Thanks, Keith. I'm really happy and excited about this new role, and an important part of this role is to implement the cost savings from global operations. As we presented at the Capital Markets Day last year, we're expecting to generate annual cost savings of about SEK 2 billion-2.5 billion from this program base, with full effect as of 2015. Also, as we said then, there's some upfront costs related to these global initiatives, estimated at approximately SEK 500 million per year for 2011 and 2012. Back to cash flow. The trend for our cash flow and our working capital in the fourth quarter reflects a normal seasonal pattern. Higher sales volumes at the end of the year have led to declining inventories.
Looking at our comparable cash flow in 2009, I'd like to mention two things. First, we made extra contributions to our pension funds, amounting to about SEK 4 billion. Second, sales and production last year were at a low level, which led to very low inventories and low trade receivables at the end of the year. In 2010, our sales increased in the last months of the year, which has led to higher trade receivables. The higher sales will improve our cash flow in the first quarter of 2011. We've also increased our capital expenditures compared to the very low level last year. I'm also proud of the fact that we've continued to improve our net operating working capital.
Our 12-month rolling net operating working capital, which reflects receivables, payables, and inventories, has improved from above 18% of net sales in 2007 to below 14% in 2010. We worked hard to achieve this, and we'll continue to improve this ratio further. As Keith said, we're proposing a considerable increase of our dividend. With the dividend of SEK 6.50 per share, we still have flexibility to grow by acquisitions and to preserve our BBB+ rating. Before I hand back to Keith, I'd like to give a short update on where we are in the acquisition of Olympic Group, if you turn to slide five. With the current situation in Egypt and in strong agreement and cooperation with the sellers, we've temporarily put the acquisition process of Olympic on hold.
Therefore, for the time being, we've, of course, then stopped our due diligence work, which until now, it proceeded very well and according to plan. Our ability to grow in North Africa as well as Middle East will improve. Electrolux and Olympic Group have, as we talked about, had a successful commercial partnership for almost 30 years, which today covers technology, components, distribution, brand licensing with the Electrolux, AEG, Frigidaire, and Zanussi brands. Again, we'll have to wait the further developments in Egypt, and then, we'll determine how to proceed. Back to Keith.
Okay. Thank you, Jonas. We're on page six. Now let's look at our operations in Europe. Lower volumes and price pressures led to lower sales in Europe compared to the same period of last year. Price pressure continued in Russia, the Nordic countries, and in several countries in Southern Europe. Some of the price declines were also related to currency changes. The liquidation of one of our major customers, the German retailer, Quelle, continued to have a negative impact on our volumes in the quarter. Our operating income in the fourth quarter declined to SEK 565 million. In addition to negative impact from volumes and prices, higher marketing investments had a negative impact. We were able to mitigate some of the headwinds through cost reduction measures that continued to generate savings.
For the full year 2010, Electrolux business in Europe improved its operating profit by 15% and delivered a margin of 6.8% for the full year 2010. An improved mix, due to increased sale within the kitchen built-in products, was the main contributor. Operating income for our floor care operations in Europe declined in the fourth quarter as a result of higher costs for source products and marketing investments. Now some comments on the European market development. On page seven, you can see the European market grew by about 3% in the fourth quarter, driven by strong growth in Eastern Europe. Western Europe has been roughly flat for about a year now. While the markets in Germany, the U.K., and Sweden, and Italy grew in the quarter, we saw declining markets in Spain and in France.
Industry shipments in Eastern Europe were up by 13%, driven by strong growth in Russia and the Ukraine. Let's turn the page and talk about our AEG launch in Europe. On page eight, in order to strengthen our product offering in Europe, we are repositioning our AEG brand in Europe. The launch of our new collection started in September. The products were shown for the first time in September at the IFA Fair in Germany, one of the most important international industry trade shows for consumer electronics. The launch will proceed over several months, the next 6 months. It's a little bit too early to draw major conclusions, but so far we've seen very good reception from our retailers and consumers.
Similarly, in floor care, there is a positive trend mix continuing in 2010 as a result of new innovative products that consumers are willing to pay a premium for. This positive development has been particularly obvious for our floor care products. Our products have gained market shares in the premium segment, which has been key for improving our mix. On this slide, you see two success products, UltraOne, which has been recognized as the best vacuum cleaner ever in several countries, and our innovative cordless vacuum cleaner, Ergorapido. Let's shift and talk about North America. Our net sales in North America declined in the fourth quarter. Firstly, we have exited certain sales contracts with low profitability, mainly within private label. Second, campaign-driven price promotions increased in the fourth quarter. Our prices were also impacted by these campaigns and had a negative impact on our operating income.
We have tried to maintain a conservative view of price reductions, and we have selectively refrained from certain campaigns in the fourth quarter, which had a negative impact on our volumes. The increased demand in the fourth quarter has led to lower inventory levels among retailers and producers. The higher raw material costs had a negative impact on the fourth quarter. Our operations in North America have taken a substantial share of the SEK 300 million of increased raw material costs in the quarter for the group. Looking ahead, we expect the market, over time, will normalize and compensate for the higher input cost impacting the industry. In mid-January, we communicated a general price increase in the US market, effective April 4th.
Looking at the full year of 2010, in spite of promotion-driven price decreases, increased raw material costs, and lower volumes, Electrolux managed to improve its 2010 full-year result. This is a result of improved product mix, successfully accomplished through increased sales under our own brands. Operating income for our floor care operations in North America declined in the fourth quarter due to lower volumes, higher costs for source products, and lower prices in the market. Let's turn the page and talk about the market developments in North America. The market demand for appliances in the US increased by 2% in the fourth quarter, and for the full year for 2010, grew by close to 5%.
Interestingly, the market grew by about 10% in the first half of 2010, while the second half was close to flat. In the first half of 2010, the ENERGY STAR program clearly led a pull-forward effect, which resulted in lower volumes in the third quarter. Despite tough comparables, the market recovered a bit in the fourth quarter, mainly driven by the aggressive promotion activities throughout November and December. Let's turn the page and talk about Latin America. We're on page 12. Market demand for appliances in Brazil is estimated to have grown by 11% in the fourth quarter. Electrolux in Brazil grew by 14% in the fourth quarter. Several other markets in Latin America continued to show good growth.
