AB Electrolux (publ) (ELUXB) Earnings Call Transcript & Summary

Today's event is all about how innovation is driving profitable growth. You get to meet representatives from top management, and we are going to take you behind the scenes to take a closer look at our latest innovations, and of course, how we turn these into profits. My name is Sophie Arnius, I'm Head of Investor Relations. A warm welcome to our capital markets update. [Presentation]

We have an interesting program with 4 speakers, and you will see there are 3 key messages: How Electrolux' strategic direction is well positioned, how our largest business area, Europe, improved its margins and the route forward and finally, how our focus on innovation will keep strengthening our competitiveness? We will end the event with a Q&A session, where all our 4 speakers will join. And I encourage you to post your questions during the event using the question box to the right. And now let's get started, with a deeper look at how we are continuing to create value through innovation. It's a great pleasure to introduce our CEO, Jonas Samuelson.

Welcome. Innovation is a key pillar in our profitable growth strategy. We have the objective to deliver over 6% operating profit over a business cycle based on a strong balance sheet efficiency with a RONA over 20% and after that, creating profitable growth over 4% throughout the business cycle. This is based on 2 strong pillars. Today, we'll talk about how we drive sustainable consumer experience innovation as a value creation strategy. And the second leg is to increase our investment in modernization, automation and digitization to drive higher efficiency. This is all founded on a basis of a strong balance sheet that enables reinvestment in the business. Our strategy is founded on 5 key industry trends, with the most important one being the increase in consumer power, driven by digitalization. Sustainability is another core driver of our strategy, where we know that 2/3 of global consumers are willing to pay more for a more sustainable experience. And also, of course, our objective to achieve climate neutrality by 2050 is a key imperative on our sense of business. We also see that the global middle class is continuing to grow. We see increasing consolidation in our industry, which drives our focus to increase the leverage of our global scale through modularization, through automation. And if the consumer is in charge, then, of course, we have to make sure that we become their preferred partner, increasing their intent to purchase. And we do that through a strong focus on creating desirable experiences in combination with increasing the relevance of our brands, making sure that the product, the services that we provide to our consumers are really focused on their -- what they desire, and we deliver it with a tone of voice focused on how they see themselves and what their preferences are in life. When we do that right, we increase our intent to purchase at a higher price, driving profitable growth. And this is not theory. This is something we've been driving for many years now, specifically with our premium brands, Electrolux and AEG. The gray bars in this graph show the sales development of Electrolux and AEG globally over the last 5 years. You can see consistent growth. The blue line shows the profit -- the EBIT on an annual basis for the last 5 years, consistent growth. And this is also driven by the continued increased investments that we're making in innovation and in building our brands. So again, this is not a theory. This is what we're actually practicing in our strategy today. Another key driver, as mentioned, is sustainability. And we see it as our responsibility to deliver a climate-neutral business by 2050. But also, we know that our most energy-efficient products are also the most attractive one from a consumer perspective. So the 23% of our sales that are represented by the most energy-efficient products in market also deliver 32% of our total gross profit. So our consumer experience innovation is really focused on 3 key experience areas: great-tasting food through refrigeration and cooking products, perfect care for your clothes through our washing and drying products; and great well-being in your home through floor care, air care and water care. Let me provide a little bit of specific detail on how we think about consumer experience innovation, focusing on taste. So first of all, of course, we have to meet the qualifiers. We'll talk about the tickets to play in the category. That has to do with -- in cooking, to provide even and consistent results, cleaning, usability controls, size and so on. Those are all qualifiers for the category and tickets to play. But the key focus in terms of consumer experiences is the differentiators, the tickets to win, providing the great taste and texture, really inspiring and delighting our users in trying new things and doing that while minimizing food waste and providing healthy, fresh and nutritious food. A fantastic example of how we're doing that is our successful Frigidaire Gallery Air Fry cooker. This is all about providing the great experience of deep fried food, but using a minimum amount of fat and providing healthy, fresh and nutritious food. This has been extremely successful in establishing ourselves in the premium freestanding cooker category, giving us a 10% market share with the Frigidaire brand in premium freestanding cooking. Much more profitable, 75% higher gross margin. And despite the fact that this is innovation on a legacy platform, we've been able to achieve 4.4% consumer star rating. So this is an extremely successful product in the U.S. market based on the simple recognition that if we can provide consumers with solutions to provide healthy and fresh nutrition, they're going to want to buy. A similar example, but focused on care, here, we know that