Electrolux, The Rational Returns, March 2012

Fundamental Research / Capital Goods / 19 March 2012
James Moore, Philip Wilson
Electrolux
The Rational Returns
About the team
James Moore
James holds a First Class degree in Economics from the University of
Durham. After graduating he covered the Capital Goods sector at
HSBC and Goldman Sachs before joining Redburn.
+44 (0)20 7000 2135

+44 (0)7818 088 198
james.moore@redburn.com
Philip Wilson
Phil holds a First Class degree in History from the University of
Durham. He qualified as an ACA at PwC, where he trained in the
London audit department, before joining Redburn to be a Capital
Goods analyst.
+44 (0)20 7000 2025

+44 (0)7799 261 081
philip.wilson@redburn.com
Electrolux / 19 March 2012
Electrolux Price: SEK150.30

MV: SEK39,144m
BB: ELUXB SS
Next news:
The Rational Returns 1Q 2012 results,

25 April
Thesis: The global appliance market has reached an inflection

point. Korean margin collapse and the erosion of cost advantage
redefine industry terms of trade. Consequently rising prices, easing
steel costs, US housing recovery, increased emerging market
exposure and proactive management action will not be competed
away, finally leading to rising margins. Buy.
x Rationality returns: after a decade of taking share through vicious pricing, the
Koreans have reached their pain threshold. An inflection point is at hand. With
LG’s and Samsung’s cost advantage eroded by Western production relocation (led
by Electrolux), shipping and Asian wage inflation, historical pricing pressures will
ease as the playing field levels, this is a defining moment for returns.
x Margins to exceed 7%: hitherto, Electrolux management excelled at protecting

margins. In future, easing structural pressures, US price improvement, diminished
raw material costs, a changing mix, and a leap in the quantum of restructuring
savings will not be undermined by aggressive competitor pricing. This will ensure
margin expansion and earnings surprise.
x Sales growth to accelerate: increased emerging market exposure, where low

penetration supports 7% structural growth, and US housing-led market recovery in
2012, followed by Europe in 2013, should generate further revenue surprise.
x Forecasts raised: we upgrade our 2013E EPS by 13% to SKr17.7, 30% ahead of
consensus. We forecast a 7.0% EBIT margin in 2013E and raise our target price
from SKr180 to SKr240, based on 2013E EV/IC vs ROIC/WACC framework.
Fig 1: Electrolux clean EBIT margins vs the Koreans Fig 2: Electrolux clean EBIT margins vs the Koreans
Avg.Clean EBIT Margins (%)
15% End of Western Entrance of low cost

Clean EBIT Margins (%)
12.0% 16% Rational

consolidation phase competition phase
8.8% 12% phase
10%
5.3% 5.4%
4.5% 8%
5%
1.4% 4%
0%
0%
1996-00 Avg 2010-11 Avg 1990 1994 1998 2002 2006 2010 2014E
Electrolux (Ex. Husq.) Koreans Global industry Electrolux (Ex. Husq.) Koreans Global Industry
Source: Redburn global appliance industry benchmarking model Source: Redburn global appliance industry benchmarking model
Important note: see regulatory statement on page 141 of this report. 3

Electrolux Buy
Bloomberg ELUXB SS Free float 100% Key shareholders Investor (16%), Alecta (8%), Blackrock (6%)
Price SEK150.30 Daily traded value (a) SEK340m Key executives Keith McLoughlin – CEO
Market cap SEK39,144m Credit rating (b) BBB+ Tomas Eliasson – CFO
Enterprise value SEK48,189 5-yr CDS spread (bp) 85 Key brands Electrolux, AEG, Zanussi, Frigidaire
Sales by operating segment (2012E) Profit by operating segment (2012E)
5% EMEA EMEA
8% 13%
26%
32% North America North America
7% 11%
Latin America Latin America
Asia Pacific 12% Asia Pacific

20%
Small Appliances 19% Small Appliances
27% 19%
Professional Professional
Products Products
Source: Redburn Source: Redburn
Share price and relative to Europe Redburn EPS monitor IDEAS Estimates Momentum (c)
Price (SEK) Relative (SXXP) 25 100 200

190 110 33% 180
80
20 30% 160
170 100 60 140
150 90 15 16% 120
40
130 80 100
10 20
80
110 70 0 60
5
Oct 06
Mar 07
Aug 07
Jan 08
Jun 08
Nov 08
Sep 09
Feb 10
Jul 10
Dec 10
May 11
Oct 11
Mar 12
Apr 09
90 60
12/12 12/13 12/14
03/11
05/11
07/11
09/11
11/11
01/12
+/- 1STD Red. Con. Estimates Momentum - Sales

Estimates Momentum - EPS
Price Relative
Source: Bloomberg Source: Redburn, Bloomberg Source: www.redburn.com/ideas
Summary financials and valuation

Year to Dec (SKr m) 2009 2010 2011 2012E 2013E 2014E 2015E
Revenue 109,132 106,326 101,598 112,178 116,466 120,531 123,084
Group EBIT (pre-IAC) 5,322 6,494 3,155 5,875 8,200 9,300 9,885
Group EBIT margin (pre-IAC) % 4.9% 6.1% 3.1% 5.2% 7.0% 7.7% 8.0%
Reported diluted EPS 9.18 14.04 7.24 12.16 17.66 20.52 22.09
P/E (post-restructuring) 12.9 12.0 19.0 12.4 8.5 7.3 6.8
EV/sales 0.36 0.49 0.47 0.50 0.47 0.46 0.44
FCF yield (geared vs M. cap) 22% 11% 9% 6% 12% 14% 15%
Dividend yield (%) 3.4% 3.8% 4.7% 4.4% 6.3% 7.1% 7.6%
Source: Redburn, company
(a) 12m average daily traded value, (b) S&P, (c) relative to IDEAS Europe or UK universe, (d) pre items affecting comparability.
4 Important note: see regulatory statement on page 141 of this report.

Contents
Contents
Executive summary .......................................................................................................6

01/ Margin: supply-side shifts to the rational phase, Korean aggression easing ....20
02/ Margin: price improving......................................................................................36
03/ Margin: raw material pressure to ease ................................................................41
04/ Margin: brand repositioning and the mix effect ................................................47
05/ Margin: restructuring cost savings to accelerate ................................................59
06/ Demand: Western volumes to show cyclical recovery, led by the US ................79
07/ Demand: emerging market structural growth, the penetration story...............86
08/ Financials: Electrolux to smash 6% EBIT margin target .......................................94
09/ Appendix 1: supply-side regional market share issues.....................................107
10/ Appendix 2: supply-side barriers to entry ........................................................116
11/ Appendix 3: US and European consumer and housing outlook......................120
12/ Appendix 4: Western structural growth opportunities ...................................127
13/ Appendix 5: further financial details ................................................................134

Executive summary
Executive summary
Throughout his career, this analyst has been a seller of Electrolux. Our
upgrade to Buy in September 2011 at SKr97 was a career first.
Received wisdom still considers this company virtually uninvestable,
perennially restructuring to stand still in an industry suffering
permanent pricing pressure. When we started this research we were
inclined to take the easy option and revert to Neutral. However, the
closer we looked and the more data we analysed, it became clear to do
so would simply be wrong. The global appliance industry has reached
a supply-side inflection point, with LG and Samsung unable to take
further margin collapse. This will allow Electrolux’s margins to benefit
from improved pricing, lower costs, volume recovery, an improved
mix, greater emerging market exposure and a management-led step-
change in restructuring intensity. This is still a Buy.
Global appliance industry to move into more rational phase

After a decade of viperous pricing pressure spearheaded by the Koreans (LG and
Samsung), the global appliance industry is entering a more rational phase. While the
current US anti-dumping petition proposed by Whirlpool against the Koreans has
been a helpful catalyst, it is not the principal engine of sustainable change. Rather,
there is compelling evidence that catastrophic margin deterioration at LG and
Samsung’s appliance businesses has focused management attention on improving
returns at the expense of taking market share.
Fig 3: Electrolux clean EBIT margins vs the Koreans Fig 4: Electrolux clean EBIT margins vs the Koreans
Average Clean EBIT Margins (%)
14% End of Western Entrance of low

12.0% 16%
12% consolidation phase cost competition
10% 8.8% phase Rational

12%
8% phase
5.3% 5.4%
6% 4.5% 8%
4%
1.4%
2% 4%
0%
1996-00 Avg 2010-11 Avg 0%
1990 1994 1998 2002 2006 2010 2014E
Electrolux (excl. Husqvarna)
Korean average (LG and Samsung) Korean Average (Samsung & LG Electronics)
Electrolux (ex H.)
Global industry average (18 companies) Global Appliance Industry Average
Source: Redburn global appliance industry benchmarking model Source: Redburn global appliance industry benchmarking model

Executive summary
Moreover, there is evidence that Electrolux’s cost base has been structurally
transformed through impressive management action. This restructuring, allied to
increasing costs for the Korean players, has levelled the playing field.
While Electrolux’s margin development, from 4.5% on average between 1996 and 2006
and 5.3% on average between 2010 and 2011 (see Fig 4), may not seem category-
changing, it has been a herculean achievement in the context of the average margins of
the industry. Over this period, Electrolux’s average EBIT margin move has
outperformed the global industry average by +420bp and, more importantly, the
Koreans by a staggering +1140bp. Given the appalling competitive dynamics of the
industry over the last decade, it appears investors simply do not appreciate how much
has been achieved, the quality of the management that has achieved it, or the potential
for further margin improvement as the market becomes more rational.
Koreans under greater pressure, with less room for attack

There is considerable evidence the margin collapse of the Koreans, from a 1998 peak
of 13.5% to a record low of 0.8% in 2011, has put them under significant pressure to
improve returns. In 2011, LG’s Home Appliance head ‘resigned’ due to poor financial
returns and Samsung’s Digital Appliance was downgraded internally from a division
to a subdivision due to weak financial performance. The message is clear.
Fig 5: Proportion of production in low cost areas, 2011 vs 2003, Electrolux vs LG

Share of production in low cost (%)
80% 70%
60% 62%
60%
40%
22%
20%
0%
2003 2011
LG Appliance Electrolux
Source: Redburn, company disclosure
Principally, it was the cost advantage that enabled the Koreans to undercut on price
and to take market share for a decade. Electrolux has closed roughly 80% of its 2003
cost disadvantage relative to the Koreans and the remainder will close by 2015. Our
in-depth benchmarking analysis of the industry’s production base suggests Electrolux
has lifted its share of production in low cost areas from 22% to 62% since 2003; over
the same period the Koreans lifted theirs from 60% to 70%.
Furthermore, the Koreans are beginning to face cost pressures of their own. As heavy
intercontinental exporters (largely out of China), they are suffering from rising
shipping and labour costs. Shipping costs are particularly painful as the Koreans
have high exposure to the refrigeration category where such costs are triple the

Executive summary
appliance industry average. In addition, the Koreans are losing their labour cost
advantage given their high exposure (c50%) to China where wage inflation is the
highest in the world (roughly 15% currently).
Koreans will struggle with global heterogeneity and high margin cooking
Finally, the Koreans will face genuine technological and logistical hurdles in advancing
their relatively homogeneous offer. Given the heterogeneous nature of the end market,
with myriad regional consumer design preferences (unlike cars, smartphones and
TVs), significant investment will be needed if they are to increase their market share.
This has not yet occurred. This further militates against their capacity to retain
margin-destructive pricing. Given the technical barriers to entry (especially in gas), we
do not expect serious competition from the Koreans to Electrolux’s strong position
in the high margin cooking segment.
Two Korean risks to consider

Firstly, if raw material prices fall and margins rise, there is a risk the Koreans reignite
their aggression. However, even if this happens Electrolux will have already benefited
from the price or margin expansion. Secondly, while we expect the Koreans to be less
aggressive, there remains a risk of irrational behaviour. Historically, the Koreans have
spent 3-4% of sales on R&D and 6-8% of sales on capex; this cannot continue with
margins at current levels but, were it to, and they pushed harder into Australia and
Latin America where they currently have limited presence, then industry margins
could remain under pressure.
And what of the Western competition?

In terms of the Western competition, we see some risk from GE’s renewed
investment in the US appliance market after its failed attempt to sell the business.
However, this risk is tempered by its very low margins (0.6% EBIT in 2011) and
clear ambitions to improve returns, with significant price rises being announced for
May 2012.
In Europe, Bosch-Siemens (BSH) has always been a strong competitor with high
margins (8% EBIT margin 2011), leading R&D/sales ratios (3%) and an emphasis on
the premium end with a current leadership in energy efficient appliances. We see
some evidence that Electrolux is mimicking the best aspects of BSH by raising its
R&D and focusing successfully on the higher margin energy efficiency market,
where it has just developed a clear number two position behind BSH.
Back to the US, Whirlpool’s plan is to move into new (product and regional) markets
and lower costs through restructuring and ‘commonisation’, which is very similar to
Electrolux’s restructuring and ‘modularisation’ plans. As Electrolux’s planned savings
are proportionately a touch ahead of Whirlpool’s and the two companies have seen
almost identical annual margin development in the last five years, we see

Executive summary
Whirlpool’s 8% target (a significant 2% above Electrolux’s target)as very

comforting and supportive of our high 7.0% 2013E and 8.0% 2015E EBIT margin
forecasts (pre-IAC) for Electrolux.
Pricing to structurally improve, starting with the US in 2012

Fig 6: US and Eurozone monthly appliance CPI, YoY %
6%
4%
YoY Change (%)
2%
0%
-2%
-4%
-6%
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
Eurozone Major Appliances CPI US Major Appliances CPI
Source: US Bureau of Labor Statistics, Eurostat
Given the flattening of the competitive dynamic, average industry pricing pressure in the
next five years should be less severe than over the last decade. This structural benefit will
be accompanied by a strong cyclical improvement in 2012. To recover some of the 2011
raw material cost inflation all major players in the US and most in Europe have
announced a series of price rises in 2011 and 2012. We expect the benefits to begin to
accrue in 2012, when we forecast Electrolux will enjoy +0.7% of annual price rise
(vs -0.3% pa over the last decade). We have argued since September 2011 this would be
led by North America, and our confidence in this has increased significantly recently.
This is because of: (1) clear signs of a US housing-led market recovery; (2) a less
aggressive Korean stance given their financial constraints; and (3) the current anti-
dumping petition. As a result, the latest US appliance CPI numbers showed a series
record of +6% YoY in January 2012 (see Fig 6). We forecast Electrolux will see a
significant +2.8% price rise in North America in 2012.