We had a negative impact on our customer mix due to the consolidation among several larger retailers in the Brazilian market. The consolidation, combined with higher raw material costs, had an adverse impact on our operating income. Operating income for the full year 2010 in Latin America improved compared to the same period last year. Higher volumes and improved product mix had a positive impact on earnings. The group's floor care operations in Latin America showed strong growth and a solid result in the year. We will continue to launch new products in the market, and I'm happy to see good market acceptance for our recently launched products. Now I'd like to talk about some of those new products in Latin America.
On page 13, as I mentioned, our new products in Latin America have received good market acceptance among our retailers, as well as among our end users. The products will further strengthen our product offering in this important region. On this slide, you can see our recently launched washing machine called UltraClean. It has the most complete and personalized programming within the segment and has exclusive features, such as the innovative and exclusive stain remover accessory, which you can see on this slide. With this product, we can offer our consumers an eco-friendly, top-load, premium washing machine with a capacity of over 15 kilos. Now let's turn to Asia-Pacific. Once again, our operations in the Asia-Pacific region have shown a substantial improvement compared to the fourth quarter last year.
This is the best result ever, and our operating margin exceeded 11% in the region, record numbers for the quarter and for the full year. In Australia, the market declined slightly in the fourth quarter, and our sales declined somewhat. Our operating income increased substantially, thanks to favorable exchange rates and improved cost efficiency. Higher raw material costs and increased price pressure had an adverse impact. The markets in Southeast Asia and China continued to grow considerably in the fourth quarter. In addition to the high market growth, we were able to gain market shares. As a result of the higher volumes, our operating income rose in the fourth quarter. For the full year, our earnings more than doubled in Asia-Pacific. Let's turn to our professional business on page 15. I'm very happy also to present very strong results for our professional operations.
With an operating margin exceeding 11% for the full year and close to 15% in the fourth quarter, our professional products is reporting today its best operating margin ever. Market demand for food service products continued to stabilize in the fourth quarter. Our sales decreased somewhat following discontinued operations in the contractor business. Sales volumes of group manufactured products increased, however. This, in combination with a customer mix improvement and improved cost efficiencies, led to higher operating income. Market demand for professional laundry products continued to stabilize in the fourth quarter. Despite lower volumes, our operating income improved compared to the same period last year. Price increases and improved cost efficiency contributed to this great development. For the full year of 2010, our operating margin increased by 2 percentage points for our professional business.
Now let's talk about the first quarter and the full year 2011. As you look at slide 16, we look ahead to the first quarter and the full year 2011. Market volumes for the first quarter will be somewhat negative, driven by North America, where comparables will be tough, and we will see less promotion-driven volumes. It is also important to note that Q1 is typically the seasonally weakest quarter. For the full year, we expect to see growth in both North America and Europe. The first quarter will continue to suffer from weak prices in most regions. To compensate for increasing raw materials, we have, in North America, announced a general price increase, while in Europe, we will execute selective price increases. We believe this will have a positive impact from the second quarter and onwards.
We see a continued positive development for the group's mix, both for the quarter and for the full year, as we continue launching new products. The cost for our most important raw materials continue to increase and will impact with full force in Q1. In addition to increased costs for steel, we also see considerable increases in plastics and base metals. We have signed contracts for around 50% of the year's purchasing and expect that the cost for raw materials in 2011 will increase between SEK 1.5 billion and SEK 2 billion compared to 2010. We will benefit from previous cost-cutting programs. Cost savings from our manufacturing relocation program will amount to SEK 500 million, basically evenly distributed over the quarters. We also have great expectations for savings by utilizing our global strength and scope through global operations.
The initiative is expected to save about SEK 2 billion-SEK 2.5 billion per year, with full effect from 2015. Initially, the cost for these investments will be SEK 500 million per year for 2011 and 2012. Peter, if we can open up for questions?
Sure. We are now ready for the Q&A session. As I said in opening, we should use the Q&A session as efficient as possible and let everybody have the chance to put forward a question. Therefore, I would like each of you to ask only one question at a time. If you have more questions not yet been answered, you can line up again. Operator, we are now ready for the first question, please.
Ladies and gentlemen, if you have a question, please press zero one on your telephone keypad and you'll enter a queue. The first question comes from Miss Lisa Randa from Nomura. Please go ahead.
Yeah, good morning, good afternoon, gentlemen. Just a question on pricing then, if I can try and wrap a couple of questions into one. Can you give us some sort of indication of what level of pricing you're trying to put through or you're putting through in North America? How that will stick? Is that increase in pricing then carried straight through to the consumer, or is there still a process of negotiation with the retailers? Also, you know, what sort of price elasticity do you expect to see in North America and in Europe on those price increases? Thank you.
Yes, thank you for the question. As you are aware, I'm sure it's in the public domain, we've announced an increase in North America, effective April 4th, of 8% to 10% on our appliances. We're implementing that price increase as we speak in the marketplace, and will begin, as we said, to take effect in April and through the second quarter and forward. We also are looking in other markets around the world, particularly Europe, and selectively we'll be increasing prices country by country. Of course, with over 40 different countries in the region in Europe, we're gonna have to do that market by market, country by country, so the operating units are doing that work today in terms of passing along these costs.
What I can say is that, and we've been through this before, as you know, with the rising tide of commodities, is ultimately they make their way through to the marketplace, and you can expect the same here. As you also know, and as we've indicated, there's a little bit of a lag from when we see them and by the time we get them fully passed through to the marketplace, and we expect to see that as well.
Are you okay with that, Lisa?
Well, just to follow up on that, just in terms of price elasticity, I mean, where you've put, you know, what history, what does history tell you when you've put up prices on existing products before, in terms of the impact you might see on demand?