consumers, specifically in the premium category, really care about their expensive clothes that they wash in their washing machine and dry in their dryers. So if we can provide innovation that helps them hold their size and shape and vibrant colors that's going to be an attractive proposition for them. And the new Premium Care, 800 and 900 series washers in the U.S. are connected, making it a simple experience for them to select the right program. And this has given us a fantastic star rating of 4.7 and 22% sales growth in the most premium price points of the laundry category, increasing our market share above price index 130 by 0.3 points in the last year. So we're making inroads in the most premium parts of laundry with these great consumer experiences. Another example in our well-being category with the new Electrolux Pure Q9 doing extremely well in probably the most competitive market in the world, in Korea. And what we're doing is that we have realized that consumers want to have an easy, a lower effort job in cleaning. And to do that, you have to keep the product, the vacuum cleaner out. And of course, if you want to have it close by and out, it needs to be a great looking, highly designed product. And that's what we're doing with Electrolux Pure Q9. We also have focused on sound quality and the, of course, the performance of the product. This is generating a fantastic response in Korea, 4.6 consumer star ratings, 71% sales growth and a 2.1 points increase in market share, again, in probably the most competitive market in the world. So consumer experience innovation works. And most of the -- historically, the most frequently mentioned examples that we've made focused on Europe, on Asia, maybe on Latin America, but I'm extremely pleased that we're also seeing now the recognition of our increased focus on consumer experience innovation also in North America. When reviewed.com released their winners of 2020 in the beginning of November, Electrolux had 5 category winners. I just mentioned the Frigidaire Gallery Air Fry cooker that also generated -- or resulted in us being named the Innovation Partner of the Year for Home Depot in North America, but we have the best refrigerator, we have the best electric cooker, we have the best washer and the best dryer in the North American market, a fantastic result from our increased focus. And this is yet still before we have our main new platforms launched in the market. So great things to come there. Let's now talk about who our consumers are. We have 3 main brands with distinctive target consumers and potential to attract a larger audience. Electrolux is our most global brand, while the market for AEG is primarily in Europe, but with strong growth opportunities in APAC and EMEA. And Frigidaire has its based in North and Central America. Over the years, we continued to develop these brands in order to meet the specific demands of their target consumers. The typical Electrolux consumer is someone that actively drives change for the better with a positive outlook on the future. They're open for new experiences and want progressive, sustainable premium brands that can help them evolve in their daily life. For the AEG consumer, it's all about innovation, performance and premiumness, but not without acting responsibly. This consumer strives to improve and has very high expectations on brands to support their lifestyle. The Frigidaire consumer represents Middle American core families with family life and friends and focus. The consumer seeks practical solutions and wants to improve their local community. This gives us 3 main brands with distinctive target consumers and a potential to attract larger audiences, really focused on core demographics when it comes to purchasing power and when it comes to their values. The second pillar of our strategy is to provide cost competitive, high-quality products are also vital to drive profitable growth. Beyond the cost benefits and quality benefits of highly automated production of modularized products, it also gives us the opportunity to introduce new innovations, new technologies at a much faster pace. And of course, design and quality is also driven by the preciseness and fit fill, finish of the product, which also is enabled by automated production. We're in the middle of our SEK 8 billion global reengineering investment that's driven to both reduce cost and to drive mix improvement. As you can see, the focus of these investments are mainly on refrigeration and cooking in North America and Latin America and in refrigeration in Europe. The reason for that focus is that we are in the middle of transforming our product architecture base into modularized architectures based on the same design philosophy and enabling, again, a fast deployment of new innovative technologies. In front-load laundry and in dish, we've already made great progress in that transformation. Refrigeration is going to take a major step from a base with -- without a lot of modularized products to being about 2/3 modularized by the end of 2024. Cooking, we already were modularized in parts of Europe or our European offering. And with the big investments that we're making in North America and Latin America, we will get to a largely modularized footprint by 2024. So hugely important both for cost reasons and to increase the speed of innovation and deployment of new technologies for us. So innovation is a key pillar for us to create value. You've seen that driving sustainable consumer experience innovation creates a higher intent to purchase, which allows us to sell more at higher prices. And when we combine that with a strong focus on modularized, automated, digitally integrated value chains to increase our speed of innovation, that's what helps us get to our financial targets of over 6% operating profit over time, strong balance sheet efficiency and growth over 4%. Thank you very much.