Executive summary
Raw material pressure to ease in 2012 and structurally thereafter

Fig 7: Electrolux cost cake (split of 2011 sales) Fig 8: Redburn RM weighted basket YoY change (%)
Other 30%
15% Carbon
Steel 20%
YoY Change (%)

35% 10%
Plastics
29% 0%
-10%
Stainless
-20%
Copper and Steel
Aluminium 8% Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
13% Weighted Basket of Electrolux Raw Materials
Source: Electrolux Source: Redburn, Bloomberg
In addition, Electrolux should enjoy a significant easing in raw material cost inflation
in 2012 and 2013. Since 2004, Electrolux has suffered a huge SKr11.3bn EBIT raw
material cost increase. This equated to an average annual negative EBIT impact of
SKr1.4bn, a staggering 30% of average annual EBIT. For investors trying to understand
where all the cost savings went, please look no further.
We have constructed an Electrolux weighted raw material basket which suggests, at

current spot prices, the 2012 raw material impact (we forecast -SKr250m vs guidance
of -SKr500m) and, increasingly, 2013 (we forecast -SKr200m) should be far less
onerous than hitherto. Beyond 2012, we argue that (1) the easing Chinese fixed
investment bubble, (2) the significant amounts of cheaper iron ore capacity coming on
stream in the next four years, and (3) the higher degree of excess world steel capacity
by comparison with recent history, all support limited medium-term steel price
inflation relative to that seen in the recent past. While oil-based plastics have now
become the principal inflation risk, steel remains the dominant ingredient.
Savings in the next five years, 1.45x that of the previous five
Fig 9: 2004-16E detailed segmentation of restructuring savings by programme (SKr m)
Savings by Programme (SKr m)
1,500 1,400 1,425 1,425

1,198
1,019
1,000 749 800
623
521
405
500 300
211
49
0
2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
2004-2011 Manufacturing Footprint 1 2008 'Cost Reduction' Manufacturing Footprint 2 Global Operations Overhead Cost
Source: US Bureau of Labor Statistics, Eurostat

Executive summary
We forecast Electrolux will deliver SKr5.5bn of savings from its three programmes,
‘Manufacturing Footprint 2’, ‘Global Operations’ and ‘Overhead’, over the next five
years (2012-16). Importantly, this is 45% higher than the SKr3.8bn achieved over
last five years (2007-11).
Electrolux to benefit from ongoing restructuring

Many investors point to Electrolux’s flat margin over the last decade as evidence the
company is unable to retain the benefit of its cost savings. We argue that without the
retained savings Electrolux would not have achieved its industry-relative margin
success. By closing 19 high cost Western plants and relocating production to Hungary
and Poland for the European market, Mexico for the North American and Thailand
for the Australian, MF1 structurally improved competitiveness, improved fixed asset
turn by 20% and working capital turn by 80%. With the low cost footprint now in
place, the upcoming MF2 programme will offer more rapid and effective cost
savings than MF1. Our plant-by-plant analysis highlights there are eight high cost
plants left in Europe (largely in Italy), four in North America and two in Australia.
Here lies the potential that justifies the anticipated savings.
Modularisation will unlock a competitive advantage

In addition to Manufacturing Footprint 2, there should be real excitement about
Electrolux’s ‘Global Operations’ programme, which will modularise virtually every
product in the group portfolio. By creating common components and common
dimensions, Electrolux will lower component costs, increase speed to market and
improve the execution precision of product launches. As well as the 2015 SKr3bn
‘Global Operations’ savings target, the greater speed to market should bring
additional benefits of higher ASPs and improved mix. We approve of the decision to
hire Jan Brockman from VW as Chief Technology Officer, given VW’s acknowledged
leadership in modularisation, and note that its introduction, which should bring genuine
competitive advantages, is on track.
If, as we expect, the next five years are marked by a tepid Western recovery, less
aggressive industry pricing pressure and reduced raw material cost inflation then,
ceteris paribus, the increased savings should be more visible in EBIT development.

Executive summary
Western volumes to recover, led by the US

Fig 10: US and Western European market shipment volumes 2001-14E
Industry shipment volumes (million)
60
55
50
45
40
35
30
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E
Western Europe US
Source: Redburn based on AHAM, GfK and various company data points
Compared to the European Capital Goods sector, where Western revenues peaked in
2008 and had already returned to peak by 2011, the Western appliance industry has
had a very tough time indeed. Since its 2005 peak, the US appliance market has fallen
by 23% from 48.2 million units to 37.0 million in 2011, and the Western European
appliance market has fallen 13% from its 2006 peak of 58.4 million units to 50.7
million in 2011.
Having run over 500 linear regressions to identify the structural drivers of the US
appliance market (as a proxy for the West), we conclude that appliance volumes trail
US housing starts and US home sales by six months (with R2s of 79% and 87%,
respectively). Given the 35% improvement in US housing data over the last 6-12
months, underpinned by improving US unemployment and consumer credit
availability, we are confident the US appliance market has already entered recovery.
Guided by the view that US housing will return to its natural population-driven level
(1.2 million housing starts and 5.6 million home sales), we forecast the US market
will grow 4% in 2012 and at 3-4% in the following two years, returning the market
to 41-42 million units in 2014. While we expect another down year for the
European market in 2012 (-3%), we anticipate Electrolux will outperform on
account of share gains from the AEG and Electrolux launches and the company’s
strong positioning in the increasingly important new A++/A+++ energy label
market. We forecast modest European market recovery in 2013 and 2014 (+2%),
lagging the US by a year.

Executive summary
Emerging market exposure growing, with significant penetration

potential
Fig 11: Electrolux sales, 1999-2014E split by region
100%
Regional Split of Sales (%)
28% 28% 28%

80% 40% 42% 39% 40% 40% 39% 40% 35% 33% 32% 33% 32% 30%
5% 5% 6% 6% 6% 6% 5% 5%
60% 2% 2% 5% 5% 5% 5% 5% 5%
29% 28% 28%
40% 40% 39% 38% 37% 33% 32%
46% 42% 42% 41% 42% 41% 38%
20% 37% 38% 40%
25% 25% 29% 32%
12% 14% 15% 15% 14% 15% 17% 20% 23%
0%
1999 2001 2003 2005 2007 2009 2011 2013E
LCC (excl. W Eu, N Am, Jap, Oz, NZ) Western Europe Other Mature North America
Source: Redburn and Electrolux
Between 2009 and 2012E, Electrolux’s share of group sales in emerging markets
increased by an impressive 12-13%, materially exceeding the 5% average increase seen by
the wider Capital Goods sector. This will take Electrolux from being the second lowest
stock exposed to emerging markets in our universe in 2009 (8% below average) to the
sector average in 2012E. While this shift was accelerated by the acquisitions of CTI and
Olympic, there has also been a compelling parallel organic dynamic, which should
continue to be the primary engine of the group’s top line.
Fig 12: Electrolux 2011 sales by country (bubble size) plotted by 2000-11 sales growth
CAGR (X-axis) vs 2000-11 employee growth CAGR (Y-axis), Olympic and CTI pro forma
35%
Poland
25%
Egypt
15%
2000-2010 Employee CAGR
Canada Belgium Argentina

Brazil
France Russia
5%
Italy
Hungary Switzerland Vietnam

-5% Peru
USA Australia
Holland Chile Colombia
Germany Sweden Czech Rep. South Africa Bubble Size represents revenue
-15% Spain
North America
UK China
Western Europe
Norway Emerging (RoW)
-25%
-10% -5% 0% 5% 10% 15% 20% 25%
2000-2010 Sales CAGR
Source: Redburn based on the Electrolux country sales disclosure

Executive summary
Since 2000, Electrolux’s emerging market sales have grown at a 7% organic CAGR,
compared to its mature market revenues which have suffered a -3% organic CAGR
decline. While our forecast for Western recovery in the next three years is beneficial,
emerging markets continue to offer the excitement through increasing household
penetration for appliances.
Fig 13: 2011 market penetration rates by appliance category for Electrolux’s key markets, ranked by average
USA Australia W. Europe E. Europe Brazil Argentina China/SE Asia Africa/ME Average
Hot (cooking) 93% 94% 97% 95% 98% 67% 55% 33% 79%
Fridge 100% 99% 99% 95% 97% 55% 54% 28% 78%
Washing machine 92% 97% 95% 83% 41% 50% 58% 16% 67%
Microwave 98% 81% 82% 63% 37% 29% 40% 15% 56%
Freezer 41% 45% 49% 25% 17% 5% 6% 3% 24%
Tumble dryer 67% 60% 38% 1% 3% 4% 1% 2% 22%
Dishwasher 63% 47% 49% 6% 2% 5% 2% 3% 22%
Average 79% 75% 73% 53% 42% 31% 31% 14%
Note: to help visualise this chart, we have shaded penetration rates of 60% and over in yellow and those of 40% and below in grey
Source: Redburn based on Electrolux Annual Reports (2007-10), Whirlpool (2011 CMD), Energy Information Administration 2009 Residential Energy Consumption Survey,
Euromonitor and GfK
In 2011, US, Western European and Australian penetration rates averaged 76%. By
contrast, the rest of the world averaged 34%. This ranged from 53% in Eastern
Europe to 14% in Africa/ME. Assuming a similar pace of penetration growth in
emerging markets, the company’s 7-10% organic sales growth target in emerging
markets is not as unrealistic as implied by consensus revenue growth forecasts. Given
the increased proportion of group sales represented by emerging markets, the
contribution to group sales growth is now much more significant.
Fig 14: Electrolux organic sales growth 2001-14E Fig 15: Electrolux average organic sales growth
8% 5%
Organic Sales Growth (%)
3.8%
6% 4%
4%
3% 2.2%
2%
2% 1.5%
0%
-2% 1%
-4% 0%
-6% 2001-11 Redburn 2012E- SME Consensus
2001 2003 2005 2007 2009 2011 2013E 14E 2012E-14E
Source: Redburn, Electrolux Source: Redburn, Electrolux, SME.direkt consensus
Consequently, we now forecast Electrolux’s average organic sales growth to exceed

historic levels, accelerating from an average of +1.5% pa between 2001 and 2011 to
an average of +3.8% pa in 2012-14. This compares to a derived SME.direkt consensus
of +2.2% and puts our 2014 revenue forecast (SKr121bn) 5% ahead of the SKr115bn
consensus.

Executive summary
Brand repositioning and the mix effect

Fig 16: ‘Electrolux brand’ has lifted from 16% to 60% of group sales
Share of Group Revenue from
70%
60% AEG dual branded in 2005
Electrolux brand
50% Dual-branding local

40% Launch of
brands phase begins
30% Electrolux
20% brand in US
10%
0%
2000 2002 2004 2006 2008 2010 2012E 2014E
Share of Group Revenue from Electrolux dual brand
Source: Redburn, Electrolux
The ‘Electrolux brand’ has undergone a major repositioning, in the process rising from
16% to 60% of group sales. This has been achieved in three distinct phases: (1) dual
branding of minor brands (such as Rex and Automartin) in 2003-05; (2) dual branding
of AEG in 2005; and (3) the launch of the Electrolux as a premium brand in the US in
2008. In conjunction with the brand repositioning, Electrolux has raised the
proportion of sales spent on brand investment from 1.2% in 2005 to 2.4% in 2012E.
We forecast Electrolux branded sales will lift to 65% by 2014 and, importantly, the
proportion of group sales spent on brand investment will increase to 3%. While the
increased spend should continue to move Electrolux up the industry average selling
price curve, it will also improve margin mix.
Fig 17: North America 2012E sales and EBIT margin Fig 18: EMEA 2012E sales and EBIT margin
25,000 20% 20,000 12%

15% 10%
10%
EBIT Margin (%)
EBIT Margin (%)
20,000 15% 15,000

Sales (SKr m)
Sales (SKr m)
8%
15,000 10% 5%
5% 10,000 6%
10,000 5% 4%
-1% 5,000 1%
5,000 0% 2%
0 -5% 0 0%
Frigidaire Kenmore Electrolux Electrolux AEG - Zanussi

2012E MA North America Sales Electrolux
2012E MA North America Margin 2012E MA EMEA Sales 2012E MA EMEA Margin
Source: Redburn estimates, not disclosed Source: Redburn estimates, not disclosed
The margin mix will benefit from Electrolux’s highest margin brands (AEG in EMEA
and Electrolux in North America) outgrowing its lowest margin brands (Zanussi in
EMEA and Frigidaire in North America). This is a function of above brand
investment, modularisation, and trading up as the Western market recovers.

Executive summary
Consequently, we forecast Electrolux will see a 40bp EBIT margin increase in both
EMEA and North America from mix alone in 2012E. While we see potential upside to
our estimates from ongoing brand mix benefits, we only forecast minor mix benefits in
2013 and 2014.
Management reshuffle, a strong team

Although previous management did an excellent job protecting Electrolux’s margins
during a very tough decade, and Hans Sträberg, the previous CEO, deserves more
credit than the financial community (including this analyst) gave him, the new
management team looks impressive. CEO Keith McLoughlin had great success with
the US launch of the Electrolux brand as the Head of North America and was then
pivotal in his following role as COO of Major Appliances in constructing the ‘Global
Operations’ programme to shift to modularisation. As CEO he has already been
instrumental in increasing the restructuring intensity, and equally we think he has
assembled a compelling team around him.
Mr McLoughlin hired Jan Brockman from VW as the new Chief Technology Officer
(effectively the head of R&D). Mr Brockman brings world class modularisation
experience to the team. Thomas Eliasson arrived from Assa Abloy as CFO. Mr
Eliasson offers sector-leading restructuring experience, of which we have first hand
experience and for which we can vouch. Stefano Marzano was hired from Philips as
the new Chief Design Officer (CDO). We have not met Mr Marzano, but he has highly
acclaimed design experience (he won the World Technology Award for Design).
Finally, MaryKay Kopf has become the new Chief Marketing Officer.
The group management board is now very diverse. Less than half are Swedish; 75% have
lived or worked in two or more continents; and most bring experience from other
companies (DuPont, ABB, VW, Volvo, GM, 3M, Ericsson and Alcoa). National
stereotyping aside, having a Swedish CFO, an Italian heading design, a German running
R&D, and an American leading marketing is, in theory, a pretty smart combination!

