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

Good morning, everybody, and a warm welcome to Electrolux's Fourth Quarter 2020 Results Presentation. With me today, I have our CFO, Therese Friberg; and our Head of Investor Relations, Sophie Arnius. I'd like to start by mentioning that our session is recorded and will be available on our website as an on-demand version. Let's look at our performance in 2020. The coronavirus pandemic in 2020 had a severe impact on all aspects of society, including our consumers and our business. After a weak first half, with significant downturn market demand across most regions, we have now experienced a second half and a fourth quarter with strong recoveries in most markets. We managed the situation during the year by quickly adapting to the changing market to ensure that we took the right measures at the right time. We implemented comprehensive cost mitigation actions in the first half, while our strategy to focus on strategic brands and innovative products remained strong throughout the year. Organic sales grew 3.2%, to a significant degree, driven by improved mix. More high-margin products were sold across all business areas. We delivered successful launches in Australia and Europe and in our other business areas, and we're pleased to see -- to receive external recognition for our innovative products in the U.S. Our 3 main brands, Electrolux, AEG and Frigidaire, increased share of group sales to approximately 80% with increased value market shares in Europe for Electrolux and AEG, while sales of lower-margin products decreased. Online sales grew strongly globally. And aftermarket sales, which is one of the group's strategic focus areas, also increased significantly to approximately 7% of group sales. EBIT increased substantially as a consequence of proactive price and cost management as price offset currency headwinds in combination with the above-mentioned mix improvement. We had a very strong cash flow of nearly SEK 9 billion, and consequently, the Board proposes a dividend per share of SEK 8. So looking at our performance in the fourth quarter. Demand continued to be strong in all main markets as a consequence of the continued shift in consumer spending, with consumers allocating more of their household budgets to home improvement. We have strong organic sales growth of 17.5%, partially driven by high market demand across our business areas. We entered the fourth quarter with low inventory levels, which continued throughout the quarter, impacting our ability to fully meet the strong demand. The organization has worked hard and with good progress to secure supply and to increase production, but we're still not fully able to meet the strong demand. Mix continues to develop well despite these volume constraints. We had continued good traction from premium brands and innovative premium products. And as I mentioned before, we had very strong growth in aftermarket sales in all business areas. We achieved higher net prices through reduced promotions and discounts in several markets, and that, of course, reflected the lower product availability. We also actively raised prices in Latin America earlier in the year and in Q4 to offset the very strong currency headwinds there. Operating income improved to SEK 2.5 billion with a margin of 7.4%. All our business areas were above the 6% margin with strong organic contribution from all 3 levers of volume, price and mix. The positive price development more than offset the currency headwind, and we sequentially increased investment in marketing and strategic initiatives, including strengthening our aftermarket and e-commerce capabilities in the quarter. We also, towards the end of the quarter, started experiencing higher logistics costs, and particularly, impacting ocean freight. With that, we had very strong operating cash flow after investments of SEK 5 billion. And also this quarter, we had a very strong traction from our premium products improving the mix. And let me give you some examples on product innovations built on deep insight in consumer needs. Our first example this quarter is our Pure Q9 cordless vacuum cleaner. And this is a product that really takes care of the 2 main pain points for consumers. One is the hassle of bringing out the vacuum cleaner every time you need to clean. And to fix that, we designed a beautiful product that can be out in the main room for whenever a cleaning need occurs, and of course, with fantastic suction and cleaning capabilities. As an example, this has been extremely well received in our -- in the competitive Korean market with a 71% sales growth, a 2.1 points market share gain and a strong 4.6 points consumer star rating, indicating that consumers are extremely satisfied with our products. Another example is our awards for consumer experience innovation in the U.S. We were top-ranked in 5 categories by reviewed.com in the U.S., which is one of the top review websites. With the Electrolux and Frigidaire brands, again, we had 5 category winners in the kitchen and laundry categories. I think one fantastic example is the Frigidaire Air Fry cooker that contributed to very strong profitable growth and a 10% market share in the freestanding premium cooker category, where Frigidaire previously has had a low presence. So strong contribution from consumer experience innovation. Looking into our business areas performance in Q4, starting with Europe. We saw strong organic sales growth of 9%, and our innovation strategy continues to pay off with our focus on building kitchen and laundry, delivering higher mix and improved price indexes. We continue to gain value market share in our premium brands, AEG and Electrolux, with higher volumes even though constraints due to the shortage of input materials impacted the volume somewhat negative. Our strategic focus on aftermarket business delivered growth across all the business