So innovation is a key driver for profitable growth. And I know that a lot of you are curious on how our largest business area, Europe, has put this into action and successfully increased margins. Perhaps an even more important question is how we can keep this momentum going forward. Let's listen to Anna Ohlsson-Leijon, Head of Business Area Europe.

How do we sustain profitable growth? First, we focus on consumer-centric innovation. This ensures our ability to drive mix. Then we build desirable brands, which creates the ability to render a price premium. And the combination of the 2 underpins profitable growth. And in order to sustain it, we need to deliver the combination consistently over time. In my opinion, to make that happen, we need to make clear choices to allocate resources and have processes that we can repeat and measure. And this is the essence of our presentations related to Business Area Europe here today. So let's start with our approach. When it comes to innovation, Electrolux group has decided to focus on 3 distinct experience areas: taste, care and well-being. And for major domestic appliances in Europe, we focus on the premium segments, built-in kitchen and premium care. These represent sizable parts of the market with good growth. And this is the basis for our resource allocation. We allocate resources to innovate with clear benefits to consumers with measurable return on investment. Let me give an example for premium care. Let's say a benefit for consumers is to increase the longevity of clothes. We can do this in multiple ways with multiple innovations, multiple technologies. It can be the drum movement, how we apply steam to the drum. It can be the mix between water and detergent, at what phase in the washing cycle, or it can be how we perform the dosing of the detergent. These technologies are captured in multi-years innovation road maps, linking to the focus benefit areas. And there are advantages with this approach. Clearly, internally, it creates a lot of alignment with our R&D resources and builds competence in R&D over time. There are also benefits with our commercial partners. We provide means for our retail partners to deliver mix up over time through innovation. And for our consumers, consistency in messaging creates confidence in our ability to deliver. So let's look at brands. Also here, we made clear choices quite some time ago. We focus on our premium brands, Electrolux and AEG, and we invest only in these 2 brands. These brands have a clear target consumer audience, representing a sizable part of the market. So with this clarity on the target consumer and the brand attributes you want to drive, we can build standout and consideration. Again, multi-year plans with a return-on-investment-driven action and measurable, consistent over time. So to conclude, an innovation road map and a brand road map that builds on each other is what really creates value over time. So let's take a look at how we have been developing financially. We started our path to profitable growth in 2012. And since a few years, we are in targeted profitable growth. And if we take a look at the EBIT profitability increase as per the third quarter rolling 12 months, we have reached an EBIT margin of 7.6%. This is an increase from 2012 of 4.4 percentage points. We have, in the same time, since 2014, increased our net sales with a CAGR of 2.3%. Early on in this journey, a key contributor to the development was significant cost improvement paired with aggressive portfolio management, focused on reducing the less profitable products and brands. After that, focus has now turned to mixing up through innovation and investing in our premium brands, whilst maintaining a strong cost efficiency. Let's take a look at the value market share development. For kitchen built-in, we have achieved a growth of 0.5 percentage points in the period from 2017 to 2020, reaching a strong position with 22% value market share. This means that we are in the leadership position or the #2 position in 8 of our cluster markets: Nordics, Italy, the majority of Central Eastern Europe, Benelux, U.K. and France. And if we take a look at our development in premium care, the growth is even stronger, 2.2 percentage points value market share growth since 2017, reaching close to 15% value market share. And this means that we have the first or the second position in the markets of Nordics, Italy, Central and South parts of Central Eastern Europe, Benelux and France. Over the same time period, we've increased our price index with 2.5 percentage points. Overall, this is a confirmation to me that our strategic choices, coupled with the execution, are winning in the market. So let's shift gears a bit and take a look at the consumer side of things. As you know, creating outstanding consumer experiences is in the heart of our business model. Through our research, we know that consumers are actually willing to pay more for better experiences. We also know they share great experiences with more than 5 people on average. They value ease of use in combination with the pure technical innovation. And to build consumer loyalty, positive experiences are fundamental, with 67% driving consumer loyalty. And we need to be in tune with the consumers and what is trending, and especially in these challenging times, with the pandemic ongoing, we have identified 5 trends that are of importance to our business. And I would like to share those with you on a very high level. Consumers have been forced to spend more time at home with the pandemic and will continue to do so for quite some time. But this is also not only the pandemic, it's also enabled by technology and new ways of working. And the trend of cocooning or home-as-a-shelter is not something new, but has really accelerated. And consumers are really viewing their homes as a safe haven but also as a place to relax and explore new experiences. Let me give you one example from taste. 