Executive summary
Financials
Fig 19: Electrolux’s EBIT margin (pre-IAC) vs consensus and Electrolux’s group target
8% Company 6% target Redburn 7.7%

7.0%
7% 6.1%
EBIT Margin pre-IAC (%)
6% 5.2%
4.6% 4.9% 6.1%
5% 4.4% 5.8%
4% 1.5% 3.1% 4.8%
3%
Consensus
2%
1%
0%
2006 2007 2008 2009 2010 2011 2012E 2013E 2014E
EBIT pre-IAC SME consensus Electrolux target
Source: Redburn, SME.direkt, Electrolux
We are upgrading our 2012E and 2013E Electrolux EPS by 5% and 13%,
respectively, and our target price from SKr180 to SKr240.
Our enthusiasm for the Electrolux investment case is based on EPS forecasts that are
30% ahead of consensus in 2013E. While this is predicated on both revenue and
margin surprise, it is the margin potential we are most excited about. In 2013E, we
forecast Electrolux to exceed its 6% margin target and the 5.8% consensus, with a
7.0% EBIT margin pre-IAC. In 2012, we forecast one-offs to drop out, savings to
ramp up, raw material cost inflation to ease, volumes to recover and prices to improve,
especially in the US. Beyond 2013, we forecast the European market to follow the US
into recovery, significant further savings, diminished Korean pricing pressure and
structurally lower steel cost inflation.
Fig 20: Electrolux Redburn EPS vs consensus Fig 21: Redburn sector earnings vs consensus
Redburn Forecasts vs Consensus
25.0 33% 40% 30%

30% 30% 24%
20.0 15% 14%
20% 11% 6%
7% 5%
16% 10%
15.0
0%
10.0 -10%
-10%
-20%
5.0
Sandvik
ABB
Electrolux
Atlas
Siemens
Schneider
Alstom
Assa
SKF
0.0
2009 2010 2011 2012E 2013E 2014E
High - Low Consensus Redburn EPS Yr1 EPS Yr2
Source: Redburn, SME.direkt Source: Redburn, SME.direkt, Bloomberg (for all other companies)
As a consequence of the SKr5.7bn acquisitions of Olympic and CTI, and the SKr3.5bn
increase in pension deficit (due to a change in pension accounting), we forecast
Electrolux to finish 2012E with an adjusted net debt (including the pension change)

Executive summary
of SKr13.6bn. This represents 1.4x adjusted net debt/EBITDA. This leaves minimal
scope for significant acquisitions in the short term, but after a year or so building free
cashflow Electrolux will have more headroom to fulfil its M&A ambitions in emerging
markets.
Our forecasts are not overly dependent on the macro; we have stress-tested how
dependent our forecasts are on volumes. If neither US nor European volumes recover
and both remain flat through 2012 and 2013, ceteris paribus, then our 2013E EPS
would fall from SKr17.7 to SKr16.1 and we would still be 18% ahead of consensus.
Valuation
Fig 22: 2000-12 daily Electrolux 12-month forward rolling P/E (based on consensus) vs
daily Electrolux 12-month forward rolling EPS (based on consensus)
12 Month Rolling Electrolux P/E
30 20
12 month rolling Electrolux

25
15
Consensus EPS
20
15 10
10
5
5
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
P/E 12 Month Rolling EPS 12 month rolling
Source: FactSet
Over the last decade, Electrolux has averaged 12.0x 12-month forward consensus EPS.
On the current 12-month forward consensus (SKr13.0), Electrolux is trading on 11.5x.
Given our forecast that Electrolux will deliver SKr20.5 of EPS in 2014E, historic
multiple analysis implies a SKr246 share price (by end-2013). This broadly supports
our SKr240 target price, which is based on 2013E EV/IC vs ROIC/WACC.
Fig 23: Electrolux annual EV/IC vs ROIC/WACC, with ROIC overlaid, 2007-16E
20% 2.5
15.1% 15.2%
EV/IC and ROIC/WACC
14.3% 14.3% 14.9%

12.0% 2.0
15% 11.5%
9.8%
1.5
ROIC (%)
8.0%
10%
1.0
5%
0.5
3.6%
0% 0.0
2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
EV/IC ROIC/WACC (post-restructuring) ROIC (Redburn, Post Tax & Restructuring)

Executive summary
We forecast Electrolux will achieve a post-restructuring ROIC/WACC multiple of

2.02x in 2013E with a 2013E EV/IC of 1.28x. This, most definitely, is not priced in.
Furthermore, if we look out to our 2014E estimates then such an EVA approach
would justify a SKr300 target price, this gives us confidence in our SKr240 target
priced.
On our new estimates, Electrolux is trading on 8.5x 2013E post-restructuring P/E (an
18% discount to the sector), offers a 12% 2013E free cashflow yield (26% better than
the sector) and offers a 6.8% 2013E dividend yield (44% better than the sector).
What has gone into researching this report?

For this report we have:
x Conducted a 20-year analysis mapping the financials and positioning of the world’s
18 largest appliance companies, public and private.
x Undertaken a detailed further assessment of the positioning of Korean appliance

companies.
x Mapped Electrolux’s regional price and volume performance against local market
data.
x Undertaken a proprietary plant-by-plant analysis of Electrolux’s entire global

manufacturing footprint (which is not disclosed) to assess the restructuring
potential.
x Run over 500 regressions to identify the principal correlations between appliance
volumes and macroeconomic indicators.
x Conducted a mapping of Electrolux’s brand architecture with a proprietary

assessment of ASPs by region and by brand to understand mix potential.
x Performed a country-by-country analysis of Electrolux’s revenues over the last

decade with a proprietary study of global household penetration rates by region to
understand the emerging market opportunity.
x Constructed a Redburn raw material basket for Electrolux to establish the outlook
for input costs.

01/
01/ Margin: supply-side shifts to the rational phase, Korean aggression easing
Margin: supply-side shifts to

the rational phase, Korean
aggression easing
The appliance industry has seen ten years of aggressive low cost
competition, virtually halving industry margins. Through shifting
their cost base to low cost regions, Electrolux has successfully held its
margins flat. We argue that the industry is now entering a more
rational phase. The Koreans have exhausted their low cost advantage
and squeezed their margins to the limit. With Electrolux now
manufacturing on a more level playing field, we believe cost savings,
price increases, volume recovery and favourable mix will no longer be
as eroded by the price (vs raw material), leading to margin expansion.

1970-2000, the Western consolidatory phase

Fig 24: Appliance industry – consolidation of Western manufacturers between 1980 and 2012
'67 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
CTI
Email (Simpson; Australia)
Refripar (Braz)
White Cons. (Frigidaire; US)
Zanker (Ger)
Zanussi (It)
Electrolux (Swed)
Vølund and Nyborg (Den)
Thorn-Emi Dom. Appl. (UK)
Corbero (E)
Buderus / Juno (Ger)
Lehel (Hungary)
AEG (Ger)
Olympic Group
Amana Appliances (US)

GS Blodgett (US)
Hoover USA (Hoover Europe to Candy)
Maytag (US)
Bauknecht (Ger)
Philips White Goods (NL)
Whirlpool (US)
KitchenAid (Hobart) (US)
Emerson Electric (US)
Roper (US)
Multibras (Brazil)
Polar (Poland)
GEC (UK)
General Electric (US)
Hotpoint (US)
T-I Creda (UK)
Hotpoint (UK)
Merloni (It)
Indesit (It)
Scholtes (Fr)
Thermador (US)
PEG Profolio (Tr)
Bosch (Ger)
Bosch-Siemens (Ger)
Siemens (Ger)
NEFF (Ger)
Balay (E)
Safel (E)
Gaggenau (Ger) Emerging market new
Continental (Br)
entrants
Source: constructed by Redburn based on company reports and accounts, press releases and other company historical archives
Our analysis highlights three distinct phases for the global appliance industry
between 1970 and 2014. From 1970-2000 Western consolidation drove the industry
to record margins of 8.7%.

This was followed in 2001-11 by the entrance of low cost competition which
crushed margins to a 25-year trough of 4%. We now see the industry entering a
third, ‘rational’ phase in which the principal low cost competitors, LG and
Samsung, have exhausted their cost advantage and have no further capacity or
appetite to give away more margin for volume. With the playing field levelled, we
have reached an inflection point from which Electrolux is well positioned to
benefit.
From 1970 to 2000 the global appliance industry saw a staggering degree of industry
consolidation. To put this into context, the global industry consolidated from c400
players controlling 65% of the market in 1970, to c150 players in 1980, c15 in 1990 and
7 in 2000.
2001-11, the attack of the Koreans, Chinese and Turks

Fig 25: 2001 global market share (revenue based) Fig 26: 2011 global market share (revenue based)
DeLonghi Candy Other Whirlpool Candy Other Whirlpool

1% 1% 19% (Maytag) DeLonghi 1% 24% (Maytag)
Arçelik 19% Electrolux 1% 13% Electrolux
Fagor 14% Fagor 10%
2%
2% Sharp 1% Panasonic
Haier Panasonic 2% 8%
2% 10% Indesit
Indesit BSH
GE 3%
2% Miele 8%
8% Miele Samsung
3% Sharp
LG Samsung BSH 3% GE Arçelik LG Haier 7%
3%
3% 4% 7% 3% 4% 6% 6%
Source: Redburn global appliance industry benchmarking model based on company Source: Redburn global appliance industry benchmarking model based on company
data, Redburn forecasts (Electrolux) and Bloomberg consensus forecasts data, Redburn forecasts (Electrolux) and Bloomberg consensus forecasts
Between 2001 and 2011, the two Koreans (LG and Samsung), the leading Chinese
player (Haier), and the Turkish appliance maker (Arçelik) increased their collective
appliance revenues from €9.1bn to €26.6bn and their global share from 11% to 26%.
While there are other low cost appliance competitors (such as Midea and Gree in
China) it has really been these four companies that have been the predominant drivers
of the market share loss for the Western players over the last decade.

Fig 27: The ‘Big 5’ mature market incumbents vs the emerging market new entrants,
1997-2014E collective global market share (revenue based)
70% Entrance of low

60% cost competition
Global Market Share (%)
50%
40%
30% Final phase of Western
consolidation
20%
10%
0%
1997 1999 2001 2003 2005 2007 2009 2011 2013E
Electrolux, Whirlpool (Maytag), Panasonic, BSH & GE Arçelik, Haier, Samsung and LG
Source: Redburn global appliance industry benchmarking model based on company data, Redburn forecasts (Electrolux) and Bloomberg
consensus forecasts
Fig 27 shows how much global market share the ‘Big 5’ mature market incumbents –
Electrolux, Whirlpool, Panasonic, Bosch-Siemens and GE – lost to the emerging
market new entrants. Between 2001 and 2011, the emerging market four lifted their
collective share from 11% to 25%.
Asian growth explains Haier’s global share take

Our analysis shows that a significant proportion of this emerging market global share
take was a function of a rapidly growing Asian market, explaining virtually all of
Haier’s success.
Haier has been the least successful of the four key emerging market players at growing
internationally. To put this in context, 12% (or €280m) of Haier’s €2.3bn global
revenue was in Europe and the US in 2005. Due to the strength of China by 2010 this
proportion had actually halved to only 6% (or €350m) of Haier’s €5.9bn 2010 revenue.
On the international markets, Haier’s budget approach has largely failed given both
the cost of shipping from China and the emergence of Arçelik, which has enjoyed
significant success in the European mass market. However, massive growth in the
Chinese domestic market over the last decade has given Haier the highest percentage
global market share take.
Moving away from global market share, it is mostly LG and Samsung that have led
the Western market share assault, with some contribution from Arçelik. These
three (but predominantly the Koreans) have been the leading industry antagonists
and the primary source of industry pricing pressure and margin compression.
Strategically, LG and Samsung took a different path from Haier and Arçelik by
targeting the premium markets in the US and Europe, specifically in the larger
refrigeration and laundry categories where they have focused intense investment. We
discuss this in more detail in Appendix 2 (see page 116).

Industry margin development

Fig 28: Electrolux margins vs emerging market players vs industry average
20%
15%
EBIT Margins (%)
10%
5%
0%
-5%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012E
Electrolux Haier GE Indesit
BSH Whirlpool LG Arçelik
Sharp DeLonghi Panasonic Samsung
consensus forecasts
Between 1990 and 2011, EBIT margins across the white goods complex have varied
materially between manufacturers (see Fig 28), with some making a loss at the same
time as others making double-digit returns.
Fig 29: Electrolux margins vs emerging market players vs industry average
End of Western consolidation phase

16%
Entrance of low cost

12% Rational
competition phase
phase
8%
4%
0%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012E 2014E
Emerging Market Players Electrolux (ex H.) Global Appliance Industry Average
consensus forecasts
To simplify the complexity we have constructed Fig 29, which shows the global
industry average EBIT margin vs Electrolux’s EBIT margin vs the average for the
emerging market players (LG, Samsung, Arçelik and Haier). Comparing the 2010-11
period to the 1996-2000 period, we calculate that Electrolux has increased its average
clean EBIT margins albeit fractionally from 4.5% in 1996-2000 to 5.3% (2010-11) pre-
restructuring. This 80bp increase seems unimpressive in isolation and appears to
confirm investor scepticism that Electrolux has permanently restructured to stand still.