area. EBIT was significantly improved to SEK 1.319 billion with a margin of 9.5%, with strong organic contribution from all factors, volume price and mix. And we sequentially increased investments in marketing and strategic initiatives to further support the profitable growth. As mentioned, the higher logistics costs started to impact with an impact from -- while the impact from raw material was favorable, and FX, negative. Let's look at the European market. In the fourth quarter, overall market demand in Europe continued to be strong and the demand increased 10% year-over-year. In Western Europe, demand increased by 9%, and in Eastern Europe, by 12%. All markets grew, mainly driven by the high levels of home improvement spending with people continuing to stay mainly at home. And consumers are using cash they usually spend for holidays and restaurants, et cetera, to upgrade appliances or renew old ones earlier than usual, continuing to drive very strong demand. The second wave of restrictions have had a less lower impact on demand as selected retailers are more used to selling online and with a significant increase in click and collect versus the first wave. However, kitchen retailers, while they're delivering on the existing order book and continue with the installations of previous orders, there are restrictions in in-person meetings that make it harder to take new orders at the time being. The overall market remained tight with, in general, low inventory levels at retailers throughout the quarter. Now let's look at our business area in North America. We had very strong organic growth at 29.2% with sales increasing across all product categories. It was a very strong market in the fourth quarter, up 20%, and this also compares to a weak fourth quarter 2019 for us, where we had impacts from our manufacturing transition as well as inventory management at a key customer. The positive price development continued with significantly lower promotions, particularly during the Black Friday events. And we had also here very, very strong aftermarket growth. EBIT improved significantly to SEK 697 million with a margin of 6.8%, and again, very strong contribution from all the levers of mix and price and volume. Overall, the sales of high-margin products increased significantly, as I mentioned before, specifically front-control cookers as well as laundry products. Let's look at the U.S. market. During the quarter, industry shipments of core appliances in the U.S. increased by 20%. This compares to a weak Q4 in 2019, also for the industry, partially due to destocking at a large U.S. retailer. We saw strong market growth across all main categories, and macro indicators continue to be supportive with decreasing unemployment levels, a very strong housing market and the recently announced government stimuli programs impacting consumer sentiment positively towards the end of the quarter. Market demand for all major appliances, including microwave ovens and home comfort products, increased by 17%. Let's move to Latin America. Consumer demand increased in all the 3 main countries for us: Argentina, Brazil and Chile. In Brazil, the government incentives were extended and consumer spending shifted due to even more continued focus on home improvement. Our understanding is that we as well as most other players were impacted by direct material shortages during the quarter. In Argentina, product availability increased as the economy began to stabilize, supporting sales. And Chile was also very strong compared to a weak fourth quarter in 2019, supported by government stimulus packages. So organic growth was very strong at 25%, with sales growth in all markets driven both by volume and higher net prices, partially driven by significantly lower promotion activity, but also carryover effects from earlier price increases as well as price increases during the quarter. Also here, we continue to see strong growth in aftermarket sales. And also, online have continued to grow very sharply in all main markets to -- both together with partners and direct to consumers. EBIT improved to SEK 424 million with a margin of 7.7%, again, strong organic contribution and mainly from price, which more than offset currency headwinds and high inflation as well as the increased logistics cost. Innovation -- investment in innovation and marketing increased during the quarter and further supported our profitable growth. Finally, turning to Asia Pacific, Middle East and Africa. Here, we saw consumer demand overall in the region decreasing slightly. This was mainly driven by Southeast Asia, which continues to be impacted by the pandemic-triggered lockdowns. And also, consumer purchasing power was negatively impacted by the lack of tourism during the quarter. Australia, which is our largest market, remains strong with significant household consumption growth supported by government incentives. And also here, then we saw increased home improvement spending as a consequence. Organic sales grew 9.7% with higher sales across the region, except for Southeast Asia due to the market there. The higher volumes were partially impacted by some supply constraints. Particularly in Australia, we saw significantly higher sales as -- combined with price increases, leading to strong growth in our high-margin products, mainly in the kitchen category where we had successful launches both in 2019 and 2020. And also here, aftermarket sales continued to grow strongly. Operating income improved to SEK 376 million with a margin of 8.9%. This was mainly as a result of the strong performance in Australia, lower cost of raw material and favorable currency, while we also here were impacted by higher logistics costs. Also here, we increased investment in strategic initiatives and marketing in the quarter. This is mainly to support 2021 launches, for example, the relaunch of AEG in Australia. With that, I hand over to Therese.