75% of consumers say they're going to cook from scratch more often going forward. And 39% say they will eat out less at restaurants, even post COVID. So there is an interest to explore new innovation. And we actually also see this on our brand websites. We have increased traffic over 40% versus last year. So this is creating a unique opportunity to continue the interest and the dialogue with our consumers around our products and services. The second trend is online growth. And this trend is also clearly accelerated as online was often the only channel open during lockdown in the first wave of the pandemic. And to put things in perspective, it took 11 years from 2008 to 2019 for online major domestic appliances sales to increase by 18%, but in the first and second quarter, it increased by another 21%. So online share has still continued to be on a high level after that. And there is no going back. Consumers choose the best shopping experience they can get and we need to serve them in the best possible way in whichever channel they prefer. We need to continue to build our capabilities and be strong in e-commerce. The third trend is category spending shifts. And of course, the economic impact of the crisis over time will most likely lead to overall income reduction. But right now, we see strong category shifts, of course, triggered by the less spending on travel and eating out and more towards home improvement and related categories. We're still in the midst of the pandemic and the second wave, and the economic implications will likely to span over several years. But what we saw in the market for major and small domestic appliances in Europe was a strong rebound with 13% growth, and the outlook for the full year is slightly positive for Europe. Sustainability is clearly not a trend. It is of higher importance but what we see is that sustainability is even higher on the agenda actually for consumers now in the midst of the pandemic. And sustainable living includes both an economical aspect, meaning the ability to reduce energy and water consumption as well as the reinforced understanding that society as a whole and companies, in particular, need to take better care of our planet. And it's interesting to see that 3 out of 4 consumers think it's more important than before the outbreak of COVID for companies to behave more sustainably. A similar proportion of consumers say the same thing about making sure that they personally reduce their own footprint. This is an opportunity for us to leverage our strong sustainability heritage and innovation road map. In times of uncertainty, consumers turn to the comfort of familiar brands and place value ahead of getting the lowest possible price. It's interesting to see that less than 25% of consumers in Europe today say they will look for cheaper products from alternative brands post COVID. Brand strength is important. And if we look back from the financial crisis, we saw that companies with strong brands were instrumental for successful recovery. And we need to continue to build our brand desirability for Electrolux and AEG. To conclude, we've seen a number of existing trends accelerating in the pandemic. And overall, these are very much aligned with our current strategies. But we have made some recent choices to accelerate some initiatives. Let me take you through those. We will, for sure, continue to fuel the growth through innovation in built-in kitchen and premium care. And step-by-step, we continue to build desirable brands with Electrolux and AEG. We should further leverage our sustainability benefits in innovation. And we want to accelerate e-commerce focus, both business-to-business and direct-to-consumer. We want to really drive the aftermarket to its full potential. So let's look at the trending results for e-commerce. In the third quarter year-over-year, a quarter where physical retail were open across Europe, we saw strong growth. If we look at our pure players, which represent 60% of our e-commerce business, we saw a 35% growth. And if we look at the omnichannel, which is the other 40%, we saw 15% growth. So for the B2B e-commerce, we want to serve our customers in the best way possible to increase growth. And with that, we have built a concrete 7-step plan to increase our performance online. Let me give you a few examples of what that entails. We want to focus on strong range with clear consumer benefits. We need to ensure good distribution with the strong partners, and we need to invest targeted in marketing and brand building to drive sell-out. At the same time, it's very important with this increase in the market growth to secure availability and reliability in our supply chain. For direct-to-consumers, which is a very small part of our business, we have agreed to develop and roll out an e-commerce platform in many markets already 2021. If we look into the aftermarket growth, and here, we take a 12-month rolling perspective versus last year, we saw an overall increase in 3.8% sales growth. And remember that the core of our spare parts business is representing 50% of the aftermarket. And here, we saw a growth of 2.3%. But what's good is that we saw very strong growth in our out of warranty repairs, driven by the successful fixed price repair concept towards our consumers, close to 10%. Extended warranty, also new service concept, 2.7%. So what's our focus going forward? We need to leverage all the contact points with consumers. Through the contact center agents and the service technicians, for example, we can offer services and finished goods. In order to do that, we need to enable them with the right tools. So we're implementing consumer relationship management tools and knowledge management system to strengthen the relationship with our consumers. So let's look into how we drive the brand desirability for Electrolux continuing. And in connection with the built-in kitchen launch of Intuit in late 2018 under the Electrolux brand, we further strengthened our focus on certain key brand attributes, under the umbrella, for better living, designed in Sweden. And the attributes we have selected to focus on are human-centric innovation based on real pain points and needs; leader in sustainable solutions, building on our strong sustainability heritage and our ambition going forward. Finally, designed in Sweden, a distinct and differentiated design language built on the Scandinavian tonality. And now we continue to strengthen these brand attributes for Electrolux with our premium position in premium care and our innovation linked to sustainable benefits for consumers. Let me give you some examples. We know consumers wash clothes even if they're not stained or soiled. For this, we have the solution with SteamCare, utilizing 96% less water. Another problem for consumers is that 64% of consumers according to our research actually wash in 40 degrees or higher, and this is only based on habit. For that, we have the technology UltraWash, which cleans with good results already at 30 degrees. Another innovation we're launching is AutoDose, saving detergent and the planet by reducing over dosage. This really resonates with consumers according to our insights, where a strong part of the consumers, 86%, in fact, say they believe that ensuring that clothes last longer is good for the environment. And only 52% say they know how to care for the clothes in the most sustainable way. Here, we also see strong year-to-date performance in net sales growth over 22% in the Premium PerfectCare washers. So now I'd like to show you how we bring this campaign to consumers with Make It Last. [Presentation]