However, if we compare this to the global industry average, what we actually see is
impressive relative margin performance as over the same period, the global industry
average clean EBIT margin fell 340bp, from 8.6% to 5.4%.
As such, Electrolux achieved +430bp of relative margin improvement vs the global

industry average over the same period. This is significant in an industry where
margins average 4-7% across the cycle. Furthermore, and arguably even more
importantly, Electrolux has outperformed the Koreans by a staggering 1140bp (see
below). In contrast to widely held investor scepticism, we see this as clear evidence
that Electrolux’s previous restructuring efforts were actually instrumental in
raising the company’s returns relative to the industry.
Returning to Fig 29, we see three distinct phases for margins between 1990 and 2014.
x The end of Western consolidation phase (1990-2000): during this period margins
enjoyed strong upward momentum, before the advent of the low cost players,
peaking at a 25-year global industry record margin of 8.7% in 1999.
x The entrance of low cost competition phase (2001-11): during this period the new
emerging market entrants arrived and hit critical mass at the same time as the
2006-11 Western demand collapse, all of which drove global industry average
margins to a 25-year trough of 4.0% in 2008.
x The rational phase (2012 and beyond): we argue that the global appliance industry
has gone full circle from being one of the first to suffer new entrant fragmentation
to being one of the first to reach the other side. We argue that because the
emerging market players, especially the Koreans, have exhausted their low cost
advantage and squeezed their own margins to the limit, the market will become
more rational. With the Western players, especially Electrolux, having shifted their
costs to low cost areas, we argue that mature market players now operate on a more
level playing field with the emerging market players. In this more rational market,
we believe Western recovery, emerging market growth, cost savings,
restructuring savings of the next five years – which are 1.5x those of the last five
years (see page 60) – and improved pricing will all drop through to the bottom
line to a greater degree than experienced in the last decade, leading to industry
margin recovery.
LG and Samsung, the Korean antagonists

As LG and Samsung are the two principal low cost antagonists in this appliance
industry story and much more so than the domestic focused Haier, we have dedicated
some energy to further understanding the risk. As Arçelik also has some impact as a
low cost player in Europe, we have made some additional points in Appendix 1 (see
page 107).

With respect to the Koreans, we should make some caveats. Disclosure is very limited.
LG only discloses sales and EBIT for its Home Appliance subdivision and Samsung
stopped disclosing EBIT for its Appliance subdivision in 2009 and even stopped
disclosing revenue in 2011. To derive Samsung’s revenue and margins since disclosure
ended we have searched each quarterly results transcript which pleasingly provided
enough data points for good estimation. While LG afford us the sales and EBIT
disclosure, it used to declare regional splits, product splits, R&D, marketing spend and
market share for Home Appliance, but sadly this all evaporated in 2008. Samsung has
never provided such additional colour.
We contacted both LG and Samsung to discuss the business, financials and industry
dynamics in more detail but with the US anti-dumping case ongoing both were very
distrustful of a Western analyst wanting to discuss only 20% and 7% of group
revenues, respectively.
Despite these constraints, from dialogue with most Western companies, press releases,
interviews, trade magazines and some proprietary research, we have managed to gain a
reasonably accurate picture even if not quite the precision we would prefer.
Korean ambitions continue to scare investors

Both LG and Samsung have publicly stated their intention to grow and displace
Whirlpool and Electrolux as the world’s largest appliance manufacturers. In January
2011, LG announced a target for its home appliance business to achieve $20bn in sales
by 2014, positioning the company as the top global player. A week later Hong Chang-
wan, the head of Samsung’s appliances division, targeted ‘nearly $30bn’ of home
appliance sales by 2015 and a 10% share of the global market, positioning it as the
number one.
Tit for tat market share statements like these understandably worry investors but are
these ambitions realistic? Firstly, investors should note that the Koreans have a track
record of stating ambitions and targets that don’t materialise. For instance, in
January 2011 LG confidently targeted double-digit sales growth in 2011 but then only
achieved 4%. Equally in early 2008 Samsung stated that it would lift margins from
2.3% in 2007 to over 6% by 2010, but in the end margins fell to -1%.

Fig 30: LG and Samsung sales (in $m) and EBIT margins
18,000 20%
16,000
15%

14,000
12,000
Sales ($ m)
10%
10,000
8,000
5%
6,000
4,000 0%
2,000
0 -5%
1997 1999 2001 2003 2005 2007 2009 2011 2013E 2015E
LG Sales ($m) Samsung Sales ($m) LG Margin (%) Samsung Margin (%)
consensus forecasts
Assuming 10% annual global organic sales growth for both over 2012 to 2015 (which
allows a fair bit for continued share take), LG would reach $13.2bn of sales by 2014
(making it the global number six player) and Samsung would reach $16.1bn in 2015
(making it the global number three player, see Fig 30). In our view, without
acquisitions both stated company ambitions from the Koreans are unrealistic,
which would represent a new direction.
Degree of Korean R&D and capex remains the (immeasurable) risk

Fig 31: 2003-12E capex/sales for key players Fig 32: 2003-14E R&D/sales for key players
8% 4%
Capex / Sales (%)
R&D / Sales (%)
6% 3%
4% 2%
2% 1%
0%
0%
2003 2005 2007 2009 2011
2003 2005 2007 2009 2011 2013E
Electrolux BSH Whirlpool
Arçelik Haier Samsung Electrolux BSH Whirlpool
Panasonic Indesit Arçelik LG Samsung
Source: Redburn global appliance industry benchmarking model based on company Source: Redburn global appliance industry benchmarking model based on company
data, Redburn forecasts (Electrolux) and Bloomberg consensus forecasts data, Redburn forecasts (Electrolux) and Bloomberg consensus forecasts
Given the lack of disclosure we do not have a complete time series of capex/sales and
R&D/sales for the Koreans to compare investment intensity to Western players. However,
we know some data points. Between 2003 and 2005, we know that both LG and Samsung
spent between 3% and 4% of sales on R&D. Also from a 2011 Wall Street Journal interview
with Hong Chang-wan, the head of Samsung Electronics’ digital appliance business, we
know that “The [capex] investment [in Appliances] in 2010 nearly totalled around a
trillion won.” This suggests that Samsung spent 7-8% of sales on capex in 2010, compared

to an industry range of 2-4% amongst the Western players. Extreme investment from
competitors usually means excess capacity is coming on stream, which is bad for pricing.
If there is a key risk from the Koreans it is that, despite rising costs and thinning
margins (see below), they fail to act rationally with respect to improving medium-
term returns and continue to flood the market with premium investment for
longer-term success. However, given the current state of margins and evidence that
the Koreans have stopped throwing capital at businesses with poor returns, such as
LCD TVs, we believe this risk is minimised.
Rationalising markets, understanding the Korean constraint

Fig 33: Electrolux clean EBIT margins vs the average of Samsung and LG
15%
10%
5%
0%
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013E
Korean Average (Samsung & LG Electronics) Electrolux (ex H.)
consensus forecasts
Not many investors understand the toll that LG and Samsung have paid for using the
price weapon as hard as they have to gain market share. The evidence is shown in
Fig 33 which highlights that collectively the two Koreans have seen their average clean
EBIT margins fall from a peak of 13.5% in 1998 to a trough of 0.8% in 2011. Returning
to the time periods used earlier (2010-11 vs 1996-2000), Electrolux has
outperformed the Koreans by a staggering 1140bp.
LG and Samsung, evidence of change and greater focus on returns

However, while this has been the case thus far, we see some evidence that these
companies are increasingly coming under pressure to improve nearer-term financial
returns.
In 2010, Nam Yong, the group CEO of LG Electronics, resigned over the company’s
poor financial performance. While this largely related to smartphones, as Apple’s
iPhone and Samsung’s and HTC’s Android-based products had put LG under
pressure, we see this as evidence that LG’s managers have become less impervious to
poor returns than they were five years ago when it was all about market share.
Additionally, and perhaps more directly relevant, in December 2011 Young-Ha Lee
resigned, after seven years as the head of LG’s Home Appliance division. According to
the Korean Times, this was due to poor financial performance.

Turning to Samsung, the Appliances division has increasingly become an ugly step
child within the group structure. In 2008, the head of Digital Appliance was sacked
and (to hide the losses) the division was moved from being a separate division and
merged into the Digital Media division (the TV business). However, with the losses
continuing, in 2011 Digital Appliance suffered the ignominy of being downgraded
within the internal hierarchical structure such that the head, Hong Chang-Wan, no
longer reports to the group vice chairman (comparable to a Western CEO).
So while on the outside these two competitors continue to make bold statements on
their market share ambitions, there is strong empirical evidence that internal
pressures to improve margins have definitely increased.
Level playing field limits Korean scope for attack

Fig 34: LG vs Electrolux share of production in low cost areas (LCA) 2003-14E (%)
Share of production in low cost areas
80% 67% 68% 69% 70% 71% 72% 73%

65% 65% 65% 66%
70% 60%
60% 69%
64% 66%
50% 62%
53% 55%
40% 51%
43%
30% 39%
22% 28% 31%
20%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E
LG Production in LCA Electrolux Production in LCA
For LG we have the 2003-07 data and have estimated the 2008-11 data from the starting point using press release information and global
press interview comments from LG management
Source: Redburn
In light of the comprehensive relocation of industry production to low cost areas, most
Western producers have improved their cost base over the past decade. We believe
Electrolux has transferred more production to low cost than any other Western player,
closing the gap with the Koreans (for example BHS has lifted from 23% in 2003 to 48%
in 2011 and both GE and Whirlpool have remained more domestic).
This can be seen by comparing the development of the proportion of production in

low cost areas for Electrolux vs LG in Fig 34. This shows that where there was a
massive cost advantage in 2003, this LCA gap between the two has closed by 80%
(from a difference of 38% in 2003 to 8% in 2011). Furthermore, the gap should narrow
further in the coming few years. It should be noted that LG still has 30% of production
in Korea which is relatively high cost, with national average wages of €36k in 2011.
While the industry’s structural overcapacity and low capital intensity leaves a
permanent risk of price pressure (as seen in the North American washing machine
segment in 2010), we argue that there should be an industry-wide improvement in the
degree of price pressure in the coming five-year period.

If we take this increasing absence of a cost advantage for the Koreans in conjunction
with the limited financial headroom (given the fall in Korean margins) then it stands
to logic that the intensity of industry pricing pressure should ease in the coming
period. As such, we believe Electrolux and the industry are entering a more ‘rational
phase’ where savings and growth should start to drop through to the bottom line.
Transport and labour costs are also on the increase for the Koreans
Fig 35: Redburn estimate of LG home appliance regional split of sales and production
100% Middle East

10% 8%
14% 12% Europe
80% 3%
5%
Latin America
60%
34% 47% US
40% Other Asia
14%
20% 4% China
20% 30%
Korea
0%
LG Appliance Sales by Region LG Appliance Production by Region
Source: Redburn based on LG Electronics Appliance presentations 2003-07, LG press releases 2008-11, GfK and IBISWorld
In Fig 35, we have used LG as an indication of the regional differences between the
cost base and the demand base for a Korean appliance manufacturer. Based on press
reports and anecdotes we believe Samsung’s footprint is similar to LG’s. While LG
exports out of China, Korea, Mexico and Eastern Europe to serve the US and
European markets, the biggest export flow (43% of group sales) is from Asia to non-
Asia. Given the transport and labour cost inflation described below, we believe the
Koreans will have to invest closer to the market to participate further in the non-
Asian markets.
Transport and logistics costs have been rising and now represent $12 per unit for
Electrolux or 7% of group sales (including 2% from warehousing and 5% from pure
transport). With transport and logistics costs higher for cold products (15-20% of cold
revenues), the Koreans with their higher exposure to the cold category will be seeing
relatively higher shipping cost inflation.
Labour cost inflation: Chinese wage inflation is some of the highest in the world at
c15%. With the higher proportion of production in China, the Koreans will be
increasingly losing some of their labour cost benefit.
Koreans face raw material pressures too: in February 2012, both Samsung and LG
were reported by the Korean press to have asked the domestic cold rolled steel
producers, including Posco, to reduce steel prices by $45-90/mt, or 6-12%. The steel
producers replied stating that they are unable to accept such a big decrease, citing tight
profit margins and even losses in some instances. Due to the size of Samsung and LG
they have arguably been able to pressure their steel suppliers harder than Electrolux

and Whirlpool in recent years but this can only go on so long before they put Korean
steel companies out of business.
The relatively higher increase in both transport and labour costs for the Koreans
adds to our argument that we are increasingly seeing a relatively level playing field
on both costs and capital allocation. Interestingly, Whirlpool reported recently that
the Koreans were being less aggressive on price in the US in 4Q 2011 and 1Q 2012.
While this partly relates to the two anti-dumping petitions, we also believe it is a
structural consequence of the Koreans’ increased financial constraints and the
increasingly level playing field.
Korean anti-dumping and state aid petitions

In 2011 Whirlpool filed two US anti-dumping petitions against Samsung and LG
capturing all products (including Electrolux’s) imported from both South Korea and
Mexico. The first, in March 2011, related to the relatively narrow category of bottom-
mount refrigerators (which Whirlpool makes in Iowa with 2,000 employees). The
second, in December 2011, related to the relatively broad category of washing
machines (which Whirlpool makes in Ohio with 3,500 employees).
In both petitions Whirlpool filed accompanying countervailing duty petitions arguing

that, in addition to dumping, both Samsung and LG had received illegal subsidies from
the Korean government.
The final orders for the refrigeration case will be published in May 2012 and for the
laundry case in February 2013. A preliminary ruling was given in the refrigeration case
in October 2011 stating that Samsung and LG had violated US and International trade
law by dumping. Our US industry contacts expect the Koreans to lose.
Fig 36: Summary of analysis in the second US anti-dumping petition, washing machines
Constructed value Net home market Dumping margin Dumping margin
Washers Origin Net US price (CV) price (HMP) (based on CV) (based on HMP)
Samsung WA5451ANW Korea $440.26 na $576.89 na 31%
Samsung WF330ANW Korea $363.18 $751.46 $666.86 107% 84%
LG WM2301HW Korea $382.38 $699.27 $516.09 83% 35%
Samsung WF220ANW lXAA Mexico $309.45 $510.57 $490.84 65% 59%

Frigidaire FAFW3801LW2 Mexico $292.30 $511.44 $342.93 75% 17%
Source: US bottom-mount refrigerator anti-dumping petitions against Samsung and LG, March 2011
Fig 36 (above) and Fig 37 (below) are summaries of both petitions, which frankly read as
long, painful renditions of ‘it’s just not fair, Daddy’. Anyhow, importantly, if Whirlpool is
successful then Samsung and LG will have to raise prices by 20-30% to cover the duties.