Yeah, it's actually not as direct as you would expect because of the price. We're talking about, of course, high-ticket durable goods here. When you know, when we increase a $500 range, 10%, you know, the consumer doesn't react strongly to $500 or $549. It, you know, it's not as direct as you might expect. The other part, as you know, particularly in the U.S., with the housing market being so weak, a predominance of the demand is replacement demand, and when there's a failure of a range or a refrigerator, people are gonna replace it. We don't expect a material negative impact on the demand cycle as a result of this.
Okay. Thank you.
Thank you, Lisa. Next question, please.
The next question goes to Mr. Christer Fredriksson from ABG Stockholm. Please go ahead.
Hello, Christer.
Hey, good afternoon. Question on your share buyback program. If you're planning to cancel the shares you already have on your balance sheet on the AGM? If not, what are you trying to do with your balance sheet here? Are you trying to find a big acquisitions, and in that case, what kind of acquisitions are you looking for?
First, to be clear, we're not looking to cancel the shares. As we communicated, it's really the board proposing a renewed mandate of the existing share buyback program, which, as you know, is a little bit more than 2% remaining on that. We're looking to go to the AGM and get a renewal of that mandate. Specifically, in terms of the balance sheet, we have an aggressive goals here, as you know. We expect, and we've announced the intention relative to Olympic. Jonas talked about that a little bit. With the current events, that's a little bit on hold, we have intentions to invest in the business, to grow it, both organically and through acquisitions. We have several candidates in the pipeline that may or may not make sense.
Obviously, as that becomes public and material, we'll share that with you. We're looking to grow the company, and that includes dimensions of geography, product, segments, and technologies.
You're happy with that, Christer?
Absolutely. Thanks.
Thank you. Next question, please.
The next question comes from Mr. Johan Trocmé at Nordea. Please go ahead.
Hello, Johan.
Hello there. If I could come back to your ambitions to raise prices, would I understand you right, in that the magnitude of price increases that you've announced for North America are likely to be, as a rule, similar in other countries as well? What, if any, reactions have you seen or anticipated by your competitors in terms of the whole marketplace working in tandem here? I've seen from Whirlpool that there seems to be a buy-in to this initiative. What about others?
Yes. What I can speak to is our intentions relative to our pricing, and clearly our intentions, we've been very transparent with, and we're raising prices. I can't really speak to our competitors' intentions. It's probably best to ask them directly.
In terms of magnitude, North America versus rest of the world?
Yes, we announced the 8% to 10% in North America. It's one of those things where you're gonna have to take it market by market, I think it'd be a little bit too explicit to try to do that country by country. Each of the operating units know the kind of headwind that we're facing. They know the implication relative to how much they have to get through, they're working on that as we speak. Again, as we get agreement with our customers and communications with our customers, and that becomes public, we will make that public to you as well.
Thanks.
Thank you, Operator. Next question, please.
The next question come from Mr. Ben Maslen from Merrill Lynch. Please go ahead.
Hello, Ben.
Yeah, hi there. Good afternoon, everyone. Yeah, just carrying on with the price increases, please. You've announced the price increases. I think they feed in from April. I guess you're gonna see the higher steel costs right now. When you look at 2011 and how the year pans out, I mean, do you think that the first quarter is gonna be the weakest quarter that you see for the year as a whole?
Just kind of following up on that, you know, I guess in terms of the moving parts of your EBIT this year, you know your raw material bill, your cost savings, and many of the different moving parts of earnings, what price realization do you need to get, in terms of, you know, U.S. and Europe, to actually achieve your 6% margin this year? Thank you.
Yeah. The first part of the question, just remind me, was around?
Yeah. I mean, are you gonna hit a, kind of, the opposite of a sweet spot in Q1, where? Yeah.
Sure. Yeah, yeah. Got it. Thank you. Sorry. The answer to that is yes. You know, Q1 is gonna be the weakest quarter from two perspectives. One is seasonally, it's always the weakest quarter. Actually, Q1 2010 was unusually strong, actually. If you look at the history, which I know you all have, and look at our Q1 performance, seasonally, it's always our weakest quarter, and you kind of know the rough range of what that looks like. That's where we start with, I think, in a normal seasonal pattern here. To your point, there's gonna be a spread here between the time we feel the impact of the raw materials and the time we can get them through to the marketplace.
The majority of that is gonna be in Q1, a little bit, you know, hopefully quite a bit less in Q2. Then, hopefully, we expect in the second half that's cleared through. Yes, to answer your question, there will be that offset in the Q1, for sure.
Yeah, thanks.
Happy with that, Ben?
Yeah, yeah, that's great. Thanks. Yeah, the second part of the question or the second question, I guess. Sorry, I was a bit cheeky. You know, in terms of the moving parts, you know, you know, in terms of the bridge you've given us for this year, you know a lot of the moving parts, the raw material bill, cost savings, and so forth. You know, I guess the big question mark is what price realization you can get through. You know, what do you think you need to achieve, to do a 6% margin this year?
Yeah. again, it's hard to give it, you know, exact numbers, but we know we can tell you for sure, we know, we've been pretty clear on the headwind with the raw materials. We're also, as we've mentioned, gonna continue to invest in this company. We have investments in global operations that Jonas referred to. We have investments in M&A that we're gonna do, right? We're gonna invest in our new products and our brands. you know, we expect some positive impact, of course, on the remaining elements of the income statement, specifically volume and then price mix, we're gonna have to get and offset that. you know, we're gonna have to work all levers this year, particularly given those steep headwinds.
Okay, thanks a lot.
Mm-hmm. Thanks, Ben. Next question, please.
The next question come from Mr. Anders Trapp from SEB Enskilda. Please go ahead.
Hello, Anders.
Yes, hi. Hi there. I don't really know how to phrase this question, but, I'm thinking a little bit philosophically. How do you think about the need or the desire to really meet your 6% target, compared to the need or desire to, you know, invest in growing the company? I mean, could you share with us how, your thoughts about that, especially maybe with the 2011 in mind?