Thank you, Jonas. Looking at our financial overview, I would like to comment on a few items for the fourth quarter. We have strong organic growth of 17.5% with mix improvements and positive price development, and volumes also increased across business areas, also related to the strong market. Gross operating income, defined as net sales minus cost of goods sold, improved to margin of 22.8%, which was an increase by 4.8 percentage points year-over-year. Operating income increased significantly, mainly a result of the strong organic contribution. Let's look at the drivers behind this year-over-year change. As mentioned, we had a strong organic contribution driven by the volume, price and mix in the quarter. Volumes increased, which was based on the continued good market trend. We could not fully meet the consumer demand as we enter the fourth quarter with unusually low inventories, and the supply constraints remain throughout the quarter despite high production volumes. And I would also like to remind you that in the fourth quarter in 2019, we had lower volumes in North America due to the U.S. manufacturing consolidation and a destocking at the U.S. key customer. We had positive price for -- across all the business areas, but mainly North America and Latin America, which was driven by significantly lower promotional spend. We saw mix improvements with a positive brand mix mainly in Europe, but also from selling higher share of more premium high-margin products across most business areas. We had a combined impact from raw materials and trade tariffs that was slightly positive. This was driven by lower steel and plastics costs than 1 year ago, and it was somewhat offset by negative indirect currency impact in Latin America, and tariffs also had a negative year-over-year impact as we sourced a larger amount of products from China to North America to meet the high market demand. Currency continued to have a negative impact on EBIT. And net cost efficiency was negative in the quarter, and this was a result of increased brand and marketing investments as well as transformation costs relating to strategic investments to become an even more consumer experience-driven company. And this was after holding back on investment levels during the first half of the year. We had higher logistics costs driven by shortage of containers and increased ocean freight. We also had more express freights to keep production high and serve our customers in the best possible way. And the third reason was production inefficiencies related to running the factories with high speed and overtime costs and so forth. If we then take a look at sales and EBIT bridge for the full year. For the full year, we also saw strong organic contribution from mix and price. We had positive mix across all business areas, but particularly Europe, on the back of higher growth in the premium brands and built-in kitchen and premium laundry. We had a positive price developments, primarily in Latin America and North America, with a low promotional spend level, but in Latin America, also increases to offset the currency, as previously mentioned. And volumes declined for the full year, mainly related to the lockdowns that we saw during the first half of the year due to the pandemic, but also related to the manufacturing consolidation in North America that continued throughout the year. We had a positive combined impact from raw materials and trade tariffs. But on the other hand, we have significant currency headwinds, which I will come back to later in the presentation. We had a negative net cost efficiency for the full year as well with production inefficiencies and negative logistics costs related to the manufacturing consolidation in North America, but also related to the pandemic with lockdowns of production during the first half and then exceptionally high demand during the second half, which became very disruptive for production, both in the first half of the year and also then in the second half of the year. And on top of that, we also had the negative freight cost, as mentioned before. This was partly offset by cost mitigation actions during the first half with lower innovation and marketing spending for the full year. Let's take a deeper look at the price and mix development. The EBIT margin accretion for the group from price and mix in the quarter was 4.7 percentage points, and for the full year, 3.2 percentage points. This was mainly coming from price but also mix improvements as a result of increased sales of innovative premium products and growth in aftermarket sales. In Europe, we had a favorable mix driven by growth in built-in kitchen and laundry products under our premium brands. And in the fourth quarter also, aftermarket grew significantly. For the full year 