Presentations Electrolux Capital Markets Day 2014 - By Keith McLoughlin and Tomas Eliasson
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During the Electrolux Group Capital Markets Day on November 20, 2014, executives provided a business update indicating slight market growth with varying performance across regions, highlighting strong cash flow and profitability improvements in North America and professional products. The presentation included an announcement of the acquisition of GE Appliances for $3.3 billion, expected to enhance synergies and improve global scaling. Electrolux aims for profitable growth through innovation and operational excellence, targeting a 4% organic growth rate and an EBIT margin above 6%.
Presentations Electrolux Capital Markets Day 2014 - By Keith McLoughlin and Tomas Eliasson
- 1. The Electrolux Group Capital Markets Day Charlotte, November 20, 2014 Electrolux Group Presentation Keith McLoughlin President and CEO Tomas Eliasson CFO
- 2. Overview Business Update Strategic Review Value Creation Potential Financial Review
- 4. Summary of what we said about 2014 4 Comments after Q4 2013 FY 2014 Comments Status Market volumes Slightly positive • Growth in NA and emerging markets • Europe developing sideways • Brazil slowing Price/mix Slightly positive • Latin America and North America: positive • Europe: negative price • Asia/Pacific: negative country mix Raw material costs Flat • Range SEK -100m/+100m R&D and Marketing Higher • Higher marketing spend in NA and Asia • Higher global R&D Cost savings ~ SEK 1 bn • Include global operations, overhead reduction and manufacturing footprint
- 5. YTD performance EBIT, 2014 vs. 2013 0 400 800 1,200 1,600 Q1 Q2 Q3 2013 2014 Cash flow after investments, 2014 vs. 2013 -4,000 -2,000 0 2,000 4,000 Q1 Q2 Q3 2013 2014 5 +4% +13% +30% +95% +27% +55% SEKm SEKm
- 6. Key drivers to performance 6 • Higher profitability in Europe with contribution from productivity initiatives • Mix improvements through active product portfolio management • Sales and earnings in North America contribute strongly to the Group • Latin America and Asia/Pacific, solid performance in weak markets • Professional Products continues to show improved results • Earnings has continued to improve with a solid cash flow
- 7. YTD 2013 Volume Price/mix Currency Inflation Raw materials Investments Savings efficiency YTD 2014 Improved profitability 7 2.8 3.3 EBIT, SEKbn 3.9% Improved EBIT 17% 4.1%
- 8. 8 Operational recovery in Europe
- 9. Europe YoY market growth % European market stabilized, but not recovering from the downturn The European market is stabilizing from the 2008-2009 downturn Though there is M&A-activity, the market is still relatively fragmented Some consolidation is taking place… …but there are still 5 top players with less than 60% of combined value share -10% -15% 5% 0 -5% 2009 2010 2011 2012 2013 2014 Source: Total Europe sell-in Major goods ex. Turkey, % change vs. same period last year Source: GfK MDA Sales value %, 25 CTR EU, 2014 H1 The European market is stabilizing from the 2008-2009 downturn Though there is M&A-activity, the market is still relatively fragmented
- 10. EMEA has restored profitability in a weak market 0 50 100 150 200 250 300 350 400 450 500 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 EBIT Margin EBIT EBIT (SEK m) MARGIN (%) 2012 2013 2014 • Market demand • Market prices • Currency • Strong mix improvement • Product cost efficiency • Cost savings
- 11. Focused Commercial Strategy 11 Categories Strongest Brands Strongest Categories Built-in Kitchen and Laundry Value Creating Sales Channels FOCUS Key focus areas • Strong brands • Building on advantage in cooking and built-in • Re-gaining premium position • Stronger sales channels • Right-sized cost structure
- 12. 12 Where we are heading
- 13. Our Desired Position Our Vision We will be the best appliance company in the world ...our customers As measured by... ...our employees ...our shareholders 13
- 14. Total Shareholder Return Total return Electrolux B (Annual return) SIX Index Retun (Annual return) 1 year 40% 15% 5 year 9% 14% 10 year 17% 11% 15 year 11% 7% 20 year 14% 12% 25 year 13% 11% 14 Note: calculated TSR price as of 11/4/2014