Fig 37: Summary of analysis in the second US anti-dumping petition, bottom-mount refrigerators
Constructed value Net home market Dumping margin Dumping margin
B-M refrigerators Origin Net US price (CV) price (HMP) (based on CV) (based on HMP)
Samsung RF4287HARS Korea $1,358.31 na $2,202.01 na 62%
LG LFC25770SW Korea $611.57 $818.10 $236.92 34% -61%
Samsung RF267AERS Mexico $893.17 $1,135.60 $785.12 27% -12%

LG LFC20760ST Mexico $634.36 na $1,817.98 na 187%
Source: US washing machine anti-dumping petitions against Samsung and LG, October 2011
On the one hand, while this should be quite good for US appliance pricing in
general, Electrolux will also get snagged up in the anti-dumping ruling due to having
moved production to Mexico (Electrolux has no concern on the countervailing,
i.e. government subsidy aspect of the petition).
On the refrigeration front, though, Electrolux is fortuitous as its bottom-mount

manufacturing is mostly in the US (at Anderson and St Cloud). As such only 1% of
Electrolux’s total US revenue is affected (about 4% of US refrigeration volume) by
this case.
On the washing machine front, Electrolux moved all of its US laundry production to
Mexico. As the North American laundry exposure (14% we estimate) is smaller than
the group average (22% of Major Appliances), we estimate that Electrolux’s US
laundry exposure (11% of North American division, excluding Canada) would have to
raise prices by roughly 20% to pay duties if Whirlpool was successful.
On a worse case basis Electrolux may see a margin impact of 0.3% in North
America from having to pay duties on Mexican production into the US. However,
the positive of improving US industry pricing from generally less aggressive
Koreans should more than offset this.
Koreans lack the local presence

While the Koreans have the brand, some technology and a low cost base, due to their
centralised decision making processes (out of Seoul), they lack the local presence. This
is important as, unlike many homogeneous markets such as cars, smartphones and
TVs, the white goods industry is heterogeneous. Given the wide variety of regional
designs and consumer preferences, understanding the complexity of consumer
patterns in different regions may not be rocket science but it takes time. Equally,
building up relationships with the retailers to optimise share and scale up an effective
distribution network takes time. As such the Koreans cannot operate a one-model
global assault; they need one for each category in each region with a distribution
channel. Further analysis of the regional diversity of Electrolux vs its peers, and the
regional barriers to entry in the form of restricted trade zones, is presented in
Appendix 2 (see page 116).

And what of the Western competition?

Fig 38: Competition ranked by 2012E sales compared to 2010-12E average EBIT margins
2010-2012E Average Clean EBIT

15,000 8.3%
11.2% 12%
8.0%
7.1%
2012E Sales (€m)
5.4% 5.4% 5.6% 5.8% 5.5% 8%

4.6% 4.3%
10,000 3.7%
2.7%
Margin
4%
-0.7%
5,000
2.4% 0%
0 -4%
Arçelik
Indesit
LG
Electrolux
Samsung
Haier
GE
Candy
DeLonghi
BSH
Whirlpool
Gree
Sharp
Panasonic
Fisher&P.
2012E Sales 2010-2012E Average Clean EBIT Margin
Source: Redburn, company data
GE returning to strength
After EBIT margins dropped from 12.5% in 2006 to 4.7% in 2008, GE tried to sell its
appliance business. After Haier reportedly walked away at the 11th hour the disposal
plan was abandoned in December 2008. Since then, although margins have collapsed
further (to 0.6% in 2011), GE Appliance appears to be attempting a comeback and is
investing over $1bn (3x traditional levels) to refresh its key product lines (launching in
1Q 2012) and increase annual marketing spend by 2-3x in the business. While the
return of a stronger competitor will increase the fight for market share, the good news
is that GE appears very focused on raising margins in appliances and has announced a
5-8% price rise in May 2012.
BSH with a premium focus on energy efficiency

BSH is the European market leader and with a strong 8% EBIT margin. BSH has a
clear strategic orientation toward quality and innovation. With a relatively high 3.2%
R&D/sales ratio BSH has a high average selling price. BSH has shifted its footprint
towards low cost but not as fast as Electrolux. BSH’s key focus is the A+++, A++
labelled market (the most energy efficient products, see Appendix 4, page 127). Here it
leads but the good news is that Electrolux is mirroring its strategy by adopting more
rigorous consumer testing before launching products and a significant push to the
high energy efficient classes (A+++, A++).

Whirlpool targets are more in line with our forecasts

Fig 39: Whirlpool and Electrolux clean EBIT margins Fig 40: Whirlpool and Electrolux organic sales growth
8% 8%

6%
6% 4%
2%
4% 0%
-2%
2% -4%
-6%
0% -8%
2006 2007 2008 2009 2010 2011 2012E 2013E 2005 2007 2009 2011 2013E
Whirlpool (consensus) Electrolux (Redburn) Electrolux (Redburn) Whirlpool (consensus)
Source: company data, Redburn (Electrolux forecasts), Bloomberg consensus Source: company data, Redburn (Electrolux forecasts), Bloomberg consensus
(Whirlpool estimates) (Whirlpool estimates)
Whirlpool’s mix differs to Electrolux; it is more focused on the Americas (where it is

more premium exposed than Electrolux is with its mass-market Frigidaire offering)
and it is proportionally more exposed to the laundry market (whereas Electrolux is
more cooking focused). However, despite the difference Whirlpool has experienced a
very similar annual clean EBIT margin performance to Electrolux and not dissimilar
revenue growth. To this end, Whirlpool’s medium-term financial target is to grow
revenues at 5-7% and achieve an 8%+ clean EBIT margin, which is very interesting
and supportive of our Electrolux forecasts. We forecast Electrolux to achieve 8%
clean EBIT margin in 2015 which is way above Electrolux’s target of 6% but much
more in line with Whirlpool.
Whirlpool’s strategy is to grow in new geographies and new products. To lift its
margin it aims to “extend its cost leadership” and “extend quality leadership.” In
reality, Whirlpool’s margin plan is not that dissimilar to Electrolux’s. It plans $500m of
restructuring charges between 4Q 2011 and 4Q 2013, to drive $400m of savings by the
end of 2013. Whirlpool’s restructuring savings are to come from reducing its
workforce by 7% and closing plants in Germany, Arkansas and other locations.
Whirlpool also has a ‘commonisation’ plan, which was launched in 2009 ahead of
Electrolux’s ‘modularisation’ plan, to move to global similar parts. While Electrolux’s
‘modularisation’ plan came later to the party, we see it as more comprehensive.
We calculate that Whirlpool’s planned $400m saving is 39% of its average 2010-11
clean EBIT. This compares to Electrolux’s 2012-13 savings (we forecast SKr2.3bn)
which represents 48% of its average 2010-11 clean EBIT. Given Electrolux’s savings are
proportionately a touch higher than Whirlpool’s, and given Electrolux has significant
savings already planned beyond 2013 (where Whirlpool currently has no firm plans),
we do not see a good reason for the significant margin target differences. Indeed,
Whirlpool’s 8% target gives us some comfort in our extreme difference to
consensus and Electrolux in our EBIT forecasts for Electrolux.

Conclusion
While we do not expect the Koreans to become soft competitors – they certainly
will not – the financial headroom for another decade of comparable pricing
pressure is unequivocally lower.
With average 2011 EBIT margins of 0.8% and an average industry capital turn of 4x,
we estimate the Koreans to be currently making 3-4% average ROIC between them,
i.e. roughly half the WACC. A principal concern from investors regarding the Koreans
is that the businesses are run with a very long-term view with little or no short-term
pressure to produce returns given the family controlled chaebol1 nature of the
companies. Thus far, both Samsung and LG have been prepared to accept poor and
deteriorating financials while investing aggressively to build market share for
better returns in the future. However, for all the reasons stated above, this is
unlikely to continue.
1
Chaebol is the Korean equivalent of an industrial conglomerate, traditionally family owned.

02/
02/ Margin: price improving
Margin: price improving

After a decade of vicious pricing pressure, we expect pricing to be less
severe over the next five years due to the structural change in the
competitive dynamic. This structural improvement will be kick-started
by a strong cyclical recovery in the US in 2012 as significant wall-to-
wall industry list price rises stick, volumes move into a housing-led
recovery and the Koreans temper their aggression ahead of the anti-
dumping ruling. Evidence of this materialising is seen in the record
+6% January appliance CPI data point.

Fig 41: Major appliance CPI YoY price changes in Eurozone, US, Brazil and Australia
8%
6%
Eurozone Major Appliances CPI
YoY Change (%)
4%
2% US Major Appliances CPI
0%
-2% Brazil Major Appliances CPI
-4%
-6% Australia Major Appliances CPI
-8%
Jan-09 Jan-10 Jan-11 Jan-12
Source: US Bureau of Labor Statistics, Eurostat, IBGE and Australian Bureau of Statics
In light of the significant raw material headwinds of 2011, concerted efforts have
been made by global appliance makers, especially in the US, to pass on costs. Our
analysis of the pricing strategies implemented by Electrolux and others, in
conjunction with the latest US appliance CPI indicators, supports pricing turning
positive in 2012. Longer term, we see less pricing pressure from the Koreans, but,
conservatively, we do not fully reflect this in forecasts leaving future upside. In
sum, in 2012 we forecast a positive price impact for Electrolux of +0.7% of sales and
a SKr750bn of EBIT.
US pricing is moving very favourably, Europe remains weak

Fig 42: US industry pricing vs Electrolux North America Fig 43: Eurozone industry pricing vs Electrolux EMEA
10.0% 3%
YoY Change (%)
YoY Change (%)
2%
5.0%
1%
0.0% 0%
-1%
-5.0%
-2%
-10.0% -3%
Jan-01 Jan-04 Jan-07 Jan-10 Jan-13 Jan-01 Jan-04 Jan-07 Jan-10 Jan-13
US Major Appliances CPI Eurozone Major Appliances CPI
Electrolux North America Price (Est.) Electrolux EMEA Price (Est.)
Source: Redburn estimates and US Bureau of Labor Statistics Source: Redburn estimates and Eurostat
North America: the CPI for US major appliances has a very significant correlation
with Electrolux’s past price effects in the North America division. This monthly data
series produced by the US Bureau of Labor Statistics has risen by a seismic +6% in
January (see Fig 42). This was the biggest YoY increase since the series began in 1997
and compares to a 15-year average of -0.1%. We have argued since last September that
pricing would surge in the US and we now see this data as hard evidence that our US
pricing thesis is playing out.
Last April (2011), Electrolux, Whirlpool, GE, Samsung and LG all announced
list price increases of 8-10%. Due to continued heavy discounting from the Koreans,

list price increases did not initially stick. However, further rounds of list price rises
(e.g. Electrolux’s further +5% rise in August) and more following (e.g. GE’s announced
+5-6% rises for May 2012), are finally culminating in strong net price rises that we
believe should continue throughout 2012, at the very least. These rises are facilitated
by much less aggressive pricing pressure from the Koreans given their lack of financial
headroom, as well as the pending US anti-dumping petition decision.
EMEA: last year Electrolux announced plans for a 5-7% list price increase in Europe
from January 2012. This was delayed from October 2011 to fit with BSH, the European
market leader, who announced rises would come in January. So far there is little
evidence of prices sticking in Europe (see Fig 43), and, as we know from the US
example, this can take time to come through and is best supported by a volume
recovery, not yet present in Europe. We do not forecast positive pricing in Europe in
2012 and have allowed for another slightly negative year given weak European
volumes and the more fragmented and competitive nature of Europe.
Fig 44: Brazilian industry pricing vs Electrolux Latam Fig 45: Australia industry pricing vs Electrolux APAC
15% 10%
YoY Change (%)
YoY Change (%)
10% 5%
5%
0%
0%
-5% -5%
-10% -10%
Jan-01 Jan-04 Jan-07 Jan-10 Jan-13 Jan-01 Jan-04 Jan-07 Jan-10 Jan-13
Brazil Major Appliances CPI Austrlia Major Appliances CPI
Electrolux Latin America Price (Est.) Electrolux Asia Pacific Price (Est.)
Source: Redburn estimates and IBGE Source: Redburn estimates and Australian Bureau of Statics
Latin America: in Brazil, which makes up the bulk of Latin America, Electrolux has
put through a series of monthly net price rises. This has already stemmed the price
declines (see Fig 44) and should continue to help in 2012. However, due to the retailer
consolidation in Brazil we only expect a small positive in 2012.
Asia Pacific: while we expect pricing to remain weak in 2012 due to the strength of the
Australian dollar vs the Thai baht, we notice weakness in Australian domestic
appliance pricing has been improving lately (see Fig 45). Further improvement would
lead to upside.
Small Appliances: the Small Appliances division saw a -1% price decline in 2011 and
we expect this to ease slightly in 2012 but remain negative.
Professional Products: Electrolux’s Professional Products division enjoys structurally

higher pricing power than the rest of the group. Electrolux lifted prices at end-2010
and achieved an attractive +1.3% price rise in 2011. We expect another +1.0% in 2012.