2020, prices were fairly flat, while prices increased in the fourth quarter related to a lower promotional discount. In North America, price developed positively as promotional discounts were reduced significantly. These were particularly visible in the fourth quarter, which is usually a highly promotional period. Favorable mix during the year with increased sales of high-margin products and also increased aftermarket sales. In Latin America, we had a strong contribution to earnings from price as we increased prices during the year to offset the currency headwind. And in the fourth quarter, we benefited from significantly lower promotional activity. We also had a positive mix for the full year in Latin America. In Asia Pacific and Middle East and Africa, we had higher prices, mainly in Australia, from price increases in the beginning of the year. But we have also increased prices in South Africa during the year. We had positive mix across most markets, but mainly in Australia, based on strong product launches in 2019 and 2020. And now let's look at the currency effects. As highlighted in the EBIT bridge, currency had a negative impact of SEK 400 million on our earnings in the fourth quarter and SEK 1.6 billion for the full year. This was mainly driven by weaker currencies in Latin America, and we also had a negative currency effect in Europe related to a weakening ruble. And in the fourth quarter also, the British pound impacted negatively. And then looking at operating cash flow. Operating cash flow for the fourth quarter was very strong and amounted to SEK 5.4 billion, resulting in a full year cash flow of SEK 8.5 billion. This was mainly driven by the strong earnings development in the second half, but also a favorable development of working capital and a lower level of investments. In working capital, we have some significant movements during the strong recovery in the third and fourth quarter with high sales and production, and thus, also a high level of procurement. As we could not fully meet the high demand, inventory remains very low. And going forward, we expect this to normalize. As from 2021, we are revising the format for the business outlook and how we will report the sales and EBIT bridge going forward. Let me walk you through some of the different components for this. The purpose of the new format is to increase clarity and link it stronger to our value creation drivers, which, as you know, are driving sustainable consumer experience innovation and increasing efficiency through digitalization, automation and modularization. The organic contribution in this new format is unchanged, and the former net cost efficiency is split into 3 parts: with investments in consumer experience, innovation and marketing. This includes, for example, cost for R&D, marketing, brand, infrastructure, capability building in connectivity, CRM systems and aftermarket sales, with a focus to drive sustainable consumer experience innovation. And the cost efficiency is efficiencies in variable and structural costs. And this then excludes raw materials, trade tariffs, labor cost inflation above 2%. And it also excludes cost for consumer experience innovation and marketing, as stated above. And this is with a focus on increasing efficiency through digitalization, automation and modularization. And then labor cost inflation above 2% is moved into external factors. So then moving over to external factors. As a large global appliance company, we are exposed to various external factors, such as raw materials, currency and labor cost inflation above 2%, which we have added together into one total. And price remains our main tool to mitigate these external factors. So let's look at the sales and EBIT wage for 2020 in this new format. As you can see, the volume price and mix is no change compared to the bridge previously shown. And we have lower cost for investments in consumer experience, innovation and marketing year-over-year in 2020. And this is related to the cost mitigation actions that were activated during the first half of the year. And the cost efficiency is negative year-over-year, which is related to the supply constraints related to the pandemic throughout the year. And we also have increased costs for the ongoing manufacturing consolidation, and this was partly offset by cost mitigation activities in the first half and continued productivity investments but still remain negative for the full year. And headwinds from external factors, here, you see the majority is the currency headwinds, as I've previously shown. But offsetting that, we have the positive raw material impact. And then going in the negative direction is higher labor cost inflation, primarily related to Latin America. And with that, I hand back over to Jonas.