Yes. Yes. Yes, good question. Thank you, Anders, for that question. It's a very good question. How we're thinking about it is, at, per our previously communicated goals, is, you know, we intend to maintain and operate at that 6% EBIT operating margin level through a cycle. Of course, those words, through a cycle, are there on purpose, which means we'll, you know, we'll hover in and around that, up and down, through business cycles, but average the 6%. As you all know, very well, the company, you know, under Hans' leadership and the management team here, have also done a very good job, in addition to getting the margins up, to managing the asset turnover of the company.
When you combine those two of the three operating levers, of the margin at 6x and turning it 4x or 5x , you know, you get pretty nice return metrics, you know, in the 25%-30% range. With that kind of healthy business combination, as you know, the best way to create shareholder value is to grow this company. Our emphasis is, clearly, we have to do a ton of work, and I'm not undermining that or slighting that, to maintain the 6%. You know, given these headwinds, given the competitive dynamics, we have to do a ton of work every day to maintain that 6% and continue to drive the velocity of our balance sheet and our assets.
The big challenge for us, and the big opportunity for us, is to take that healthy return and grow it. You will see significant investments in this company oriented toward growing that equation and get the third lever of the operating levers, the top line, along with the margin, along with the asset turnover, to create that shareholder wealth, the next shareholder value. That's how we're thinking about it.
All right. Very good. Thank you.
Thank you, Anders.
Next question, please.
The next question come from Mr. Rasmus Engberg from Nordea Bank. Please go ahead.
Yeah, hi, Rasmus.
Hi. Can I just have a clarification when you talk about the price increase in North America? Is it so that this is a list price, and then from that, we deduct discounts, or is this a done deal? How does this actually work, and when does it materialize?
Yes, as you know, what I can, what I can confirm is what we have announced and what we have communicated to our customers, with the 8% to 10%, effective April 4th, on all of our major products. That's what I can confirm. You know, what happens between now and Q2 and Q3, you know, we'll be able to report when that happens, we are very serious and very dedicated about raising our prices to offset these raw materials.
Okay, thank you.
Thanks, Rasmus. Next question, please.
The next question comes from Mr. Colin Gibson from HSBC. Please go ahead.
Hello, Colin.
Hello. Hi there. Yeah, one question then, and that it goes back to Olympic, and I realize there's only so much you can say about it at this point. Can you give us any indication of where you are in the negotiation stage and what the legalities are? Olympic, presumably, is just as strategically attractive an asset as it was last week or the week before, maybe it's gonna earn less money in 2011 than you might have guessed a month earlier. Can you renegotiate the purchase price?
Yeah, let me give you a little bit, and I'm gonna ask Jonas to fill in, if I could. Actually, we've gone a fair way down the road of the due diligence process with Olympic, and we're actually more excited about the business combination than we were when we started. We like what we see. We think, and we got pretty good line of sight, I think, Jonas, to the synergies here. We like the management team. We see the opportunity for cost productivity, for product expansion, and for revenue growth in the Middle East, Africa, and potentially beyond that. We're actually even more positive about the value of this in our portfolio than when we started. Of course, you know, it certainly wasn't plan A to do this in the middle of, you know, a fairly significant turmoil in the country.
I think both parties, respectively, as Jonas mentioned, management teams and owners said: "Hey, look, let's just let the dust settle here, figuratively and maybe literally, until we see what's going on." Jonas, do you have any other comments on that?
Right. No, I think that's it. You know, I think we're again, very close. We were very close to sealing this deal. Again, we really like the opportunity. I think, honestly, if this turns out to be a very short-term disruption, then we will get back very quickly. If it takes a different turn, then we have to look at it. I mean, I think, yeah, unfortunately, we can't be clearer than that, but we definitely like the business. We like the market. We like the opportunity a lot.
Yeah.
Thanks.
Okay. Good day, Colin. Next question, please.
The next question comes from Mr. Johan Dahl from Erik Penser Bank. Please go ahead.
Hello, Johan.
Hello there. A brief question on volumes for the company. We've, you know, we've seen in the current year, 2010, I'm referring to, the market volume sort of recovering a bit, and now price pressure is back on the agenda against that. I guess one of the issues for Electrolux in 2010 were, I mean, if you look on total volumes for the group, I guess they were measuring it in units, were pretty much unchanged. When you look forward from today into 2011, what do you hear from your key accounts? Also, when can we expect base effects to be gone, I mean, leading up to reduced volumes for Electrolux?
Do you think you can participate better in market growth in 2011 compared to 2010? I'm also referring to the guidance you're giving for the first quarter, where you expect lower volumes for the group. I mean, it should be only U.S., I guess, that's down in first quarter.
Yes. Just start with that last part. I think our primary concern in Q1 volumes is U.S., and maybe let me start there. As I mentioned briefly in my remarks, if you look at the U.S. in 2010, you know, there's obviously, you had the first half and the second half, you know, plus double digits, zero, right? Those are the comps that we're going up against. So there's gonna be a little bit of a mirror effect, where in the U.S., we're going up against the, you know, heavily stimulated demand by the U.S. government and ENERGY STAR rebates. That's, you know, not gonna be there in 2010, plus we're coming off a, you know, a slower part of the year.
For the U.S., we expect that the total demand will be up year-over-year, low single digits. You know, honestly, in our plan, we've got 3%. You know, could that be 2? Sure. We think that it'll be down in Q1 and then bring its way back up through the remaining part of the year. We expect that Europe will be at 2% in total. Again, largely driven by the continued growth in Eastern Europe, and that within the Western Europe, you know, it'll be actually pluses and minuses, you know, between the Nordic countries and the Germanic countries and the Southern countries. You know, there's a mixture going on, and you know the countries that are doing well, as well as I do, and the ones that aren't doing so well.
The same applies to the appliance demand picture there in Western Europe. Australia, similarly, low, you know, 1%, maybe, kind of flat to 1% growth. We've got such a strong position there, we're able to drive productivity and new products and innovation, and the team's done a really good job there, of managing earnings and generating cash. Outside of the mature markets, we have been and continue to expect to participate, and in many cases, we have and will continue to exceed the market growth. That includes Brazil, Latin America, outside Brazil, Southeast Asia, Northern Asia, and as I mentioned, Eastern Europe. It's a portfolio of growth pictures.