Being consumer-centric also means that we need to listen to our consumers and take feedback, not only in the innovation process, but also once the products and services are launched in the market. For us, consumer star rating is very important, both to drive sales and to improve quality. And we have a clear process to make it happen. The consumer star rating for the [Audio Gap] 4.9 stars out of 5 possible. Internally, we also set targets to increase the rating with every new launch. This is a very powerful KPI because it involves the entire organization, making us all pull in the same direction. So if we now take a look at the Electrolux built-in kitchen performance, year-to-date September 2020 versus the same period last year, which, to a large extent, is driven by the late 2018, we can clearly see the strong contribution in net sales and gross profit with over 5% driven by strong mix of 4%. This, despite the fact that the kitchen retail has been more hit in the pandemic with less online capability and also the country mix have affected us negatively after markets where we are strong in kitchen built-in, like Italy, France and the U.K. have been more severely hit in the pandemic. With that, I would like to conclude that innovation and brand in combination, consistently over time, is our path to sustainable, profitable growth. Thank you.

Both Jonas and Anna have emphasized the importance of really understanding the needs of the consumer to make sure that our products and services are the right ones. This allow us to increase price and, in the end, boost margins. Here, design plays a vital road to ensure that we go-to-market with the right type of products. Our next speaker, Simon Bradford, has 25 years of experience from various design positions and joined Electrolux in 2009. Today, he heads up the design function for Business Area Europe. Simon will share with us how we are increasing return through consumer experience design. But before that, I want to remind you to keep sending in your questions. Let me now hand over to Simon.

I'm sure all of you can relate to the fact there's nothing more frustrating than having to resort to reading through a user manual when getting started with a newly purchased product. I personally hate it. Anna talked about the importance of high star ratings. Well, let me tell you, they don't come for free. Our consumers will only rate a product highly when they are fully satisfied with all aspects of the user experience. I am now going to take you through what it takes to design and develop a high-star-rated product, such as our recently launched QuickSelect dishwasher. The unique thing with this product is its user interface built on true consumer insight. To design an outstanding consumer experience requires putting the consumer at the heart of everything we do, but you need the right process to enable that. At Electrolux, our design process is: one, consumer-centric at its core; two, it's powered with data coming from the consumers; and three, it actively involves users as co-creators throughout the whole journey. And this is why design process increased return on investments. Now this is how QuickSelect has performed in the market. And as you can see, it has been very well received with net sales and gross profit up with 11%, mainly driven by volume. And this goes to show that our consumers really like this product, and this is the story of how we did it. As Jonas has previously described, our different brands fulfill different needs for different target groups, and design process fully supports this. For Electrolux, the target group is called the conscious explorers. They are the type of people who look for new meaningful experiences that enrichen and evolve their daily lives. They want to drive change for bettering society with sustainability as a key driver. And they are driven individuals, success is meant to self fulfill rather than showing financial status. Our process is essentially a tool for creative problem solving. It is consumer-centric and supports us to focus on the people we're designing for. It has 4 distinct phases: We go from understanding the needs to defining the opportunities, then we generate many ideas and then we prototype them and test them with users. This process is fast, is agile, it's iterative. Execution is key, though. And it's crucial that we understand the real need before finding a solution, not the other way around, because that is the trap that a lot of people can fall into. In the understand phase, the aim is to gain an empathic understanding of the problem you're trying to solve. It can involve interviewing and observing chefs, trendsetters or leading-edge consumers to find out more about the area of opportunity. But it also includes spending time in people's homes, at our workplace to understand and document their needs and crucially the pain points. At this stage, gaining empathy is crucial because it helps us to set aside our own assumptions about how the world or the consumer works and gain real insight into their needs. Let me give you an example. Please meet Eva. Eva is a real consumer we met in Germany, telling us about her dishwasher. Eva is somewhat frustrated. She is describing to us how her machine has so many functions, yet she has no idea what they all do. And I'm sure this will sound familiar to a lot of you. The manual is lost. It's stored away somewhere she can't remember. And so she is searching for the online version, it's just too time consuming. So she ends up always using the same program because she is unsure what the others do. And this is a perfect example of the type of home visits we carried out to gather qualitative research on our consumers during the development of QuickSelect. Understanding the consumer can also come under the form of data, the second ingredient to guaranteeing success. A couple of years ago, we invested into an IT tool, which trolls the Internet daily of every single comment, both positive and negative, that our consumers wrote about our products. We can track every single SKU, by product line, by sales channel, by country, to see what the consumers have said about them. A few years ago, the leadership of Europe headed out to California to visit a dozen or so consumer experience-led companies. One of the many tools we came back with is a tool called The Experience Compass, that helps us define an opportunity based on user research. It works like this. For a minute, let's go back to Eva in Germany. Eva wants to have clean dishes. Her need is to have a machine which adapts to her, not the other way around. She is frustrated because her machine is too complex, and she doesn't know which function to use. So we can conclude the pain point of using a dishwasher is often associated to something complex, of which the consumers have very little control. Now that is what I would call an opportunity that we can leverage and is exactly what we did. Not all opportunities are outspoken though, but the need is still there. A typical example is the ambition to live more sustainably, both for the producers and the consumers. If one would look at the total carbon footprint impact of a household appliance, 85% of that impact comes from when the product is being used, meaning once the product has reached a consumer's home. The remaining 15% is manufacturing and materials. What if we, at Electrolux, could nudge Eva towards more sustainable washing behaviors, empowering her to take informed decisions and build sustainable habits. And here you have the second opportunity we chose to leverage in the design development of QuickSelect user interface. Now once the opportunities are defined, we then move on to the ideation phase. The ideation phase is where a cross-functional squad is brought together to think outside the box and identify new possible solutions that could solve the pain points identified earlier. This phase is fast, it's agile, it's intense and normally only takes a few days. Ideas are then tested with consumers to get immediate feedback. As part of the prototyping phase, the introduction of new and advanced digital tools, such as virtual reality and augmented-reality goggles, have enabled us to prototype and test far more ideas with consumers at a faster speed and at a lower cost than a few years back. We also found that plunging the consumers in a virtual world sparked their engagement and raised the quality of their feedback. As a way to validate [Audio Gap] the consumers feedback. We invested back in 2014 into our very own user experience lab, where we used ISO usability standards to test early prototype [Audio Gap] lab as many times it takes until we get it right. Last but not least, to guarantee success, especially in a crowded retail space, we do a consumer preference test, called internally the 70% test rule based purely on appeal, so how the product looks. We [Audio Gap] The end result is a user interface where everything has been stripped away, giving way to a simple slider. The user makes a simple choice between quick or eco. The accompanying Ecometer bars display... [Presentation]