Thank you very much, Therese. Then looking into the market outlook for 2021. Visibility remains limited due to the ongoing pandemic. However, for the first half of 2021, we anticipate that the strong consumer demand from increased home improvement spending experienced during the second half of 2020 will remain to an extent. In addition, retail inventories are currently low in general. We therefore expect demand for the first half of 2021 to exceed normal seasonal levels across all our main markets, although capacity and component availability will likely remain constraining factors. Assuming that consumer spending patterns start to normalize by midyear, we estimate that also market demand will start to normalize during the second half of 2021. Altogether, we expect market demand for appliances for the full year 2021 to be positive in our main markets. Looking at the specific regions, we anticipate that European market shipments will be slightly positive for the full year '21 with growth across the key markets. We see a positive trend from the replacement market, and government stimulus programs are expected to mitigate effects from significant second virus wave lockdowns, which, so far, have halted recovery to some extent in terms of consumer confidence and unemployment. In North America, demand is estimated to be positive for the full year, partly driven by a very strong housing market and favorable replacement cycle. Recently announced government stimulus programs should further support the economy and consumer sentiment, leading to a favorable demand outlook. Demand in Latin America is expected to be positive for 2021, driven by expected high demand in main markets during the first half of the year. Uncertainty remains regarding the development of the pandemic and measures taken by the government as well as overall political and economical stability in the region. And finally, we estimate demand in the Asia Pacific, Middle East and Africa region to be positive for 2021. This is mainly driven by Southeast Asia expected to rebound, however, still below the 2019 level during -- due to the lower consumer purchasing power. Many countries in Southeast Asia are heavily dependent on tourism, which has been negatively impacted by the pandemic. However, a strong and fast recovery in China is supportive also for growth in Southeast Asia. For Australia, which is our other large market for this business area, we anticipate a slight decline in 2021 demand for the full year compared to the strong 2020. Turning now to the business outlook. As Therese described earlier, we are, as from now, revising the format for how we communicate the business outlook in order to link it more strongly to the key drivers for profitable growth in our varied value creation strategy. In 2020, our strategic initiatives to reach the operating margin objective of at least 6% and sales growth of at least 4% generated significant improvements. For 2021, we expect a continued positive organic contribution from volume, price and mix driven by favorable market demand, higher prices compensating for our raw material headwinds, and demand and mix are assumed to be positively impacted by increases in innovation and marketing investment, including a step-up in digitalization of our consumer interactions. In terms of price, we have announced price increases that are being implemented early in 2021. The tight market we experienced in the second half of 2020 resulted in significantly lower promotions, mainly in the Americas. When the supply and demand situation normalizes, which, given our market outlook, is likely during the second half of the year, we also expect promotion levels to start to normalize. During the past 3 years, mix improvements from innovation, brand and aftermarket sales growth have in total contributed more than SEK 3 billion to operating income, realizing a very favorable return on investment. We also know that the strengthening of our main brands, Electrolux, AEG and Frigidaire, are paying off. These brands now account for approximately 80% of group net sales compared to just over 70% 3 years ago. Besides brand and marketing investments, we're also strengthening our capabilities within aftermarket and e-commerce, both strategic areas for us. If we see weaker demand than what we're currently forecasting, we have, of course, the opportunity to significantly slow down these investments like we did in 2020. We estimate that cost efficiency, excluding innovation and marketing investments will be positive in 2021. Our group target is to annually drive down the variable product costs, excluding raw materials, by 3% on like-for-like products. Main cost efficiency drivers in 2021 are continuous cost improvements and execution of our reengineering program, particularly the improved productivity and output from our new refrigeration factory in Anderson in the U.S. However, this will partially be offset by increased logistics cost and transition effects as we ramp up more of our new facilities in our reengineering program towards the latter part of the year. These estimated ramp-up costs are already included in the cost savings from the reengineering programs that we have communicated previously, last updated in the second quarter 2020 earnings call presentation. All in all, as we plan to accelerate innovation and marketing investments, given that market conditions remain favorable, total net cost in 2021 is expected to increase. As a global appliance company, we are exposed to various external factors, such as raw materials, tariffs, currency and excess labor cost inflation. For 2021, we estimate a negative headwind of SEK 1.6 billion to SEK 2 billion from these external factors, primarily from raw material, and in particular, steel. The other main factor included in -- is translation currency. That's assessed to amount to approximately minus SEK 400 million at current exchange rates. We expect to offset the raw material headwind with the price increases that we already have announced. This is not a new situation for us, and we have achieved this before. During the last 2 years, we have fully offset the headwind from raw material and currency with price increases. We're continuing our reengineering investments and expect total capital expenditure to be about SEK 7 billion in 2021. Our reengineering investment program is crucial to strength cost competitiveness and drive profitable growth through increased modernization and automation in the Americas and Europe. In summary, we're well positioned to create value. We continue to execute on our strategic transformation drivers in the fourth quarter. We saw strong mix improvements driven by product innovations and our -- and growth of our premium brand. We saw very strong aftermarket sales growth, and we're accelerating our strategic transformation initiatives. We're also pleased to report that the consolidation of our U.S. fridge and freezer production is progressing very well. With that, we open up for questions. Operator, go ahead.