- 15. 12.0% Total Shareholder Return Cash flow productivity Top line Margin Multiple 1.0% 0.5% 0.5% TSR 14% CAGR *Data based on 1994-2014
- 16. Value creation model 16 EBIT Margin >6% Capital Turnover 4x RoNA >20% Growth 4%
- 17. Our strategy Profitable growth Operational excellence Innovation People & Leadership 17
- 19. Electrolux has a leading position in most markets 19 Electrolux Major Appliance (Value market share ranking)
- 20. Focus on organic growth 20 90,000 95,000 100,000 105,000 110,000 115,000 -5% -3% -1% 1% 3% 5% 7% 2011 2012 2013 Sales SEKm Growth % Organic growth % Sales in local currencies, SEKm 2014 CAGR 2011-2014 ~5%
- 21. Acquired growth 21 1919 1950 1984 1986 1994 2011 2014-15
- 22. Growth in Adjacent Products 22 Coffe machines Electrolux Expressionist Collection: Kettles, toasters, mixers, blenders Electrolux Masterpiece Collection: Stick mixer, food processor, blender Air Care Water Care Fabric Care Filtration Consumables & Accessories
- 23. 23 Innovation
- 24. A history of innovations and strong brands 1901 1919 1957 1984 1986 1994 1997 2004 2008 2012 2014 AB Lux AB Electrolux Elektrolux to Electrolux Zanussi White Consolidated (Frigidaire) US Launch of Electrolux AEG Electrolux Inspiration Range China C5 Launch Refribar (Brazil) Electrolux Grand Cuisine Termaline 5000 Ultraflex 2nd gen Trilobite Launch of Ergorapido
- 25. Global innovation territories Benefit-driven innovation territories Culinary enjoyment Health and well-being Sustainable homes Effortless living 25
- 26. ”Innovation Triangle” 26 Marketing Design R&D Develop best-in-class products 1 “70% Preference Rule” 2 Reduce Time to Market 30% 3 Continue investing in premium brands 4
- 27. Eight strategic brands 27
- 28. 28 Accelerating innovation with relevant and differentiated offerings
- 29. Electrolux CombiSteam Oven AEG Maxi Sense Stove Leading Innovation in Cooking
- 30. Hob²Hood Connected Range • A wireless functionality that automatically controls the hood according to the cooking activities on the hob • 1,400 connected possibilities Let the hob run the hood…you focus on cooking !
- 31. Electrolux Expressionist Collection Electrolux Masterpiece Collection New product ranges launched in Small Domestic Appliances
- 32. Ergorapido Range 2014 32
- 34. 360 Consumer Experience 34 Post-Purchase Setting up the appliance, using and maintaining it At-Purchase Understanding the range of potential options and making a final choice Pre-Purchase Gathering inspiration and exploring possibilities
- 35. Commercial Triangle 35 SIMPLE COLLABORATIVE FOCUSED Commercial Triangle PRODUCT LINE SALES MARKETING
- 36. EMEA Electrolux CombiSteam Oven and Sousvide Launch 36 STEAM OVEN STARTER KIT COOKING CLUB! STEAM OVEN COOKBOOK AND STEAM APP TASTE FESTIVAL – ACROSS EUROPE BRAND WEBSITE ONLINE VIDEO CONTENT VIP SECRET INGREDIENT AND STEAM PR EVENT PRINT ADVERTISING ONLINE BANNER LA FAYETTE FOOD HALL COOKING SESSIONS POINT TASTE THEATRE IN STORE INTERACTIVE CATALOGUE SPECIAL RETAIL PLACEMENT OF SALE TASTE BANNERS
- 38. Cost savings programs 38 Savings from Overhead costs Savings from Global Operations Savings from programs have full effect in 2016 Savings from Manufacturing footprint
- 39. Manufacturing footprint LCC transition in its final phase 39 28% 51% ~70% 2004 2008 2014est Percentage of Capacity in Low Cost Countries
- 40. Global Operations Previously communicated 40 50% 30% 20% Modularization 1.0 Purchasing Manufacturing
- 41. 41 People & Leadership
- 42. Passionate, Business-minded People Leaders at Electrolux Business Leader People Leader 42
- 43. 43 Acquisition of GE Appliances
- 44. Our Desired Position Our Vision We will be the best appliance company in the world ...our customers As measured by... ...our employees ...our shareholders 44
- 45. Competitors with Aggressive Growth Plans Aggressive growth plans from our competitors may impact the market picture in future REGIONAL CHINESE #1 Household Appliances worldwide KOREANS
- 46. Global Market Leadership Local market strength Strong brands Product innovation Cost position Global scale
