Q3 2020 interim report
Sales recovery and continued cost actions improved profit compared to Q2
During the third quarter we have seen a recovery after the significant negative impact the pandemic had on commercial restaurants, hotels, pubs and staff canteens during the second quarter. The Laundry market has shown more resilience, driven by the increased need for cleaning and disinfection.
Sales in the quarter declined organically by 16.1%. The decline in sales in July and August were in line with the levels reached in June, when the recovery began. In September, as well as in October, we have seen an improvement compared to the previous months.
After a challenging second quarter with its break-even results, I am pleased that the sales recovery and continued cost actions improved the profit in the quarter compared to the second quarter. EBITA for the quarter, excluding items affecting comparability, was SEK 173m with a corresponding margin of 9.9% (12.1%). Sales of Food & Beverage declined organically by 19.6% in the quarter, reporting an EBITA-margin, excluding items affecting comparability, of 9.1%. Laundry continued to be more resilient with an organic sales decline of 9.8% and an improved EBITA-margin, excluding items affecting comparability, of 14.9%.
Short-term savings and improvements from the 2019 and 2020 structural restructuring programs contributed positively. With sales gradually improving, temporary cost actions have, however, started to phase down versus the previous quarter. In total, cost-saving measures amounted to approximately SEK 75m in the quarter.
Several customer segments, in particular within the hospitality industry, will likely continue to be strongly affected by the pandemic. As digitalization, online sales and working from home change our everyday work, we have started to adapt our organization to this new reality in an effort to become leaner and more flexible. In support of these changes, structural measures generating yearly cost savings of SEK 130m have been launched. These savings are in addition to the SEK 100m saving measures announced in 2019, which have now been fully implemented.
Product innovation plays a crucial role in our business and as a result, several new products have been released, such as the NitroChrome3 High Productivity fry top, the new Espresso Coffee Machine range and the new line of ironers for Laundry.
Virtually every employee at Electrolux Professional has been affected by the pandemic. At the same time, our employees have continued to show commitment and flexibility in front of the challenges that this new reality brings forth. Combined with our measures, this brings confidence that we have a stronger organization that is well equipped to handle the continued uncertainty in the market going forward.
Alberto Zanata, President and CEO
Q2 2020 interim report
Swift actions contributed to break-even EBITA, despite significant sales decline
The global COVID-19 pandemic has had a substantial negative impact on commercial restaurants, hotels and pubs, representing approximately 50% of our sales. Sales to institutions as well as sales in Laundry have also been affected, but to a lesser extent.
Sales in the quarter declined by 40%, however improving throughout the quarter. In June, sales recovered and had a 20% organic decline after the significant 50% drop in April and May. Sales in the beginning of July are in line with the percentage decline registered in June. We interpret this as a sign of recovery.
Sales of Food & Beverage declined by 48% in the quarter, reporting a negative EBITA, while Laundry was more resilient with a sales decline of 22% and a good EBITA-margin of 13.5%.
EBITA for the period came in at break-even. The decline in EBITA is predominantly impacted by the large decline in sales volumes, but also a strong positive one-time-effect from a pension plan settlement in the second quarter of 2019. Short-term savings and improvements from the 2019 restructuring program contributed positively. I am proud of the swift actions taken by the team in this unprecedented time to keep EBITA at break-even and even have a small positive cash flow given the severity of the market decline.
Several actions have been put in place to reduce costs short-term, which only partially compensated for the rapid drop in sales. The cost-saving measures, including some structural savings and government support, have reduced our cost in the quarter by approximately SEK 200m.
In order to be more flexible and to adapt our cost structure, we are reviewing structural cost-saving initiatives. In addition, structural cost-reduction activities have already been implemented in the US and Industrial Operations. The ambition is to define and start to implement new measures during the second half of 2020 that together with the already implemented activities will generate yearly cost savings of SEK 100–150m. The structural measures under review will imply one-off costs which will be communicated later.
Many countries have gradually begun to reopen after the pandemic restrictions. This had a positive effect on our customers, although it is too early to say how fast the continued recovery will be, as the general market uncertainty is still significant. We continue to stay flexible, to rapidly adapt our ways of working and our organization to the changing market dynamics.
The flexibility of our organization has been demonstrated by the release of several new product and service initiatives, for example “Two pairs of eyes” which makes it possible for service technicians to provide remote support with augmented reality, but also new products within hygiene and clean.