Fig 46: Electrolux’s price impact to sales by division by quarter

Price Effect to Sales, by Division (%)
4%
3%
2%
1%
0%
-1%
-2%
-3% US Pricing is the big
-4% positive in 2012
Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12E Q2 12E Q3 12E Q4 12E
MA EMEA MA North America MA Latin America
MA Asia Pacific Small Appliances Professional Products
Source: Redburn estimates
These price impacts are shown graphically above and in more detail with volume and
mix below.
Fig 47: Electrolux quarterly volume, price, mix sales impact

% increases Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12E Q2 12E Q3 12E Q4 12E
MA EMEA -1.7% -3.1% -3.8% -2.2% -4.9% -3.7% -3.6% 0.8% -1.5% -1.5% 0.0% 0.5%
MA North America -0.5% 5.0% -6.0% -5.0% 4.1% -2.8% 5.2% -7.1% 0.8% 1.8% 4.8% 4.8%
MA Latin America 42.0% 18.3% 7.1% 17.2% 15.9% 14.2% 16.4% 19.5% 16.8% 11.5% 11.5% 9.9%
MA Asia Pacific -3.9% 27.8% 21.6% 16.8% 19.8% 7.2% 13.9% 20.7% 14.0% 12.0% 14.0% 16.0%
Small Appliances 0.0% 0.0% 0.0% 0.0% 6.6% 1.7% 4.9% 11.9% 2.9% 2.9% 2.9% 2.9%
Professional Products 0.0% 2.4% 3.0% 1.6% 5.4% 1.9% -1.4% -3.5% 1.3% 1.3% 1.3% 1.3%
Group volume impact to sales 4.1% 4.7% 0.0% 1.6% 4.1% -0.2% 4.0% 2.5% 4.0% 3.1% 4.6% 4.9%
MA EMEA 0.2% -1.0% -1.6% -1.9% -2.2% -2.0% -1.9% -2.1% -1.0% -0.5% 0.0% 0.5%
MA North America 0.0% 0.0% -1.6% -2.3% -2.8% -0.9% -1.1% 0.7% 2.0% 3.0% 3.0% 3.0%
MA Latin America 0.0% 0.0% -0.8% -0.4% -1.4% -1.3% -0.8% 0.0% 0.2% 0.5% 0.5% 0.1%
MA Asia Pacific 0.0% 0.0% 0.0% -3.1% -2.6% -0.7% -2.1% -1.2% -1.0% -1.0% -1.0% -1.0%
Small Appliances 0.0% 0.0% 0.0% 0.0% -1.6% -0.7% -1.2% -0.8% -0.1% -0.1% -0.1% -0.1%
Professional Products 0.0% 0.0% 0.0% 0.5% 1.5% 1.2% 1.1% 1.5% 1.5% 1.5% 1.5% 1.5%
Group price impact to sales 0.1% -0.4% -1.2% -1.8% -2.0% -1.1% -1.1% -0.5% 0.3% 0.9% 0.9% 0.9%
MA EMEA 0.1% 1.0% 1.6% 2.0% 1.4% 0.5% 1.7% -0.9% 1.0% 1.0% 1.0% 1.0%
MA North America -0.2% 1.0% 3.3% 4.5% 0.5% 0.5% -2.0% 0.5% 0.2% 0.2% 0.2% 0.2%
MA Latin America 4.0% -10.0% -5.0% 0.0% -5.2% -1.7% -1.7% -2.4% -2.0% -2.0% -2.0% -2.0%
MA Asia Pacific 6.0% -18.0% -13.7% -9.5% -11.5% -6.2% -8.4% -15.4% -10.0% -10.0% -10.0% -10.0%
Small Appliances 0.0% 0.0% 0.0% 0.0% 3.5% 1.0% -0.9% -1.0% 0.2% 0.2% 0.2% 0.2%
Professional Products -6.4% -2.0% -6.0% -9.9% -6.6% -9.6% -0.6% 0.7% 0.2% 0.2% 0.2% 0.2%
Group mix impact to sales -0.1% -1.5% -1.1% 1.8% -1.2% -0.7% -1.4% -2.0% -0.7% -0.7% -0.7% -0.8%
Group acquisition impact on sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.7% 5.7% 5.6% 5.5% 4.5% 0.5%
Group currency impact on sales -6.8% -3.4% -2.4% -3.9% -7.7% -10.0% -4.8% -2.7% 3.3% 4.6% 1.9% 0.1%

Conclusion
Structural industry improvement and a cyclical recovery in the US are the engines
of forecasts for improved pricing in 2012.

03/
03/ Margin: raw material pressure to ease
Margin: raw material pressure

to ease
Due to decade-long pricing pressure, material cost inflation has been
destructive to industry margins, with Electrolux suffering an average
annual negative impact of SKr1.4bn since 2004. Our analysis of
Electrolux’s exposure and current commodity price dynamics implies
2012 inflation should be far less onerous, helped by falling steel prices.
Beyond 2012, the easing of Chinese fixed investment, the wall of
incoming cheap iron ore capacity and excesses in global steel capacity
should structurally limit future steel price inflation relative to
historical levels.

The price vs raw material bridge

Raw material impacts and price are a key part of the Electrolux EBIT bridge and
should be considered in tandem. Since 2004, Electrolux has suffered -SKr1.4bn of
annual raw material cost inflation to EBIT. Given industry pricing pressure, it has not
been able to pass these on. Over the same period, Electrolux also experienced
-SKr170m of average annual price decline (equivalent to -0.1% of sales). Such twin
headwinds explain all of the industry’s margin compression.
Fig 48: Price vs raw material – impacts to group EBIT (2004-15E; SKr m)
2,000
1,500
impact to Group EBIT (SKr m)
1,000
Price and Raw Material
500
0
-500
-1,000
-1,500
-2,000
-2,500
-3,000
2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E
Price Raw Materials
Source: Redburn
From our raw material basket analysis of current commodity price dynamics we
expect -SKr250m and -SKr200m of raw material cost inflation in 2012 and 2013.
Beyond that we expect longer-term raw material cost inflation will fall to 60% of the
historical average (i.e. SKr600m pa from 2014-18). At the same time, we expect pricing
dynamics to improve (see Chapter 2).
Raw material exposure

Fig 49: Electrolux cost cake (split of 2011 sales) Fig 50: Reported raw material cost split (2011)
Other
EBIT Personnel
15% Carbon
Other Costs 3% 16%
Steel
28% Dep'n 35%
Brand 3% Plastics
Investment 29%
Raw
2%
Materials
Transport Stainless
20%
2% Product Copper and Steel
Develop'nt Component Aluminium 8%
7% 19% 13%
Source: Electrolux Source: Electrolux

As a low margin company with a total sourcing bill (including both raw materials at 20%
of group sales and component costs at 19% of group sales) representing 2.4x labour costs
and 10x EBIT, margins are much more sensitive to raw material and component cost
fluctuations than any other stock in our sector. Sourcing is conducted regionally and
largely in dollars and euros to help offset the eclectic currency exposure of the employee
mix in Mexico (peso), Poland (zloty), Hungary (forint) and Thailand (baht).
As component costs are relatively stable over time, it is worth focusing on raw material
costs which represent the more volatile and risky element of the P&L. As shown in
Fig 50, steel (43% of raw materials, including stainless) and plastics (29% of raw
materials) are the principal ingredients worth considering. To analyse Electrolux’s raw
material exposure we have created a Redburn weighted basket of Electrolux’s raw
materials.
Redburn weighted basket of Electrolux’s raw materials

Fig 51: Redburn Electrolux weighted raw material basket
Acrylonitrile Copper Aluminium

Butadiene Styrene 8% 8%
Stainless Steel (EU
(ABS)
Plastics CR Strip)
11%
(Polypropylene) 9%
11% Steel (N. Europe
Plastics (Polystyrene) Cold Reduced Coil)
Steel (US Cold Steel (S. Europe Cold 12%
11%
Reduced Coil) Reduced Coil)
24% 6%
Source: Redburn based on conversations with Electrolux
x Steel: Electrolux buys its steel in a combination of 3-12-month contracts. The

majority of its steel is cold reduced coil and is bought with a slightly higher
proportion in Latin America and North America than in Europe to balance the
currency exposures (as Europe sources relatively more components).
x Plastics: Electrolux buys its plastics using a formula based on spot prices lagged by
three months and with a small discount given its size as a customer. The plastic
split is roughly 1/3 polystyrene, 1/3 polypropylene and 1/3 polyurethane.

Fig 52: Electrolux raw material prices YoY change (%) Fig 53: Redburn RM weighted basket YoY change (%)
200% 30%
150%
YoY Change (%)
20%
YoY Change (%)

100%
50% 10%
0% 0%
-50%
-10%
-100%
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 -20%
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Copper Aluminium
Steel Plastics Weighted Basket of Electrolux Raw Materials
Source: Redburn, Bloomberg Source: Redburn, Bloomberg
With North American and European cold reduced steel prices down -15% from the
March 2011 peak and average plastics prices flat over the same period, our Redburn
Electrolux raw material weighted basket indicates that, at current prices, Electrolux is
about to enter a year of slight spot price tailwinds. This also happened in 2009 when
Electrolux enjoyed a SKr1.3bn positive raw material benefit. The question is, does
Electrolux’s actual EBIT impact from raw materials correlate to the spot basket?
Fig 54: Annual change in raw material basket vs Electrolux’s EBIT raw material cost inflation impact
RM headwind to EBIT (SKr m)

30% 2000
YoY Price Change (%)
20%
1000
10%
0% 0
-10%
-1000
-20%
-30% -2000
2007 2008 2009 2010 2011 2012 2013
Weighted Basket of Electrolux Raw Materials Raw Material Headwind to Electrolux EBIT (SKr m)
NB we have inverted the raw material impact to EBIT and expressed it as a headwind to be comparable to a YoY input price change
Source: Redburn forecasts, Bloomberg pricing data and Electrolux historic bridge disclosure
The answer is yes. In Fig 54 we have compared the average annual input price change
of the weighted basket of raw materials to what Electrolux actually saw as a YoY EBIT
impact from raw materials in its EBIT bridge. This shows that, while the relationship is
not perfect (see 2007) due to contract buying differing from spot prices at times, there
is nonetheless a strong relationship which has improved as Electrolux’s contract
durations have shortened. We also note a slight three-month lag. From this analysis we
would highlight that Electrolux’s massive SKr2bn raw material impact was so big that
it appears it overtook the spot price. This suggests that Electrolux may be operating on
onerous contract prices that may ease back towards spot at the next negotiations for
2013 (not in our forecasts).

Based on our basket analysis, we are more optimistic than the company and
forecast a -SKr250m raw material impact to group EBIT in 2012. At the 4Q 2011
results, Electrolux improved its raw material guidance for 2012 from ‘up to -SKr1bn’
to ‘up to -SKr500m’.
Longer-term raw material cost inflation should prove less onerous

In the medium term, with iron ore prices down -20% in six months, future steel prices
may fall further. However, this favourable risk is partly offset on the plastics side with
oil price up significantly ($123 at the time of writing).
In the longer term, we don’t expect Electrolux to suffer the same degree of average
annual raw material cost inflation as seen in the last eight years (see Fig 48 above).
Beyond 2012, the easing of Chinese fixed investment, the wall of coming cheap iron
ore capacity and excesses in global steel capacity should structurally limit future
steel price inflation relative to history.
Steel demand: Chinese fixed investment bubble will not repeat

A large part of this historic cost inflation related to the asymmetry of demand for raw
materials vs that of appliances. Steel prices ballooned, not from people buying washing
machines, but largely due to the huge Chinese fixed investment boom, especially in
construction. In future, as China shifts from an infrastructure-driven economy
towards a consumer economy, we expect Chinese fixed investment growth as forecast
by us (in our Capital Goods sector framework) to slow from an annual average of 18%
over the last decade to 7% in the next (see our report, ‘The supply-side revolution’,
March 2010).
Steel supply: excess steel capacity and cheaper iron ore capacity coming on stream
According to the Redburn Mining team, there are two important supply-side factors
that should drive lower steel prices. Firstly, the degree of excess capacity in world steel
production has increased materially since the mid-2000s. To put this into numbers,
global steel capacity utilisation has fallen from 88.4% in 1Q 2008 to 71.3% in 1Q 2012
despite world steel consumption being up 11% over the same period.
Secondly, while there has already been a lot of new low cost iron ore capacity
introduced recently, the degree of new very low cost capacity coming on stream in the
next three to four years is totally unprecedented. By the end of 2015, roughly 500m
tonnes of new iron ore capacity will come on stream. This is huge in the context of
1.6bn tonnes of existing world iron ore capacity. As such, iron ore prices should
structurally lower over the next four years, ceteris paribus. With iron ore being the key
input cost for steel, this should have a knock-on effect on steel prices.

Conclusion
Given Electrolux’s raw material exposure, current commodity price dynamics
imply 2012 inflation should be far less onerous, helped by falling steel prices.
Beyond 2012, the easing of Chinese fixed investment, the wall of incoming cheap
iron ore capacity and excesses in global steel capacity should structurally limit
future steel price inflation relative to history.

04/
04/ Margin: brand repositioning and the mix effect
Margin: brand repositioning

and the mix effect
Intensive brand investment and major brand initiatives have clarified
the product offering and shifted Electrolux up the ASP curve. Through
consumers trading up in the US and product launches in Europe we
argue there is more positive mix effect to come as Electrolux benefits
from its new, higher margin, positioning.

Brand repositioning
Electrolux has undergone extensive brand repositioning as part of a long-term
strategy to raise gross margins and improve product mix. This has been achieved
by virtually doubling the proportion of sales spent on brand investment since 2005.
We argue this will drive a positive mix effect to group sales in 2012 of SKr300m. An
even higher mix effect will come from both North America and EMEA combined but
this will be offset by negative customer mix in Latin America. Our analysis
demonstrates consumers trading up in the US should drive a 70bp North America
EBIT margin increase in 2012 from the increased mix of the higher margin
‘Electrolux brand’. While we forecast some margin benefit (+20bp) in EMEA in 2012,
the majority of the positive effect from brand mix in this region will come from
customer and country mix. We also see some ongoing mix benefit from emerging
markets given the natural mix shift towards the growing ‘Electrolux brand’.
In 2013 and 2014 we forecast marginal mix benefits to Electrolux. However, we see
potential upside to our estimates from ongoing brand mix benefits as higher
margin AEG outgrows Zanussi in EMEA and the higher margin ‘Electrolux brand’
outgrows Frigidaire in North America.
Fig 55: ‘Electrolux brand’ has lifted from 16% to 60% of group sales
Share of Group Revenue from
70%
60% AEG dual branded in 2005
Electrolux brand
50% Dual-branding local

40% Launch of
brands phase begins
30% Electrolux
20% brand in US
10%
0%
2000 2002 2004 2006 2008 2010 2012E 2014E
Share of Group Revenue from Electrolux dual brand
Electrolux branded products have risen from 16% in 2000 to 60% of group sales in
2011. This has been achieved through three major phases:
x 2003: major regional brands, such as Refripar in Brazil, were re-branded under the
‘Electrolux brand’. In addition Rex in Italy and Arthur Martin in France became
Rex-Electrolux and Arthur Martin-Electrolux, respectively, in order to retain the
strength of local brands but also to generate awareness of the ‘Electrolux brand’.
x 2005: Electrolux’s largest European brand, AEG, became dual branded.
x 2008: the ‘Electrolux brand’ was launched in the US as a premium brand.