Yes. And as Jonas said, we will now open up for questions. And I can see that there are many of you that wants to ask questions. So we, of course, want as many of you to be able to do that. [Operator Instructions] So with that, operator, please go ahead.

[Operator Instructions] Our first question comes from the line of Andrea Willi of JPMorgan.

My question is relating to the 6% margin target. You haven't communicated externally when you think you could achieve this. Is this a possibility for 2021 in your view? And has the pandemic made it easier for that target to be reached, given that maybe consumers value their home more and your products more? Or could there also be a headwind as you've had basically pulled forward demand now that maybe makes it a bit more difficult as we look into '22 to maintain that momentum?

Yes. I mean, obviously, we have not given a specific timeline for reaching the 6%, but it is very closely tied to the reengineering program that we have -- that we've driven the last few years that we've updated you on, of course. If we look at 2021 specifically, yes, the strong demand, of course, is favorable. We've been very focused on taking the opportunity to further improve our mix and to really kind of -- with the strong focus on innovation for consumer experiences and driving the demand towards our more premium brands. And our premium high-margin product is working really well. So while the surge in demand, of course, is a little bit temporary, as people have shifted -- as we've talked about, shifted their spending from travel and so on to the home, that will start to materialize at some point later in the year. But we expect that improvement in mix that we're driving to continue. And in the meantime, we're continuing the strong efforts on productivity and launching more of our newly reengineered, modularized and automated product and facilities. So we do expect to make good progress during 2021. And I think we have a very solid plan to execute on all our strategic initiatives and to get to the 6% target within not-too-distant future.

Our next question comes from the line of Will Turner at Goldman Sachs.

I have quite a few questions, but given that we are clearly to ask one, I'm going to start off with a question on working capital. And what are your expectations for working capital into -- going into 2021 and beyond? And the reason why I ask is because, obviously, the industry kind of got caught out in the summer with the low inventory levels. And then also, with the logistic costs increases and logistic issues that we've had recently, perhaps your suppliers aren't that willing for you to push out from them in terms of payable terms in the near term. So how do you see working capital progressing over the next couple of years?

Yes. I think we have been working very actively with our working capital during several years, and this is and has been a very high focus area for us. And then, of course, as you mentioned, we have during 2020 specifically seen some quite abnormal swings, I would say, in the working capital. And we go out of the 2020 with then unsustainably low inventory levels where we are not fully supporting our customers to the level that we want. But this will continue to be a very high focus area, and we will manage it through in a good way, as I believe that we have done also previously. So yes, I think it's not a very big worry for us going forward, either.

Next question comes from the line of Johan Eliason of Kepler Cheuvreux.

Congratulations to good a result, and above all, good execution. I have a question regarding your business outlook and trying to understand the different buckets here, to some extent. You say cost efficiency will be positive, and it's including the reengineering program, which I understand hasn't been changed since Q2, where you gave us some updates on how the EBIT impact would be on that one. I understood, just looking at your growth, it would be around SEK 1 billion positive or so into 2021 over 2022. And then the other part, obviously, which is negative then is investment in consumer experience and marketing. And obviously, you cut those by SEK 630 million we learned from the new chart you showed -- or table you showed us this year. And the net of these and some other factors should still be negative. Is this SEK 1.1 billion something from the reengineering program significantly offset by something else in this cost efficiency bucket? And then on the marketing spend, will it be dramatically higher obviously than the SEK 630 million you cut by in 2020?

Right. So I think you've read it right, which is good. And then when we look then into 2021, of course, the -- as you said, the reengineering program is continuing well on track. So that's a strong read on that. And the other piece that is partially offsetting the benefits of that is -- are the very significantly higher logistics cost that we've also discussed and some other sort of inflationary cost or cost pressures on component sourcing that's included in that metric. But yes, we do expect that to be a strong -- solid positive contribution for the year from cost efficiency. And then, of course, we already -- as we went into 2020, before the pandemic, we indicated that we would actually increase our investments in innovation and marketing and the front end transformation that we're driving just simply because it pays off. It pays off in acceleration of our organic growth. And as things played out with the pandemic and the constraints that we experienced, we -- instead of increasing, we reduced the spend on innovation and marketing in 2020. So now, of course, we are eager to -- and we started here in the fourth quarter to reinvest in the transformation and growth of the business. That's working extremely well. And we expect to return a positive return on investment on those investments, of course, in our organic growth. So as usual -- and we've shown that, I think, many times in history, we retain a lot of flexibility here. So if, for whatever reason, the market development should vary or our return on investment not being as high, we will spend less incremental money, and we have full control over that. So for us, this is not a question of -- that we are, let's say, absolutely bound to increase our net spending. That's something that we choose to do because we think it provides a further boost to our profitable growth. So I think that's a little bit the balance. And that's also the reason why while we don't want to give too precise guidance at this point because, of course, the market outlook is quite uncertain for 2021. But I have to say we have a positive view on it. The demand is strong, and our investment in the transformation is really paying off strongly. We talked about the SEK 3 billion that we've added to the bottom line from mix and aftermarket sales growth and premium brand growth in the last quarters. We are very eager and keen to continue that to drive that development.