I'd say the thing that we're cautiously optimistic about, different than the last two or three years, is we expect growth in virtually all the major countries that and markets that we participate in. The mature ones, very nominal growth, again, after 13 quarters of negative growth in the U.S., we're happy with a couple of % growth. That's kind of the picture, if I've answered that question for you.
Well, that's good. I have to follow up, okay, very briefly.
Yeah.
I mean, that, market performance is one thing, but specifically with regards to Electrolux, I mean, when are these base effects gone from Quelle? When can we see some contribution from IKEA? Do you expect to perform at, you know, what perspective can you share with us that you will perform in line with the market in the short-term perspective, let's say, the coming two quarters?
Yes. Okay, good. Sorry, I didn't get that part of it. Yes, actually, the Quelle effect is essentially over. As we go into 2011, it's straight up business and, you know, we don't intend to lose market share in Europe. In North America, I can tell you that more than 100% of our market share delta or our growth relative to the market, has been driven by a conscious decisions to exit low profitability, private label. In fact, our brands gained share in 2010. With our pipeline of new products, we expect that to continue. We gained share in Australia in 2010, we gained share in Brazil in 2010, we gained share in Southeast Asia and in China.
Great. Thank you.
Thank you.
Thank you, Johann. Next question, please.
The next question come from Mr. Johan Lundelson from SEB. Please go ahead. Hi, there, Johan.
Yeah. Hello. I was just wondering a bit on the balance sheet issue again. What sort of sizes are you aiming at when you talk about acquisitions? Similar sizes as this Olympic, or are there bigger ones in the pipeline you talked about? I can understand that you will never know if some deals will come through or not. What would be the maximum you would be willing to spend over the coming one or two years on acquisition, if every one of the dream acquisitions would come through?
Yeah. Of course, it's impossible to speculate on, you know, acquisitions that haven't happened yet. Perhaps the best or good way to answer that, actually, I recall at our capital markets day, Jonas saying something that stuck with me because I think it was exactly on target, which is, you know, we don't have an acquisition strategy, right? We have a strategy that comprehends growth, that comprehends product investment, that comprehends operational excellence and productivity. We intend to grow as part of our growth, both organically and selectively, bolt on our acquisitions in the key markets that enable us to propel and accelerate growth.
In key product areas that either we don't participate in today, but that are strong adjacent product areas that connect well with our core, potentially in key technologies that would be a good addition to where we are, as well as channels and/or segment opportunities. We're looking at multiple potential growth opportunities for these acquisitions, again, alongside of directly initiated organic initiatives. They will be complementary. I guess my guidance would be, you know, we're not looking to, you know, for a sea change here in any single play, but rather a series of connections that accelerate our strategy and not are just primarily, "Hey, we just gotta grow by acquisition." That's not the perspective that we have.
Okay.
Are you okay with that, Johan?
Well, it's obviously not yet, so.
Yeah, I mean, as again, as it gets hard to speculate on some of these things, right? As soon as we know something, you know, and we have, we're able to be public about it, we will disclose it immediately, of course.
Yeah.
Okay, thanks. Next question, please.
The next question come from Mr. James Stettler, from UniCredit. Please go ahead.
Hi there, James.
Hi. Thank you. Just looking at the competitive environment, I mean, we hear a lot about the Koreans. Do you think there's a step change going on in terms of Samsung and LG? Obviously, they're very aggressive in the U.S. in certain segments. They appear to be aggressive in Russia. I mean, is that something we should be worrying about, of an incrementally more negative, pricing environment?
I think the Koreans, specifically LG and Samsung, are coming after the global appliance market. I think that's crystal clear. They're coming after, you know, key categories, key profit pools where they exist. Whether that's US, or Western Europe, or Brazil, Australia. I mean, they're smart, good, well-managed companies. They're coming at it initially from their CE base, you know, the consumer electronics base, and trying to leverage off of that into retail in the given markets. They're coming off of core product groups, so specifically laundry and refrigeration. And in several cases, they're coming with good products. I mean, good design, good features, good user interface, consoles. You know, it's not a, you know, let's just bury the market with low price stuff and watch everybody bleed to death.
You know, it's a healthy, to me, it's a healthy, but intense for sure, competitive environment out there. Ultimately, it's gonna be about, you know, who brings more value? Who brings more value in innovation? Who brings more value in the trade? Who brings more value in the brands? Who's got better productivity? Who's got a stronger product offering? Who can distribute it better? Who's got more market and knowledge, local presence? I mean, that's the game that's going on. Absolutely, the Koreans are increasing the competitive intensity of this industry. That doesn't scare us. I mean, you know, we've been competing for 91 years, we'll compete for another 91. You know, we're gonna have to be on our game, and we intend to be.
Okay, James.
When you look at those changes.
Sorry?
When you look at the changes, you talked about the increasing pricing pressure in Southern Europe, Nordic areas, do you think that's just normal business, there's nothing unusual there?
Yeah, I think the issue actually in Southern Europe, you know, in Spain and in France, and, of course, in Portugal, you know, certainly honestly, you have some market dynamics and economic dynamics going on, where the, you know, the lower end part of the market is growing more rapidly than the premium end of the market for all the obvious reasons. I think there's certainly competition across the board. I, you know, I think Europe actually is a, you know, is a mixture of very different things going on. Fundamentally, when you have, you know, the Germanic countries growing, the Nordic countries growing, you know, that's a healthy thing for us.
I think we'll have to sort through Europe as Europe sorts through all of its things, just like North America is having to get through its issues as well. Long term, you know, it's a big market. We have the opportunity to create lots of innovation in product and brand, and it's not an overly capital intense business that where you can create value and cash flow. I, just so I answer your question, and we're not, you know, we don't think the sky's falling. It's gonna be competitive, but it's, I don't know, it's always been competitive, I guess, is how I think about it.
All right, thank you.
Yeah.
Thanks, James. Next question, please.