So to conclude, how do we increase our return and minimize our risk to fail? By ensuring we have a design process that is centered around solving real user needs, by ensuring our decision-making is based on [Audio Gap]. And finally, by ensuring the users feedback has been heard every single step of the way. So this is our secret behind designing simply outstanding consumer experiences and 4.9 star ratings.

A desirable and intuitive consumer experience is one key innovation pillar. Now let's talk about the second pillar, brand. Thorsten Brandt, Head of Marketing for Business Area Europe, will now take us through how we successfully have strengthened our Electrolux brand and finding that right balance between building the brand and conversion. In short, turning marketing spend into return-driven investments. Thorsten has an extensive marketing experience from consumer goods companies. So let me now hand over to Thorsten.

Strong brands grow faster, they are more profitable, and they are more resilient during crisis. This is a fact. It's a great pleasure to speak to you today about the importance of having strong brands, showing you our process and illustrating that process with a very concrete example. Whenever any of us make a purchase, we do not only look at the tangible functional benefit that we are getting, but we also add the value that we get from buying a branded experience. And as a company, we want to leverage on that brand value even more because the more value our brands add to our products and services, the more we will grow our value market share profitably. In Electrolux, we want to be among the 3 brands consumers have in mind when they are thinking about buying a new appliance. Let me illustrate the power of brands with an example. In this case, consumers were asked which phone they would rather buy based on the design and the features at a given price. This was done without knowing which brand it was. The result, 14% chose the phone on the left and 49%, the phone on the right. Then respondents were told which brand went with which phone and you can see what happened. The result completely flipped. Now granted, Apple is an extreme example of brand strength, but it just shows the power brand has in influencing what a consumer chooses to buy. Let's take a look at our approach. There are 3 pillars. It all starts with having a clear position for the brand, areas that we can uniquely own in the minds of our consumers. This is key, and something the most valuable brands in the world have in common. Then we build a multiyear focused plan because in order to be successful, brand building requires disciplined focus and incredible consistency over a long period of time. Think about some of your favorite brands. Chances are they have been consistent in the way that they communicate, probably for decades. Lastly, we always measure what we do, so that we know our communication works before we invest in it and then we continuously adjust to get the best possible return on investment. Here's an overview of how we have invested in the past 5 years. We have focused heavily on online because it is a very efficient way to reach end market consumers, and it gives us the ability to react very quickly based on what is successful at driving and converting traffic and what isn't. Starting in 2019, we have augmented that online investment with more broad reach media choices, such as, for instance, TV, to bring our qualified campaigns to more consumers and strengthen their perception of our brands. This is because the combination of the 2 is what's most effective in driving short-term conversion and longer-term brand building given the low purchase frequency of appliances. The recently launched built-in kitchen range that Anna mentioned earlier is a great example of how we have managed to drive both short-term sales and improve brand health. Everything starts with being clear on the brand positioning. In the case of Electrolux, the 3 brand attributes that we can credibly own in the minds of our consumers are human centricity, leader in sustainability and designed in Sweden. We have a systematic qualification process to secure effectiveness of marketing investments. Looking into the launch of the new kitchen range, the first step was to explore the simple idea, the concept, the way that we describe the product, which then developed into a full campaign across all media touch points, including television. We tested this with our consumers every step of the way. We did this, of course, to validate that our communication was working and to learn how we could improve it further prior to investing into the production and ultimately the airing of the campaign. Going forward, I will focus on the last 2 parts of this qualification, the validation phase and then the post-launch tracking phase. Let's first watch the video that we tested. What we are about to see is exactly what we show to consumers during the validation phase. [Presentation]