Excellent. Then just on the decision on the incremental spending there. I think you've previously alluded to you want to grow EBIT by 7% per annum basic. Is that sort of the focus for you to make sure how these marketing spend is developing during the year, that you are meeting this EBIT growth target?

Yes. I mean, we're not tracking it on a day-to-day basis with a target of 7%. But yes, no, we want to drive a continuous positive earnings contribution from organic growth, and at the same time, offsetting the external headwinds that we're facing and continuing to drive that sort of positive virtuous circle that we've had. And I think the fact that we've now focused ourselves more on our own sort of premium and focused brands, Electrolux, AEG and Frigidaire, gives us much more, let's say, leverage in our control to drive profitable growth. As you know, over the last several years, we've had impacts, for example, from losing some big private label business with -- in the U.S. that has kind of slowed down the reported net sales growth. But underlying, we're continuing to grow, again, Electrolux, AEG and Frigidaire, quite profitably over time. And of course, we intend to continue that.

Our next question comes from the line of Olof Cederholm of ABG Sundal Collier.

It's Olof with ABG. Just if I can come back to the investments in innovation, brand and aftermarket sales. Is it possible to be slightly more specific regarding the time lag between investments in these areas and the payback? And also, if you are expecting the same pace of EBIT support in 2021, as you have realized over the last 3 years, i.e., around SEK 1 billion per year.

Yes. So I don't think it's right, again, given the uncertainties we're facing, to give a specific guidance on what we expect there. But what I would say is that we expect it to be a positive net contribution. Now so the ROI timing varies quite substantially between these -- the different drivers. So one part of it is, of course, just increased brand and advertising and marketing spend, which has a very strong and fast return on investment. The investment in innovation has a longer lead time. But there, of course, we have also increased that investment quite substantially over the last 5 years or so. So that should pay off on a continuous basis, not just the investments we're making this year, but the ones we've made in the last several years. And that includes the transformation programs that we've announced, which, again, is not just about automation. It's also about new and innovative products. So yes, no, I definitely see a solid positive return on investment. And I think we can point back to 2020 and see that throughout this very, very volatile and challenging year, we actually delivered positive mix and price throughout the year. Also in the depths of the pandemic crisis in the second quarter, we delivered positive mix. So we are seeing that it works very well. Quarter-to-quarter, there will be ups and downs, so we try to stay away from being too precise on those predictions. But on a full year basis and on a month to year basis, we see that as a very positive contribution.

And our next question comes from the line of Gustav Hagéus of SEB.

I'll limit it to one then. You mentioned that there is some uncertainty still in the market, of course, while being rather positive, it seems, on the first half. But just in the light of your current financial situation, you have a financial net cash position now, and I recognize that you raised dividend here, but still also beyond that, and the -- a bit elevated CapEx this year. It should be looking somewhat favorable going into the second half of the year if markets don't sort of collapse. So I guess my question is if there's some plans for larger M&A or something that you sort of keep that financial flexibility for? Or is there a scenario where one could see some additional shareholder returns, you think, if things sort of stabilize here? What's your thinking here?

Yes, no, I think that's well stated. I think our first priority is to continue to reinvest to grow the business. As you mentioned, we're raising our CapEx spend in the year, which we think will be very good for our shareholders. Secondly, we also are looking continuously at value-accretive M&A in emerging markets and selectively looking at adjacent categories as well. So we'll continue to do that. However, having said both of those things, to your point, our balance sheet is very, very strong. And together with our Board, we are, during the year, going to look through our strategic priorities and develop a solid updated strategic plan based on this new market environment and the strong balance sheet that we have. And we'll see what comes out of that. That's ultimately, of course, in the hands of the Board. But I think it's definitely clear to say that we have a stronger balance sheet than we will need.

And our next question comes from the line of Henrik Christiansson of Carnegie.