The next question come from Ms. Lisa Randa from Nomura. Please go ahead.
Hi there, Lisa, again.
Hi there. Yeah, sorry, back around in the queue. just to come back on the share buybacks. given the 7.9% that you have in treasury, are you saying if you don't cancel those or use those for M&A, then sorry, it's the obvious question, but the maximum share buyback you might do would be just over 2%. Is that correct?
That's correct.
Okay. Thank you.
Thanks. Bye, Lisa. Next question.
The next question come from Mr. Stefan Lycke from Deutsche Bank. Please go ahead.
Thank you, Stefan. Hello, Stefan.
Hi there. Yeah, a lot of questions today about price. I still wonder if you could share with us your experience from the 2005, you know, in regards of realized price increases versus potentially list prices, and if indeed you did see any negative mix effects from those price increases?
Yeah. Again, that's actually a good question relative to that time period, because I remember that very vividly, when we, you know, we had that huge run-up in 2004 and 2005. As you suggest and as we talked about, you know, they worked their way through the market, you know? It's not immediate, and it's a lot of hard work and lots of negotiations and lots of arm wrestling. Ultimately, they have, you know, they have to get passed through, and that's what happened during that time period. My expectation is, you know, we're in a similar situation here, and we will see similar results with similar bumps and, you know, negotiations.
It won't be immediate, and won't be a direct line, but it will work itself into and through the value chain to the consumer. We did not see relative to the price increase, we did not see a big falloff in demand related to that. You know, the falloff actually occurred, as you know, after 2006. It was really 2006, 2007, when the housing market started to collapse. It wasn't the 2005 price increase.
Excellent. If I can steal just one minute more.
Sure.
You had some price pressure in Europe, in the beginning of the year, and the industry related that to FX changes. Given the Brazilian real and the Aussie dollar, do you think it's fair to just assume that we'll start seeing some price adjustment in those markets?
Yeah. Actually, I'm gonna let, Jonas speak to the currency, 'cause he's on top of that better than I. I will say, though, net-net, when you look at, you know, the changes going on with the strength of the SEK and the weakness of the dollar, and what's going on with the Aussie dollar, to your point, and the Brazilian real, those are all very important currencies for us and have an impact either in transaction or in translation. Maybe, Jonas, you can give us some visibility to that.
Yeah, absolutely, I think as it relates to the impact on pricing, I think in Brazil, as you know, is more of a closed market. The increase in the value of the reais is also accompanied by significant raw material cost increases there as well. I think I don't think that will per se drive a lot of price pressure in Brazil. Australia is a little bit different. It's obvious more open market and the Aussie dollar has been extremely strong, we are seeing some price pressure driven by that, actually right now, and expect to continue to see that. Overall, obviously, as Keith mentioned, we have a very solid, strong market position and strong brands in Australia.
Yeah, I would say yes, on Australia, probably not so much on Brazil.
Many thanks.
Thanks, Stefan.
Thank you.
Next question?
The next question come from Mr. Christer Fredriksson from ABG Stockholm . Please go ahead.
Hi there, Christer.
Hi again. First a question on Latin America, which actually is delivering stronger earnings than North America, almost like, almost in par with Europe. What can you say about the development in 2011? You're meeting tougher comps, and you're talking slightly about price pressure in some areas. What can you say about volume development in that region and your development in that region next year?
We expect continued strong, profitable growth performance from Latin America in 2011. We've got a strong team down there that are very well executing the strategy and have been for several years. They're expanding that to other countries and regions outside Brazil, into the Southern Cone, the Andean region. We have a high expectations for continued solid performance in Latin America. You know, they got headwinds like everybody, I'm not losing sleep over Latin America at the moment. We got a good, solid, strong team and momentum there.
Okay, bye.
Thanks, Christer. Next question?
The next question comes from Mr. Olof Cederholm, UBS. Please go ahead.
Hello, Olof.
Hi, it's Olof Cederholm from UBS. Just a quick question on the mix development. You've been able to achieve improving mix now for several years. Given that's a big earnings driver for you, what's your view on that going forward? How much more can you do in terms of the mix and the repositioning of your brands? For how long do you think you can continue to improve it in the coming years? Thanks.
Yeah. Very, very good and important question for us. You know, in this business, you know, as we've kind of hinted at, and many of the questions have hinted at all afternoon here, is ultimately, we're gonna get paid for one thing, and that is innovation. Innovation in our products, innovation in our brands, innovation in how we manufacture and buy things and deliver things. When we think about mix, you know, I think about mix, not just in terms of not only in terms of how many units are we selling in the very highest price points. That's an important part, right? What's our participation in the premium end of the business, relative to the mass or the velocity end of the business? That has been, continues to be, a very important part.
It's also the mix within each of the stratas of the, of the product lines. Just to give an example, when the US launched new Frigidaire, you know, given that that's a more of a mass-oriented brand, high-velocity brand, there was a substantial positive mix impact on that. Yes, it's launching Electrolux in the premium segment as an obvious positive mix effect, but it's also all the innovation pipeline that you see, and that actually is pretty robust for us. I mean, as we look around the world, region by region, sector by sector, product group by product group, we've got a good, strong, healthy pipeline of products, and it's really that turn on the products, is how you wind up getting a better mix.
You actually get the net average price increase as much by turning it and making it on the turn, product by product, as you do these big structural price increases. You're absolutely right, mix has been, and we intend for it to continue to be, an important element of our strategy and our operating performance going forward.
Okay, thanks.
Yeah.
Thanks, Olof. Next question.
The next question comes from Mr. Ben Maslen from Merrill Lynch. Please go ahead.
Hi, again, Ben.
Yeah. Yeah, hi, just to follow up on currency. I mean, I think you're one of the few companies in Sweden that gets a transaction benefit from the strong krona, in terms of buying US dollar components. A lot of people are struggling with that today. Can you just talk about, firstly, you know, what FX benefit you expect to get, either in Q1 or as we go through 2011? When you talk about your raw material hit for the year, does that include any kind of advantage or offset you get from buying, you know, commodities in a weaker U.S. dollar, as far as you're concerned?