- 47. Overview of GE Appliances 47 • 2013 revenue of USD 5.7bn • Manufacturing footprint across 5 states – 12,000 employees • State of the art distribution and logistics network • USD 1bn of investments in R&D, products and manufacturing • Innovative product portfolio • Joint venture with 48.4% stake in Mabe Bloomington, Indiana - Refrigeration Louisville, Kentucky - Laundry - Dishwashers - Refrigerators - Water heaters Selmer, Tennessee - Built-in Refrigeration Decatur, Alabama - TM Refrigeration LaFayette, Georgia - Cooking
- 48. Transaction overview 48 Overview • Electrolux has agreed to acquire GE Appliances for a cash consideration of USD 3.3 billion • The deal is primarily an asset transaction • Transaction includes GE’s 48.4% ownership in Mabe Rationale • Improving global scale in home appliances • Significant synergies particularly in sourcing and operations • The transaction is expected to be EPS accretive in year 1 Financing • Financed with a fully committed bridge facility • Rights issue ~25% and ~75% bond take out Conditions • Subject to approval from regulatory authorities Timetable • Expected closing: 2015 • Rights issue: As soon as possible following acquisition completion
- 49. Strategic fit Combining high quality brand portfolios 49 Price Value VALUE PRICE
- 50. Expected synergy breakdown Significant synergies Synergies • Expected annual synergies of USD 300m • Synergies from combined operations and manufacturing • Utilize cost efficient sourcing base • Strong logistics and distribution capabilities • One-off implementation cost of USD 300m • Implementation capex of USD 60m expected for the first two years 50 Sourcing ~50% Operations ~40% Other ~10%
- 51. Delivering on our growth strategy and vision We w Our Vision ill be the best appliance company in the world ...our customers As measured by... ...our employees ...our shareholders 51 Brands Innovative Products Distribution Enhanced production and R&D capabilities Engaged 12,000 employees Global opportunities EPS accretive in year 1 Significant synergy potential Enhanced cash generation
- 52. 52 Creating value for our shareholders
- 53. Financial Targets 53 RoNA >20% Organic growth 4% EBIT margin >6% Capital turnover 4x
- 54. 3.50 4.00 4.50 6.00 6.50 7.00 7.50 4.00 4.25 4.00 6.50 6.50 6.50 6.50 0 20 40 60 80 100 0.0 2.0 4.0 6.0 8.0 10.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 A history of sustainable dividends 54 Dividend as % of net income Electrolux shareholder distrubution policy ...dividends to correspond to at least 30% of income for the period Historically, the dividend rate has been considerably higher. In 2013, proposed pay-out corresponded to 66%. *Earnings per share excludes items affecting comparability Dividend per share, SEK
- 55. 0 500 1,000 1,500 Electrolux has consistently delivered strong total return to our shareholders 1994 2000 2004 2009 2014 Electrolux B Average total return ~14% Six Return Index Average total return ~12% Index = 100
- 56. The Electrolux Group Financial Review Capital Markets Day November 20, 2014 Tomas Eliasson CFO
- 58. Sales and EBIT bridge, Q3 58 SEKm Q3 2013 Volume Price/Mix Currency translation Currency transaction Other Q3 2014 Net sales 27,258 -660 1,105 1,081 - - 28,784 Growth % - -2.3% +3.9% +4.0% - - 5.6% EBIT 1,075 -13 450 +40 -160 - 1,392 EBIT % 3.9% 2.0% 40.7% - - 4.8% Accretion % 0.0% -0.6% Organic 1.5%
- 59. Sales and EBIT bridge, Jan-Sep 2014 59 SEKm Jan-Sep 2013 Volume Price/Mix Currency translation Currency transaction Other Jan-Sep 2014 Net sales 80,260 -3,420 3,950 -46 - - 80,743 Growth % - -4.3% +4.9% -0.1% - - 0.7% EBIT 2,832 -450 2,095 -25 -1,145 - 3,308 EBIT % 3.9% 13.2% 53.0% - - 4.1% Accretion % 0.0% -1.4% Organic 1.9%
- 60. Pre-closure transaction costs 60 GE Appliances – Costs expected pre-closure Transaction (EBIT) M&A advisory, lawyers, auditors ~200 SEKm Integration (EBIT) Integration team and external consultants ~100 SEKm Funding (Finance net) Bridge facility ~200 SEKm Total estimated cost ~500 SEKm Note: USD/SEK exchange rate used as of 17/10/2014
- 61. 61 The transformation is paying off Understanding Electrolux P&L
- 62. Understanding Electrolux 62 SEKbn 2013 Revenues 109 Direct material 45 Sourced products 17 Salaries and other expenses 43 EBIT 4 Variable cost to sales 80% Fixed cost to sales 16% EBIT to sales 4%