In 2012 and 2013 we forecast a fourth leg to the story as Electrolux branded products
lift to 65% of group sales. The twin engines for this lie in North America, driven by
consumers trading up to premium Electrolux branded products (vs Kenmore and
Frigidaire) and in Europe with premium AEG and Electrolux products growing vs
Zanussi product share falling. In addition, as emerging markets (where the Electrolux
higher margin premium brand makes up nearly 100% of sales) grow faster than
Europe and the US, the group’s share of Electrolux branded products will naturally
increase. Having said this, however, we also expect new management to take a more
pragmatic approach to non-Electrolux brands. Where profitable and successful, non-
Electrolux brands (such as AEG) will be fostered as core and developed further out.
Brand investment
In conjunction with the brand repositioning, Electrolux has invested heavily in its
brand. On a global level Electrolux has raised its brand investment as a percentage of
sales from 1.2% in 2005 to 2.4% in 2012E.
Fig 56: Electrolux brand investment to lift from 1.2% to 2.4% of 2012E sales
Brand Investment as % of Sales
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E
Brand Investment as % of Sales R&D Investment as % of Sales
The combined strategy of brand repositioning and brand investment will help improve
the group’s average product offering, raising average selling prices (ASPs) and
therefore improving mix, which is to be re-invested to ultimately increase gross
margins.
Group mix effect

The degree to which Electrolux has enjoyed positive mix effect is shown in Fig 57.
Mix has been a significant SKr2.7bn positive impact to EBIT in the last five years,
and Electrolux’s second valuable weapons to protect margins, after restructuring
cost savings.

Fig 57: Electrolux mix impact to sales and EBIT, 2007-14E
1,500 2%
Mix impact to EBIT (SKr m)
Mix impact to Sales (%)

1,000 1%
500 0%
0 -1%
2007 2008 2009 2010 2011 2012E 2013E 2014E
-500 -2%
Mix impact to EBIT (Skr m) Mix impact to Sales (%)
Between 2012 and 2014, we forecast around SKr565m of positive mix from two sources:
x Improved brand mix in EMEA and North America (discussed in this chapter).
x General group-wide mix benefits from modularisation (discussed in detail in

Chapter 5 on page 75).
While we expect the negative country mix of 2011 (high margin Italy falling hard) to
ease in 2012 we expect negative customer mix to worsen in Latin America from
retailer consolidation. In 2010, Brazil’s three largest domestic retailers, Casas
Bahia, Globex and Pão de Açúcar merged. The new company, Grupo Pão, became
the number one retailer in Brazil and took combined market share of 18% which it
has used to intensify pressure.
Group gross margins

Fig 58: Electrolux gross margin vs EBIT (pre-IAC), 2006-14E post Husqvarna
30% 10%
Group EBIT margin (%)
25% 8%
Gross margin (%)
20%
6%
15%
4%
10%
5% 2%
0% 0%
2006 2008 2010 2012E 2014E
Gross margin (%) Group EBIT margin (Pre Items Affecting Comparability) (%)
While the improvement in gross margins has yet to play out, as Fig 58 demonstrates,
due to the one-offs in COGS in 2011, underlying gross margins have been improved.
Our analysis below provides evidence on a regional level of how both brand clarity

and a further shift up the ASP curve, in combination with modularisation and one-
offs dropping out, will further improve gross margins in future.
Brand clarity
Electrolux has positioned itself with one global premium brand (Electrolux) and
strategic regional premium brands such as Electrolux-AEG in Europe, and
Westinghouse in Australia. In addition, Electrolux has three regional mass-market
brands (Frigidaire in the US, Zanussi in Europe, and Simpson in Asia Pacific). We
like this segregation of value and premium as it distinguishes brand perception and we
like the low number of brands as it reduces costs.
In Fig 59 below, we have constructed a global brand map to compare and contrast
Electrolux’s brand architecture to those of the competition.

Fig 59: Global appliance industry brand architecture map; by manufacturer, by region, premium vs mass market
North America Europe APAC Latam
Premium Mass Market Premium Mass Market Premium Mass Market Premium Mass Market
Electrolux
Whirlpool
Indesit
BSH
GE
LG
Samsung
Panasonic
Miele
Haier
Arçelik
Sharp
Fagor
Candy
DeLonghi
Source: constructed by Redburn based on company reports and accounts, press releases and other company historical archives

Fig 60: Electrolux vs peers – revenues vs brand count
16,000 20
Brands (Number)
15
Sales (€m)
12,000 15
8,000 8 8 10
6
4,000 3 3 2 5
4 1 1 1 1 2 2
1 1
0 0 1 0
Arçelik
Indesit
LG
Electrolux
Haier
GE
Samsung
BSH
Whirlpool
Miele
Panasonic
2011 Revenues Premium Brands Mass-Market Brands
Source: Redburn, company information
As shown in Fig 60 above, taking Electrolux’s reach and scale into account, its
numbers of brands is relatively low. In Appendix 2 (see page 116) we demonstrate
Electrolux’s reach and scale showing how Electrolux has the most diverse regional mix
of any global appliance manufacturer.
Converting brand to improved average selling price

To understand how Electrolux’s change in brand architecture has already helped, and
will continue to help, group EBIT margin we need to look at the impact on ASPs.
Fig 61: Electrolux brand ASPs in EMEA and North America

2.5x
2.0x
1.5x
Electrolux, 1.4x
Electrolux, 2.1x
Frigidaire, 1.0x
Kenmore1.4x
Zanussi, 1.0x
1.0x
AEG, 1.5x
0.5x
0.0x
US Europe
Source: Redburn proprietary survey of primary retailers in the US (Best Buy and Sears), GSK
Given the lack of disclosure we have undertaken a detailed proprietary analysis to

construct global ASPs for all Electrolux’s brands in each product category in each
region. This analysis is important as it shows the significant difference in ASPs
between the premium ‘Electrolux brand’ and the various regional mass-market brands.
In the US the ‘Electrolux brand’ has an ASP 2.1x that of Frigidaire, whilst in Europe,
AEG and Electrolux have ASPs 1.5x and 1.4x Zanussi, respectively.
In Latin America and Asia (excluding Australia) virtually all revenues are under the
premium Electrolux brand. In Latin America we have already seen trading up drive
significant market shares gains and this is just starting in South East Asia and China.
However, the focus for our analysis lies in North America and Europe.

North America, premium vs mass market

During the last US appliance up-cycle (2000-09), Electrolux did not have a
premium US product. Following the 2008 premium launch the new, higher margin,
‘Electrolux brand’ has lifted to 10% of North American sales. We forecast this to
rise to 25% by 2014 driven by trading up in the coming US appliance recovery. This
should lift the EBIT margin by 70bp pa in each of 2012, 2013 and 2014. However,
we have only forecast a meaningfully positive mix impact in 2012E of SKr200m
(0.7% of North America sales). In 2013 and 2014 we only have a marginally positive
mix impact in North America, which we have left for further upside.
Fig 62: 2012E North America brand split of sales Fig 63: North America 2012E sales and EBIT margin
25,000 20%
Electrolux, 15%
Kenmore,
EBIT Margin (%)

20,000 15%
Sales (SKr m)
19% 12%
15,000 10%
5%
10,000 5%
-1%
5,000 0%
0 -5%
Frigidaire Kenmore Electrolux
Frigidaire, 2012E MA North America Sales
69% 2012E MA North America Margin
North America has three distinct brands:
x Frigidaire (69% of sales): Electrolux’s major mass-market brand, Frigidaire, has

proved very successful in taking market share from Whirlpool and GE during the
downturn. Frigidaire was re-launched in 2009, replacing large parts of the range
with new products at higher ASPs. Consequently, we estimate Frigidaire now
operates at respectable c5% margins.
x Kenmore (19% of sales): Kenmore is a mass-market line of household appliances

sold out of Sears. In addition to Electrolux, Whirlpool, GE, LG, BSH and other
major suppliers all contribute to the Kenmore line. We estimate the brand operates
around breakeven and we see little scope for margin surprise here, particularly
given the announced shutdown of 100 Sears stores in December 2011.
x Electrolux (12% of sales): Electrolux branded products operate in the premium

segment and we believe that, given the ASP is 2.1x Frigidaire, it must operate with
high margins. We estimate margins are as high as 15%.
Electrolux’s brand positioning described above has shifted significantly since 2004.
Electrolux strategically entered the premium market in 2004 with a deliberately super-
premium product under the Electrolux ICON brand. ICON was not designed to drive
EBIT but to establish Electrolux as a new and desirable brand in the US for the first

time. At the top of the last cycle (2006) therefore, Electrolux had no revenues from the
premium segment. Frigidaire and Kenmore made up nearly 100% of sales and ICON
in the super-premium segment less than 0.2% of divisional sales.
In April 2008 the high volume, high margin ‘Electrolux brand’ was launched to
compete for the first time in the important higher margin US premium segment
dominated by Whirlpool and GE. Electrolux immediately took a 5% market share of
the premium segment in 2008 and by 2011 had roughly 10%. However, the collapse of
the overall US market saw a huge trading down effect which compressed the premium
segment. At the same time, the premium segment witnessed severe competition from
LG and Samsung. However, with LG and Samsung easing their aggression due to their
financial constraints and the anti-dumping petitions, we would expect the market to
enjoy a period of trading up into a recovery that is nicely margin-accretive.
Return of the US premium market

The product launches described above should leave Electrolux well exposed to the
recovery in US market and the subsequent trading up that should inevitably occur.
Figs 64 and 65 reflect how the US market has changed in value segment terms and in
volume terms.
Fig 64: US market by segment (%) Fig 65: US market by segment (volume shipments)
Value segments in the US market
Value segments in the US market (%)
100% 8% 7%
7% 6% 6% 6% 6% 50
11% 10% 5.3
22% 17% 23% 2.6
80% 31% 26% 27% 30% 40
40% 35% 2.2
(Million Units)
19.2 6.3 13.1

60% 30
65% 61%
40%
46% 50% 55% 60% 56% 52% 20
24.1 22.6
42% 20.2
20% 10
0% 7% 9% 11% 12% 11% 12% 10% 10% 12% 3.4 4.4 5.2
0
2006 2008 2010 2012 2014E 2006 2011 2014E
Low-price segment Mass market segment Low-price segment Mass market segment
Premium Segment Super-premium segment Premium Segment Super-premium segment
Source: Redburn estimates Source: Redburn estimates
With the mass market growing from 42% in 2006 to 65% in 2011, the premium market
has fallen from 40% to 17%. Given we expect higher total market volumes, we
therefore forecast the premium market to lift to 30%, which would represent
a doubling in unit sales for this segment of the market from 6.3 million to 13.1
million units.
Point of concern
It cannot be ignored that Electrolux benefited from the downturn; in 2009 the
re-launch of the Frigidaire brand in the mass-market segment aided Electrolux vs
premium heavy Whirlpool and GE. There are therefore risks to Frigidaire from a
US recovery leading to trading back up. However, the now established presence of an
Electrolux premium brand, with 2.1x the ASP and triple the margin of Frigidaire, will

offer valuable mix protection into a period of trading up that did not exist in the
2002-06 appliance boom.
We forecast the Electrolux brand to lift from 10% of 2011 sales to 25% of 2014E
sales and believe this should add 70bp to the North American margin in 2012E. We
have left 2013 and 2014 for further upside.
North American category mix: oven potential

Our analysis of product potential shows that the engine for the growth of Electrolux
branded products in North America will be in ovens, where Electrolux enjoys the
highest consumer ratings of its peer group, as well as market share and margins.
To understand ASP and margin potential across each product category (e.g. cooking,
laundry etc) we have used independent data from Consumer Reports NRC (CRNRC)
which conducts annual surveys of over a million US consumers.
Fig 66: US ASPs by brand, indexed by average product Fig 67: US consumer ratings by brand
ASP (Index averaged across product)
Consumer Report Rating (/100)
3.0x 74 Worrying
72 consumer rating
2.5x 70
Strong ASP 68
2.0x
66
1.5x 64
62
1.0x 60
LG
LG
Electrolux
Electrolux
Samsung
Maytag
Samsung
Maytag
GE
GE
Bosch
Bosch
Whirlpool
Whirlpool
KitchenAid
KitchenAid
Miele
Kenmore
Frigidaire
Miele
Kenmore
Frigidaire
Indexed ASP is an average across the major product categories and therefore Source: Consumer Reports National Research Centre
Frigidaire, the lowest index, does not equal 1
Source: Consumer Reports National Research Centre
While the overall US appliance data for CRNRC supports our proprietary ASP data for
the three rankings of Electrolux’s North American brands, it also highlights a
worryingly low consumer rating for the US ‘Electrolux brand’.
Fig 68: US ASPs by brand, indexed by product Fig 69: Electrolux US brand ratings vs range
85 5
Consumer Rating (/100)
ASP (Indexed to lowest)
80
75 4
70
65 3
60
55 2
50
45 1
Ovens Washers Fridge Dryers Dish Ovens Washers Fridge Dryers Dish
Electrolux Kenmore Electrolux Kenmore
Frigidaire High - Low Range Frigidaire High - Low Range
Series1 Series1
Source: Consumer Reports National Research Centre Source: Consumer Reports National Research Centre

However, looking at the same detail for each product category, we see that the
‘Electrolux brand’ is much liked in the two key categories of ovens and washing
machines (collectively 35% of North America sales) and that the overall US
‘Electrolux brand’ is dragged down by poor perception in the two minor categories of
tumble dryers and dishwashers (c14% of North America sales). Given Electrolux’s
highest margin lies in cooking, with a high 28% exposure, the strength in this area is
more encouraging.
EMEA, product launches driving some positive mix