And here, you see what consumers told us, the key messages were, that they took away after seeing this piece of communication. And we were, of course, very pleased to see that all the most important attributes were communicated well, intuitiveness, innovation, Swedishness, et cetera, et cetera. We then asked consumers a battery of additional questions like, do you remember the brand that sent this communication? Would this advert make you interested in purchasing the brand? Is this a meaningful brand, et cetera? And what we saw were very strong results that showed the TV commercial was effective, both in terms of short-term as well as long-term brand building. It shows that consumers after seeing the message believed that the brand is meaningful to them and that it is differentiated, improving the emotional connection and uniqueness versus other brands in the market that is so important. We also learned that our brand recall was not optimal, and we used this to change the TV ad that we eventually put on air to make sure that more consumers remember that this was an ad from Electrolux. But of course, what really matters is what happens in market. Let me share with you what we learned in terms of brand strength improvements and market share. We interviewed over 2,000 consumers in 7 markets after they had been exposed to the campaign, and the data shows that a very high percentage of those felt that the brand attributes we want to own were well communicated. Poland is one of our key markets for the Electrolux brand. So I would like to share with you the results we are seeing, both in terms of strengthening the brand and building the business at the same time. We are especially proud of having been able to move Poland to the top 3 consideration. Remember, this is the key metric that we're focusing on. We want to be in that top 3 in the minds of our consumers. And looking at our value share development in built-in kitchen in Poland, you can see that we have been able to become market leader. The 3 green boxes you see indicate the times when we were on TV with this campaign. What's even more encouraging is that by consistently leveraging the campaign, we not only improve our return on investment because we use the same assets, but we are also able to separate ourselves more and more from our competitors. Now you will recall that one of our desired attributes for the Electrolux brand is being recognized as a leader in sustainability. This has been a key focus for us in 2020 and will continue to be in 2021 and beyond. In order to achieve this, we have done 2 things. One, we have continued to leverage the campaign assets but refreshed them with new product experiences that are focused on the sustainability benefits that our appliances provide. As you have heard from Simon, we have focused on our QuickSelect feature in dishwashers, which allows consumers to easily choose between eco-friendliness and the time that they want to spend. And on Steamify ovens, we have focused on the fact that it actually makes leftovers taste great, which in turn helps reduce food waste. Secondly, we have created a new campaign for our laundry categories that we call, Make It Last. Following the same systematic qualification protocol that you have seen, this campaign is focused on enabling consumers to make choices that make their clothes last longer and, at the same time, reduce the burden on the environment. Make It Last is now live in Poland and in the Nordics. And while it's still early days, let me say that we're very happy with the responses that we are seeing so far from our consumers and our customers. In summary, strong brands grow faster, they are more profitable and they are more resilient during crisis. That is why we have a clear plan to systematically strengthen our brands and to win the hearts and minds of our consumers, step by step with focus and consistency.

It's time for my favorite part of the event, taking your questions. And I'm joined by our 4 speakers. And please continue to send in your questions using the question box to the right.

Let's kick off this Q&A session with a topic on brand. And Thorsten, let's -- you say that brand building is a long process. How long and how much investment do you think is required to move to top 3 in your main countries?

Thank you for the question. The answer is, it depends a little bit because the starting point that we have is different from country to country. We have some countries where we're already #1, like, for instance, in Sweden. And then we have countries where we have some ways to go. So the time that it will take to get there will depend a little bit on where we are. I think it is fair to say, though, that it will take some time, and it will take a consistent focus, as we said, throughout the presentation. The most important part of this, though, is that we have a process and that we are continuously looking and adjusting and that we make sure that we have, that we see the return on investment, both when it comes to short-term sales impact as well as the long-term brand building.

Anna, what would you say is how large is the market opportunity for built-in kitchen and premium care that you talked about in your presentation? And how much can you grow your market share within these categories?

Thank you. Today, we have about 22% value market share in kitchen built-in. And we have around close to 15% in premium care. And this is representing 60% of the total major appliances market. And I feel we have with this potential to grow, definitely, with our strong conviction on brand, Electrolux and AEG, and the investments that Thorsten just talked about consistently over time, paired with the innovation road map that we have and the strong partnership in distribution with our partners in the commercial arena.

And let's switch topic a bit to sustainability. And Jonas, sustainability has been present in all your presentations here. How do you work with sustainability as a value proposition? And do you leverage the sustainability angle as much in all market as you do here in Europe?

Well, I think sustainability is crucial in all our markets. We look at the surveys that we've made, over 2/3 of consumers around the world care about sustainability and are willing to pay more for sustainable experiences. How we express that, what they value varies a bit between different markets, but it is a combination of both an absolutely imperative for us as a company to drive sustainable development, and it's a key part of our value creation strategy. It doesn't matter if the consumer is in Brazil, in the U.S., France or Sweden, they still care about making an impact and making sustainable choices and are willing to pay for that. So it's a key part of our strategy.

And Anna, it's a question here. You mentioned about online growing. And could you talk more about your logistic footprint, warehouses and headcount as the share of direct online revenue grows? Do you need to invest more in this new channel, warehousing?

As we see it right now, we have a good logistics footprint. And of course, key here to serve the market in e-commerce is that we have transparent and real time visibility. And I think right now, in the network we have across Europe, this is sufficient. Of course, we constantly optimize and look at investments. But overall, I would say we have a good basis and platform.

And design has been a theme for this capital markets update, Simon. And we have received several questions on this topic. So let's start with this one. In average, how long does it take at Electrolux to develop a new product? And specifically, how long did it take to develop QuickSelect, as you mentioned in your presentation?

Thank you, Sophie. I think it's a very good question. I think, on average, it takes us between, I would say, 2 and 3 years to develop a product like QuickSelect. I think it depends on the level of innovation and difficulty. But I think as a company, we're not afraid also to delay a launch until we think the experience is absolutely perfect.