- 63. Summary of Major P&L Components 63 Price 0% or 100% drop-through(!) Mix 20-50% drop-through Volume ~20% drop-through Total Sales SEK 109bn Salaries & expenses SEK 43bn, 3-4% inflation (1.2-1.5bn) Raw material SEK 45bn total material, raw material 50% Sourced products SEK 17bn Savings projects Cost programs/efficiency Fixed cost changes Planned changes Net organic Net before currency and acquisition Currency ~SEK 36bn in gross currency flows Acquisitions Earnings contributions Total
- 64. 64 The transformation is paying off Raw Material Update
- 65. Raw material exposure 65 Carbon Steel 35% Stainless Steel 8% Plastics 35% Aluminium & Copper 9% Other 12%
- 66. Steel Global steel prices have been under pressure 66 600 640 680 720 760 800 840 880 920 960 1,000 1,040 1,080 Jan 10 Mar 10 May 10 July 10 Sept 10 Nov 10 Jan 11 Mar 11 May 11 July 11 Sept 11 Nov 11 Jan 12 Mar 12 May 12 July 12 Sept 12 Nov 12 Jan 13 Mar 13 May 13 July 13 Sept 13 Nov 13 Jan 14 Mar 14 May 14 July 14 Sept 14 Nov 14 In USD$/Mton CRU Germany USD/t CRU US Midwest USD/t CRU China USD/t MONTHLY
- 67. 0 20 40 60 80 100 120 140 120 130 140 150 160 170 180 190 200 210 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Average Feed Stock Index 2012 177 2013 185 2014 188 Plastics Stable price outlook so far into the year 67 Weighted index of key feedstocks where 100 = average 2009 Annually Monthly Crude Oil Brent, $US
- 68. 68 The transformation is paying off Currency Impact
- 69. Transactional Currency Effects 69 • In general, earnings for Electrolux benefit from a: – Weak USD, EUR, HUF, THB, MXN and CNY (export countries) – Strong BRL, RUB, ARS, CAD, CHF, AUD and GBP (import countries) • In countries with large manufacturing and logistic centers, effects over time will to a large extent balance out due to natural hedging. • Currencies are accounted for GROSS. Over time no effect.
- 70. -6,000 -4,000 -2,000 0 2,000 4,000 6,000 8,000 10,000 BRL GPB AUD CAD CHF RUB CLP ARS CNY EUR USD Gross Currency Flows 70 Largest currency flows over 12 months In total, 80 significant currency pairs Total flows around SEK 36bn SEKm Currency exposure 2014 GBP
- 71. Currency Effects 71 Major transaction effects, SEKm Q1 Q2 Q3 Q4 BRL -200 -80 -15 ARS, CLP, VEF, COP -130 -50 -50 CNY -1 -70 -45 AUD -75 -35 -20 RUB -15 -25 -5 Total -565 -420 -160 Translation effects, SEKm -55 -10 +40 Total currency effects, SEKm -620 -430 -120 Price and mix effects, SEKm 900 740 450
- 72. 72 The transformation is paying off Restructuring Update
- 73. Cost savings programs Previously communicated 73 Savings from Overhead costs Savings from Global Operations Savings from programs have full effect in 2016 Savings from Manufacturing footprint Saving 1.1bn Cost 3.2bn Saving 3.0bn Cost 1.2bn Saving 1.1bn Cost 1.2bn
- 74. 74 The transformation is paying off Cash Flow
- 75. 3,871 5,273 2,283 6,337 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 2011 2012 2013 LTM Free Operational Cash Flow Cash flow, 2011-2014 75 SEKm • Driven by increased EBITDA, working capital improvement and optimization of capital expenditure • SEK 4.8bn of cash generated year-to-date and over SEK 6bn generated over the last 12 months 0% 100% 2008 Current Structural change of capex • Capital expenditure will structurally change • Capital expenditure will be more related to launching new products Products Factory Other
- 76. Cash flow per quarter, 2011-2014 76 SEKm -4,000 -3,000 -2,000 -1,000 0 1,000 2,000 3,000 4,000 5,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011 2012 2013 2014 Free Operational Cash Flow
- 77. Working Capital SEK 7bn released since 2008… 77 • The Group’s NOWC has decreased by SEK 7bn since 2008 • Focus on NOWC as key driver for value creation • Structured approach to “process improvement” with dedicated global resources • Inventory – Complexity reduction – Modularization 17,499 12,007 17.4% 10.9% 9.6% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 2008 2009 2010 2011 2012 2013 2014 YTD Avg. NOWC NOWC % of Net sales
- 78. 78 The transformation is paying off Summary
- 79. Summary - Financial Development 79 • Earnings – Profit recovery in Europe as cost take-out initiatives continues and positive product/mix focus – North America a large contributor to overall Group results, despite DOE transition challenges – Defending earnings in Latin America and Asia through pro-active cost actions – Currency impacts are mitigated • Cash Flow performance is strong • Focus on RONA first, then growth
- 80. Q&A