Right. For Q1, it's a relatively neutral effect. We, as you hint at, we have some favorable transaction impacts, but we have unfavorable translation, actually, into the Swedish krona.
Right.
The strength of the SEK is, in that sense, a negative on the earnings from translation. Yeah, for sure, we source a lot of both components and finished goods in USD, and then sell in Brazil, in Australia, in the Eurozone. As long as that, a weak USD is good for us in that respect. Then we have the dynamics inside of Europe, where we still have a significant manufacturing footprint in the Eurozone, and then exporting to the Nordic countries, to the U.K., to Switzerland, and other places. That's an important dynamic for us as well.
Anyway, all in all, we don't expect much of an impact in Q1, and also a relatively minor favorable impact in the, in the full year of 2011.
Great. Thank you.
Thanks, Ben. Next question?
The next question comes from Mr. Pontus Wachtmeister from SEB . Please go ahead.
Hi there, Pontus.
Hi, there. Just two questions with regards to the balance sheet and the buyback. We've been over that. I'm just curious if you could give me a kind of a full-on motivation for not canceling the shares. As shareholder, you know, given the very strong balance sheet at the moment, it seems that you're pretty far away from needing those shares in terms of... I'm thinking, you know, cash is more accretive every day of the week, basically. Unless you're planning to spend $1 billion, basically, in the next six months, then you shouldn't need those treasury shares. That's also the history has shown. I mean, you've had those there for a few years now and not really needed them. If you can give me a full motivation, why you want to keep them?
Also, the buyback, could you commit to buying back those 2% quickly post-AGM, or will you not say anything on that at the moment? Thanks.
Yeah, I'll start with it, and maybe Jonas can help elaborate. Of course, the obvious caveat, which is, you know, the board is making, you know, That's the purview of the board in some of these decisions, including the dividend, you know, at a 60 %+ increase, and the determination to ask for a proposed renewal of the existing mandate. You know, that's kind of the board's decision. Clearly, they're doing that because they know what our intentions are. They have pretty good visibility to, not pretty good, they have excellent visibility to what our plans and our opportunities are, and the business plan, and what we're doing in various parts of the world. It's in their judgment that this is the right decision right now.
The other thing I think I would say, Jonas, if you have a different view, please comment, but, you know, we can't really think about this thing as, hey, look, if something happens next quarter, then we'll do something different, right? It's really, what's the strategy? What kind of balance sheet do we need to execute that strategy and continue to be very shareholder-friendly? You know, I think we have a history of a company doing that. There's no change fundamentally in that philosophy in the company, I know that for sure. I think given all the things we're trying to do and the opportunities that we see, I think the board is saying this is the right decision for now.
When they change that, you know, again, we'll be public about that as well. I know, Jonas, do you have other comments on that?
No, I don't, I don't think there's much else to say. To be clear, just to fill out, we're not committing to exercise the remaining buyback mandate, but that's certainly an option that we have. If the AGM agrees on the renewed mandate. Then in terms of cancellation, obviously, we, you know, the reason to cancel share would be that we would look to buy back a lot of additional shares. That's not part of the strategy right now.
All right.
Okay, Pontus?
Okay. Thanks.
Thanks. Next question.
The next question come from Mr. Anders Trapp, from SEB Enskilda. Please go ahead.
Yes, hi again. Coming back to Brazil and Latin America, I wonder if you could talk a little bit about what's going on with the retailer consolidation and the price impact. I noticed that, in the quarter, you had, well, much better sales growth than earnings growth. Also in how you are going about sort of exporting the Brazilian model to the other countries in Latin America, and sort of what pace you're doing it?
Yes, good. Both good questions, Anders. In terms of exporting the Brazilian model, it's, you know, essentially the people that are doing that are part of the, and have been part of the Brazilian and Latin American management team for... Now, that, I think this really started back in late 1990s, actually.
Yeah.
Really, that current management team down there has been together for more than 10 years now. It's the same people that are, you know, expanding and exporting, if you will, that model to the Latin American countries outside of Brazil. It's not like they have to teach a new group. It's really, you know, just taking the model, obviously being very market-centric. You know, whether, you know, whether it's Argentina or Chile, or it's the Andean region, or it's the Mexican region, being very crisp on what those market and consumer needs are. But the methodology, the process, and the management talent is certainly there to do it, and we don't have to go acquire that or go do that. Anders, on your first question, you're absolutely right.
There's been a significant retail consolidation, particularly the top three to five retailers in Brazil. We know, we've had to withstand that negative customer mix impact. We felt that a bit. You know, we're mostly through that, so I don't think year-over-year, we've got a big negative headwind, but, you know, it's been, you know, it's been a challenge. It's been a negative mix effect, customer mix effect, given that massive consolidation. I don't think it portends a negative trend in our ability to generate top or bottom-line growth in that, in that region at all.
All right. May I just add a question there, or a complimentary question on the markets outside Brazil in Latin America, how you source products there? Do you have production in all the relevant countries, or can you successfully export from, you know, between different countries in Latin America without big cost disadvantages or tax disadvantages?
Yeah, that's another good question. Actually, you know, Latin America, not just Brazil, has got these little trade zones, so you have to actually get yourself set up so you can either bring in product or have local production or have partners or suppliers where you can do that. That's why when we talk about the Southern Cone, we talk about the Andean region, we talking about the Caribbean and Mexico, you kind of have to get your centers of production lined up where you can take advantage and bring the maximum value to the marketplace without, you know, without imposed heavy import duties. That's what we're doing. We have good relationships either within our own capabilities and/or with suppliers and partners to do that.
Okay. Thank you.
Thank you, Anders.
Thank you. Next question?
The next question come from Mr. Johan Dahl from Erik Penser Bank. Please go ahead.
Yeah, hi. Could you please update us on the current situation with Daewoo Electronics, your discussions with the sellers there? To my information, the deal hasn't closed yet, and the window of opportunity is running out there for the proposed buyer. Have you thought about bringing forward the European savings that you've taken charges for in the Q4, and perhaps seeing some savings of that in 2011?