I am particularly proud of how our employees have continued to show commitment, perseverance and flexibility during this unprecedented crisis. This is a demonstration that we will continue to stand strong also in the future.
Alberto Zanata, President and CEO
Q1 2020 interim report
Stock-listing in a challenging time but with the right foundations to stand strong also after the crisis
The listing of Electrolux Professional on March 23 occurred at an unprecedented time, with the global COVID-19 pandemic heavily affecting not just individuals, but communities and companies alike. Safety is our top priority during this time and several important measures have been taken to secure the health and safety of our employees, as well as that of our customers.
The coronavirus has already heavily affected the hospitality industry, such as hotels, restaurants and pubs, an area representing approximately 50% of our sales. Sales to institutions as well as sales in Laundry have, however, so far been less affected thanks to the installations in coin-operated and in institutional and multi-housing laundries. In total, sales for the quarter declined organically by 13.7%.
Consequently, several measures have been implemented to reduce cost and to apply stricter cash management. Actions have been put in place to secure the operational cash flow, with focus on accounts receivables and cash collection. All investments have been re-evaluated and product and purchasing plans have been adjusted.
EBITA for the period amounted to SEK 221m (316), representing a margin of 10.6% (13.7). The decline in EBITA is primarily impacted by lower volumes in Food & Beverage and higher cost for corporate functions related to operating as a stand-alone company. Savings and efficiency improvements contributed positively.
In January and February, sales and EBITA were only partly impacted by the coronavirus, driven by the development in China and, to some extent, Italy. From March, the impact due to the coronavirus became more evident in most markets. Sales in March declined organically by approximately 25%.
Currently, all factories are operational, but with reduced production. Warehouses have increased stock to ensure quick delivery of parts and products, but also to handle potential supply chain disruptions.
The general market uncertainty is significant. Since the extent of the pandemic cannot be predicted, it is also not possible to make a forecast for the financial development.
We have a strong balance sheet and access to credit lines which makes us resilient and well equipped to handle a longer period of downturn.
The strategic direction presented in March remains valid. However, the short-term focus is on mitigating the sharp decline in demand. At the same time, it is important to emphasize that Laundry, the most profitable segment, so far has been less affected.
Many of us are currently living in what probably is the most challenging period of our lives, both professionally and personally. This said, once the crisis will end, companies with solid financials, committed employees and the right strategy will have an advantage. I am confident that we have the right foundations to stand strong, also after the crisis.
Alberto Zanata, President and CEO
On March 23, 2020 Electrolux Professional was separated from AB Electrolux and listed as a separate company on NASDAQ Stockholm. Having spent most of my professional career in AB Electrolux, I am proud and happy to have been given the opportunity to represent Electrolux Professional in its new role as a stand-alone company. Without doubt, the long-standing heritage and experience we bring with us from the AB Electrolux will be of great benefit to us.
Electrolux Professional is one of the leading global providers of food service, beverage and laundry solutions, serving a wide range of customers globally, from restaurants and hotels to healthcare, education and other service facilities. Our solutions meet the need for high-performing, reliable equipment, with significant aftermarket requirements over the equipment’ lifecycle and for customers focused on productivity and total cost of ownership. The Electrolux Professional brand will continue to be our main brand. We aim to stay at the forefront, offering unique, innovative solutions that help our customers to be successful.
Several global trends favor the growth of our business. The increase in out-of-home spending, especially in emerging markets, means people are spending more money on dining out and less time a on household chores such as laundry. Many businesses are broadening their offerings and are becoming multi-function assets, for example, coffee shops offering food and laundromats offering coffee and food.
At the same time, the importance of sustainability is growing significantly. In addition to general awareness of the climate and our environment, ergonomic and sustainable solutions save money for our customers. This is an area where we can be truly valuable to our customers. Our new, innovative products are efficient and ergonomic, saving time, waste, energy, detergent and decreasing sick leave. The foundations for Electrolux Professional’s future growth are in place and we are ready to seize the opportunities!
The spin-off will enable Electrolux Professional to successfully realize our strategies under the leadership of a separate management team, with our own Board of Directors and independent access to capital. Electrolux Professional and the Electrolux Group have different end markets, customers and drivers for success and, as separate companies, both are better positioned to meet the varied drivers and challenges in our respective end markets.
Although we are experiencing challenging times with the global impact of the coronavirus, it is with a lot of energy and passion that we are starting the exciting journey to develop Electrolux Professional’s business as an independent company.
A warmly welcome to Electrolux Professional!
President and CEO