And another question on this topic then, if we stay focused here, on design, is product preferences. How they are used and how design is viewed, I imagine, differs across the globe. To what extent do you get scale in innovation as a global consumer company? And perhaps, Simon, if you can start and then Jonas if you want to continue.

Yes. That's -- it's a very good question. I would say there are category codes per region. I think the North American consumer versus the European consumer has different ways at judging aesthetics and appeal. But I think, generally, as the more premium you go up in a range, I think the more global a design can be. The more you go mass, the more it is regional.

Exactly. I think we can see in the case of AEG and Electrolux, we truly have global designs now, both covering Europe and Asia Pacific, in particular, but also in North America and Latin America, we see more and more of the same design cues. Again, consumer needs don't vary that much. If you look at the shared needs, usually around 80% or even more of consumer preferences are shared globally. But of course, there are differences in size, there are differences in requirements for speed, cost affordability. And all those differences make a little bit of an impact on the choices that we make to provide a great experience. But again, the core of it is actually quite global now.

And I think it was you, Simon, that mentioned North America. So let's have -- continue on that path. And Jonas, your view here on North America brand positioning. If you feel we have the ability to fully leverage our innovation and compete effectively at premium price points with the Frigidaire brand given that it's more the Middle American core. And this is a question, I should mention, from David MacGregor at Longbow Research.

Well, of course, our brands do target different target segments in the market, but there's always an opportunity to mix up from where we are. And if we look at, for example, Frigidaire mixing up from a relatively enterprise point product to a Frigidaire gallery, for us is significant mix improvement. And we can see from the example that we shared on Frigidaire Air Fry or Frigidaire multi-door refrigerators, when we hit the right consumer experience, consumers are willing and able to pay for that and -- or rewarding us with great reviews and great consumer star ratings. So we're doing it right now. It's evident in the market that, that strategy is working.

And a follow-up to that question from David MacGregor then at Longbow Research is, if you would consider introducing and building distribution in the North America for the AEG brand?

Yes. I think our more immediate opportunity is, first of all, to further strengthen the mix up within our Frigidaire brand family. So we have Frigidaire, Frigidaire Gallery, Frigidaire Professional. So that's a nice step-up opportunity and growth -- significant growth opportunity there. Then, of course, in the North American market, we already have Electrolux as the true premium offer. And here, we can leverage, particularly, and we have leveraged significantly in laundry, the same innovation road map that we discussed earlier in the session here. And as we saw, the Electrolux washer and dryers are rated #1 in North America. So we have a real premium brand position already that we're continuing to build on, leveraging our global architecture development and our global design capabilities. So I think that comes first. AEG, yes, it's an interesting opportunity, but we have so much more to work on before we consider that.

And staying on the subject, brand then, Thorsten, going forward, do you expect a similar split between in-market investment and broader reach as you had in 2020 that you showed?

Yes. I think the split that we currently see is pretty much what I expect to see also moving forward. As I was talking about, we just started to augment with broad reach, starting in 2019. I think it will depend a little bit over time. We talked a little bit about -- the first question was about how long does it take into top 3 that will determine then also a little bit how much do we need to invest in broad reach. And I think what I would also say is the more consistent we are, the more we will have the ability to reduce some of the spending because this is where consistency becomes so important because we can reduce some of the frequency and that will help us actually have more impact with consumers at lower cost as we go along and as we do this in a consistent way.

And we are getting many questions on aftermarket, and I will start with several from Lucie Carrier at Morgan Stanley. So Jonas, how much of your sales today is aftermarket? And can you give an indication how this differs by regions?

Yes. Approximately -- we said this before. Approximately 5% and growing beyond that of our revenue is aftermarket sales. And we've been clear that we have the ambition to double that share through 2025. And really around the world, we see significant growth rates in aftermarket sales. In Europe, Anna talked about the fact that we're now adding more services, more capabilities to further grow -- further get in touch with our end consumers and give them better experiences and, obviously, with the increased revenue potential that comes with that. Right now, Europe and North America is where we have the highest share of aftermarket sales, but growing extremely rapidly in our emerging markets as well. And there, it becomes a real competitive advantage also for our finished goods business to be able to offer a great aftersales experience. So this is, of course, reinforcing creating loyalty, creating more revenue for us and making sure our consumers are getting better experiences, faster service and faster response times. It's a huge opportunity for us.

And perhaps, Anna, if you can add here, you mentioned 2 areas that you want to grow in within aftermarket. What was the rationale for deciding on these 2 areas?

Yes, we really look at the opportunity for the consumer, and that is what's directing us. And I think here, when it comes to services and aftermarket, what we call peace of mind, so fixed price repair is one example that I was talking about that really is important for consumers. And there we see strong growth. And for Europe, it is, in total, around 5% aftermarket as for the group.

And let's stay on the aftermarket subject here. Jonas, from a more group perspective then, do you see that we need to -- and it's a follow-up then from Lucie Carrier at Morgan Stanley. Do you see that this requires hiring of additional staff? And how do you think about driving aftermarket and extending life of your products versus selling new products?