Yeah, I'll start with the Daewoo question. Again, Jonas, you've been close in following this, I know, all along. You know, we've been public about our interest there. You know, that's been out there. They have decided to go a different direction. You know, we see what you see, which is, that doesn't seem to be consummated. The window seems to be closing, and, you know, we're sitting here, and if the phone rings, we'll answer it.
That's exactly it. Yep.
Yeah. Yeah. Then the second question was around the European or the restructuring, the productivity, basically, what's happening there is, as we've, you know, adjusted to the demand level throughout Europe, in several of our plants, it's clear to us there's some of our plants where we don't need the amount of labor that we have at those plants. We can run at lower. We'll run for a foreseeable period of time at lower shift rates, and therefore, we need less labor to run those plants, unfortunately.
Also, are you contemplating to bring that forward to see some effect to that this year?
Well, we're executing that as quickly as possible.
Yeah, that's happening. We'll get the benefit from it. Is that, if that's what you're asking?
It, well, I mean, yeah, it will roll in over the course of 2011 and into 2012. Yes, as quickly as possible. Yes.
Thank you.
Okay. Thank you. Next question.
The next question come from Mr. Rasmus Engberg from Nordea Bank. Please go ahead.
Yes, I just had one question on your comments, Keith, on if the European market now works better and more similarly to the North American. I.e., is it actually possible to pass on raw material costs here as well? What's your take on that?
I honestly think the European market is more complicated and more difficult just because it's not a homogeneous market. I mean, I think to be fair and fully transparent, I think it's a harder. 'Cause you have to go country by country, right? And that's a hard play to do, and it takes longer. You know, my honest answer is I don't. I think it's harder, and I think it's more complicated. It's still doable. You have to do it. You can't just sit here with the, with just those rising costs sitting on one end of the value chain, so you gotta work yourself through, but it's more difficult, for sure.
Okay, thanks.
Next question.
The next question come from Mr. Andre Kukhnin from Credit Suisse.
Hello, Andre. Hello. You have the-
Good afternoon.
Yeah, hi.
Just-
You have the possibility for the last question here. Andre, please.
I feel very privileged. Thank you. Very quick question on cost out activities. In the past, you said that you managed to achieve about SEK 1 billion per annum on average over the last five years. What's your plan for this year? Is it going to be in line with historic average, or do you think you'll be able to do more, given the mounting pressure on raw materials?
Yes and yes. Yes, you know, what we have is, you know, an intention to do around SEK 1 billion, SEK 1.1 billion, as we have been pretty consistently. We've got a pretty good track record of making that happen. You're exactly right, the heat is up significantly with my new Chief of Operations here to in that role to get more. Yes, and yes.
Thank you.
To be clear, we're looking at productivity, on, in every part of the value chain, not just obviously, of course, in the purchase content. It's in manufacturing, in the supply chain...
Yeah
as well, of course.
Sure.
Okay. By that, actually, we could close the Q&A session. I think you have some final words from Keith there. Please, Keith.
Yeah. First, if I could just take a minute and since this is my first gig with y'all, is I had the opportunity earlier today, actually, to meet with our entire employee base here in Stockholm to explain to them the Q4 and full year results of their company. I have to tell you, it was a fantastic experience for me to be able to communicate to them the 2010 record results. You know, as you guys see, the records are in earnings, the records are in margins, the records are in working capital performance. Candidly, we've got records in productivity, we've got records in safety, we've got records in quality. It really has been a fantastic year for us, and it hasn't just been one or two units.
As you see in these numbers, every unit has increased year-over-year. In earnings, North America is up 7%, Professional is up 11%, Europe's up 15%, Latin America is up 23%, and Asia Pacific doubled. That was a very, you know, fun and healthy and an invigorating story to tell. Of course, I'm telling it based on what happened before I got this job, right? I know that. It's really the under the legacy and leadership of Hans, as well as the entire management team, that we've delivered those results. It's our opportunity now to build off that.
There's great momentum in the company, and a little bit per Andre's question and our philosophy is, you know, how do we take the great work on those two of those three levers of the operating levers and get that, keep those, and get the third one going relative to growth? We will be the first to acknowledge, we have got some pretty stiff, difficult, short-term headwinds. We do. There is a timing gap, absolutely, between the time we're gonna feel those raw materials, which is right now, and the time we can get them all the way through the marketplace, both in North America, Europe, and around the world. I will tell you, though, that I'm very confident in the future of this company.
I actually, because I'm, you know, I'm the rookie, I had the opportunity to do a little bit of research, and you probably know this. I didn't know this, but the actual compounded total return to shareholders has been 16.7% compounded over the last, get this, 20 years, since 1991. If you are anything like me, I love people's forecasts, but I lot look at what they've been doing, right? 'Cause that gives me a lot of confidence in terms of the capability to continue to do that. I think that's our history. I think that the strategy that we're on around bringing innovation to the marketplace and our products and our brands and our services is right on target.
I think the opportunity to fund that innovation and invest in it by globalizing this company, in manufacturing, in purchasing, in R&D, is fantastic. You know, I think we have a very key competitive advantage in this business, and that is what we have that nobody else has, is market presence. We have local market knowledge and leaders and people in 150 different countries that know about the customer, they know their needs, they know the retail channels, they know how to merchandise, they know how to distribute, they know how to service, and so we've got a great group of talented people to make this happen. I'm very optimistic about the future of this company. I think we've got another 90 years to continue to perform. That's how we're thinking about it. We're, as I said, we're not naive.
We know we've got headwinds. We know this is not an easy business, but, you know, I've been in manufacturing consumer durable goods, I'm gonna hate to say it now, 30 years, and I haven't found an easy business yet. It just is what it is. That's okay. We're clear, we're aligned, and we're excited about this business. I look forward to working with you all. I've met several of you. There's some I haven't met, but I look forward to getting to know you in the coming years. Thank you very much for the call today.
Thank you. Thank you very much.
Thank you.