After major product launches in 2006/07 and 2010/11, Electrolux continues to
launch major, higher ASP products in EMEA, notably under the ‘Inspiration’ range
in 2012 .While we forecast some margin benefit (20bp) in EMEA in 2012 from this
brand mix, the majority of the positive mix effect in this region will come from
customer and country mix.
Fig 70: 2012E EMEA brand split of sales Fig 71: EMEA 2012E sales and EBIT margin
Zanussi, 20,000 12%

10%
10%
EBIT Margin (%)

28% 15,000
Sales (SKr m)
8%
5%
Electrolux, 10,000 6%
41% 4%
5,000 1%
2%
0 0%
AEG - Electrolux AEG - Zanussi
Electrolux, Electrolux
31% 2012E MA EMEA Sales 2012E MA EMEA Margin
Following the consumption of smaller brands such as Rex in Italy and Automartin in
France under the dual branding process, Electrolux now operates with three major
European brands:
x Zanussi (28% of sales): a mass-market brand with margins that fluctuate around
breakeven.
x AEG-Electrolux (31% of sales): formerly AEG, dual branding took place post
acquisition in 2005. A premium brand, we estimate margins of 10%.
x Electrolux (41% of sales): a premium brand with margins we estimate of 5%.
While Zanussi is a brand that offers some defensive protection in a downturn,

Electrolux has had a clear focus since 2007 to raise the proportion of sales from the
higher ASP Electrolux and AEG brands, through a series of product launches. This has
driven an annual average impact to EBIT since 2007 of SKr300m from mix alone. In

Fig 72 we highlight the major product launches and annual impact to EBIT, accepting
that the specific launches did not wholly contribute to the mix impact.
Fig 72: Electrolux’s European product launches

Year Launch
2012E ‘Inspiration’ launch: new range of built-in products under the ‘Electrolux brand’
2011 AEG-labelled appliances for the built-in segment in Northern and Central Europe
2010 AEG-labelled appliances for the built-in segment in Germany and Austria (‘Neue Kollektion’)
2006/07 ‘Bright’ launch: major product overhaul with the launch replacing 40% of the existing SKUs
As Electrolux already had an established presence in the premium segment in Europe,

the drive to increase this exposure was arguably a lot easier than in North America. With
further launches of Electrolux and Electrolux-AEG branded products planned in
2012 we forecast the Zanussi share of sales to continue to fall from 30% to 25% of
sales. This should drive a 20bp margin uplift in 2012, 2013 and 2014. We do forecast
a positive SKr200m mix impact to EBIT to EMEA in 2012 (0.6% of sales), with the
additional uplift driven by country and customer mix. We only forecast a marginal
mix impact in 2013 and 2014, which we have left for further upside.
Other regional product launches

Whilst we do not forecast significant mix impact to EBIT from the other regions, it is
worth noting Electrolux plan significant product launches in 2H 2012 in Brazil, China
and Professional Products. In addition Electrolux plan a major Ergorapido 3 launch, a
highly profitable cordless vacuum cleaner first launched in 2004, in Japan. The
Ergorapido 3 launch will be the other (non-EMEA) part of the planned increase in
2012 brand expenditure, reflected in Fig 56.
Conclusion
Electrolux’s extensive brand repositioning has shifted it up the ASP curve, exposing
it to higher margin products. We forecast this to drive a positive mix shift, notably
in the US where a housing-led recovery should lead to consumers trading up.

05/
05/ Margin: restructuring cost savings to accelerate
Margin: restructuring cost

savings to accelerate
Electrolux’s aggressive restructuring actions target 1.45x the savings of
the past five years. We argue this is achievable, predicated on our
plant-by-plant analysis of Electrolux’s entire global manufacturing
footprint, in conjunction with an appraisal of modularisation.
Electrolux’s restructuring has often been labelled as “restructuring to
stand still.” Yet the cost actions over the past five years have
maintained margins in the face of industry margin collapse. The
increased magnitude of future savings, in concert with the improved
supply-side dynamic, points to exciting margin potential.

Our restructuring analysis supports over SKr1bn of savings in each of the next four
years, with savings over the next five years 45% higher than those of the last five
years. Our construction of an Electrolux plant database demonstrates the potential
to raise capacity utilisation in high cost countries to 75% from the current 62%,
while our review of the modularisation plan supports SKr3.0bn of savings by 2015.
Electrolux held margins flat over the past five years, with SKr3.8bn of savings,
despite a depressed appliance industry and vicious industry pricing. Our forecasted
SKr5.5bn of savings in the next five years offers major potential for favourable
margin expansion in light of Western recovery and improved industry pricing.
Electrolux’s 2012-16 restructuring plan

In Fig 73 we have mapped the future savings plan for 2012-16 against the 2004-11
history on the top chart, and the commensurate charges in the bottom chart, split by
programme.
Fig 73: 2004-16E detailed segmentation of restructuring savings and charges by programme (SKr m)
Savings by Programme (SKr m)
1,500
311
1,000 800 825
369
920
390 688
500 102
15 510
749 75
521 505 600 600 75
330 410 175
211 278 140 140 225
0 49
2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
0
Restructuring Charges (SKr m)
-430 -362 -355

-550 -700 -900 -900 -900
-500 -1,064
-1,721 -1,045 -1,561
-1,000 -635 -500
-2,542
-1,500
-2,000
-2,500
-3,000
2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
Source: Redburn , Electrolux
Given the company’s track record (we argue the company has been more successful
than many people believe) and our analysis of the plan coming, we now fully adopt
Electrolux’s total savings target of SKr5.5bn in our forecasts for 2012-16. Importantly,
total savings for the next five years are 45% higher than the SKr3.8bn achieved over
last five years (2006-11).

If we stop to consider (1) just how much the Western market suffered during the last
five years, with volumes down 18% since 2006, and (2) how Electrolux broadly held
margins flat with SKr3.8bn of savings, then it stands to reason that if the next five
years enjoy something of a slight Western recovery and 1.45x the magnitude of savings
and improved pricing, then, ceteris paribus, there will be a favourable margin
development. This is a key pillar of our investment thesis.
1994-2005 the disposal phase

Fig 74: 1989-2013E Electrolux group revenue split by product category
140,000 Textile Ops

Cleaning Services
Autoliv
120,000 Fitted Kitchens
Agricultural Equipment
Interior Decoration
Industrial Laundry
100,000 Professional Cleaning
Professional Refrigeration
Heavy duty Laundry
50% of 1994 and 29% of Baking
Sales (€ mn)
80,000 Leisure Appliances

2001 Revenues have Home Comfort
been disposed of Motors & Components
60,000 Compressors
Vestfrost
Indian Appliances
Outdoor (Husqvarna)
Current Electrolux Air Conditioning
40,000
Distributor, Spares & Service
Professional Indoor
Floorcare
20,000 Laundry
Dishwasher
Hot (Cooking)
Fridge / Freezer
0
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013E
Source: Redburn based on 1989-2011 annual report data and company comments
In order to understand the potential from Electrolux’s new 2012-16 restructuring

programme, we need a clear view as to what has been achieved thus far. Investors
often argue to us that this company needs to restructure just to stand still and that all
of the restructuring seen to date has done nothing to improve margins. Our analysis
reflects that this is not the case and that Electrolux has achieved a great deal which has
improved the company’s margin relative to deteriorating margins amongst the
competition. We argue that as competitive dynamics ease, Electrolux will see more of
the savings of the next restructuring phase drop through to the bottom line.
Since 2004, during the Manufacturing Footprint 1 era (see below), Electrolux averaged
SKr1.3bn of restructuring charges a year. Long-term observers may say, “this was
nothing new” and mathematically this would be fair. Indeed we calculate that 1994-
2003 averaged a similar SKr1.0bn a year. However, we will argue that the two periods
were very distinct.

Between 1994 and 2003, we calculate that 80% of Electrolux’s restructuring costs
related to units that are no longer part of the group, such as compressors, motors &
components, leisure appliances and of course Husqvarna (the outdoor business spun
out in 2005) all represented by the grey shaded revenue component in Fig 74.
Importantly, we observe that Electrolux’s Major Appliances business (the core of the
group today) operated with a largely unchanged structure throughout much of that
period with limited restructuring. Therefore, against conventional wisdom,
Electrolux Major Appliances had not been a ‘perennial’ restructurer up until 2004.
By the end of 2003, it had become clear that the Asian competitive dynamic (which
had been building in earnest for five years) could no longer be ignored and was a
significant threat. At end-2003 the Electrolux board made the decision to establish the
first ‘Manufacturing Footprint’ restructuring programme. From now on, we refer to
this first phase of the footprint plan as Manufacturing Footprint 1 (or MF1).
Electrolux’s restructuring so far, a 2004-11 MF1 review

Fig 75: Provisions and savings from the original MF1 restructuring plan
MF1 Costs and Savings (SKr m)
1,000 749
521 330 278 410 505
49 211 140 140
0
-34
-362 -355
-430
-1,000
-1,064
-2,000 -1,561
-1,721
-3,000 -2,542
2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E
MF1 Charges MF1 Savings
Source: Redburn based on Electrolux data
The original MF1 plan was to achieve SKr2.5-3.5bn of savings by 2009 from
SKr8-10bn of restructuring costs. In the end the plan is still running but despite
running four years late will achieve above the mid point of the targeted savings with
charges that came at the bottom end of the targeted range. We calculate that between
2004 and 2011, Electrolux booked SKr8.1bn of restructuring provisions (for the
modellers amongst you this is part but not all of ‘items affecting comparability’). From
these charges, we compute that Electrolux has already achieved SKr3.1bn of savings
under MF1, a savings yield of 38%, with another SKr280m to come (which would raise
the savings yield to 41%).
In addition to the numbers, it is important to have a clear understanding of what was

actually achieved over this timeframe and how the company has changed. In sum,
during MF1, Electrolux closed 19 production facilities, cut back production at a
further five facilities and opened 11 new factories in low cost areas.

Fig 76: Electrolux production and purchasing has been repositioned to low cost areas
Electrolux share of Purchases and
80% 65% 67% 69% 71% 71%

62%
57%
50%
Production in LCC
60% 48% 71%

40% 66% 69%
35% 62% 64%
40% 28% 53% 55%
51%
20% 43%
39%
20% 31%
28%
22%
0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E
Share of Purchases from LCA Share of Production in LCA
The effect of these actions was to drive a dramatic shift in production and sourcing
from high cost areas (HCA) to low cost areas (LCA). Fig 76 shows that: (1) the
proportion of group production in LCA increased from 22% in 2003 to 62% in 2011,
and (2) the proportion of group purchasing in LCA increased from 20% in 2003 to
65% in 2011.
This transformation is seismic and should not be underestimated. By way of context,

we calculate that, on average, across the nine Capital Goods companies in our
coverage, the proportion of production in low cost regions only increased from 25% in
2005 to 42% in 2011 despite the big push east. Compared to this, Electrolux has
already leapt from being slightly behind the Capital Goods sector average to being way
ahead of it.
In future, under the new restructuring plan (discussed below), there is more to go.
Electrolux is targeting 70% for both production and sourcing. We expect this to be
achieved by 2015.
To understand MF1 properly, we have mapped each and every plant in the Electrolux
portfolio and all of those that have been closed. Such granular detail is not disclosed by
Electrolux (or by any of our other companies for that matter), so we have compiled
our Electrolux plant database from filtering over 1,000 documents and press articles
(thank you, Google). A summary of the group’s plant closures to date is detailed in
Fig 77 and the current plant portfolio is detailed in Figs 86 and 87.
By reading the ‘Details’ columns, investors can gain a quick understanding of just how
much production in the close plants has relocated to low cost areas. While some
company restructuring efforts simply cut headcount and often eat into the muscle of
the business, we see Electrolux’s restructuring as the beneficial kind, transforming the
footprint to structurally and sustainably improve the cost base.

64
Fig 77: Electrolux MF1 global plant closures from 2004 to 2013E – by division
Continent, HCA/LCA Country Unit location Products Employee Details
EMEA
Europe (HCA) Denmark Fredericia Cooking -150 Closed 1Q 2008, in loss for some time, production relocated to other plants in low cost Europe
Europe (HCA) Germany Nuremberg Washer/dishwasher -1,750 Closed March 2007, -15% price erosion from Koreans/Chinese, production to Poland/Italy
Europe (HCA) UK Spennymoor, Durham Cooking -500 Closed in 2008, production to be moved to Poland
Europe (HCA) Italy Scandicci, Florence Refrigeration -450 Through union negotiations plant closure turned to transfer to new owner Energia Futura
Europe (LCA) Russia St Petersburg Washing -250 Closed in 2010 (opened in 2005) due to losses from “fierce competition”. CIS production now in Ukraine
Europe (HCA) Spain Alcalà de Henares Washing -450 Closed in 2011, made Zanussi RIM and NAHIA washing machines
Europe (HCA) Spain Fuenmayor Refrigeration -450 Closed April 2006, production transferred to Hungary
Europe (HCA) Sweden Motala Cooking -240 Closed in 2011, production transferred to existing facilities in Poland
Europe (HCA) Sweden Torsvik Washer/dishwasher -190 Closed in 2006 production transferred to existing facilities in Poland
North America
North America (HCA) Canada L’Assomption Cooking -1,300 Closing in 2013, consolidating US cooking manufacturing to new factory in Memphis
North America (HCA) US Greenville, AP Refrigeration -2,700 Closed March 2006, transferred 1.6 million refrigerator production to Ciudad Juárez in Mexico
North America (HCA) US Jefferson, IA Washing -45 Closed March 2010, production transferred to Ciudad Juárez in Mexico
North America (HCA) US Webster City, IA Washing/Vacuum -850 Closed in 2010, production transferred to Ciudad Juárez in Mexico
Asia Pacific
Asia (LCA) China Changsha Refrigeration -700 Closed 1.3 million refrigerators capacity in 2009 due to losses
Asia (LCA) China Changsha Washing -600 Closed 500k drum washing machine production capacity in June 2006 due to losses
Australia (HCA) Australia Beverly, Adelaide Washing -350 Closed in 2008, production moved to Poland and Thailand
Australia (HCA) Australia Regency Park, Adelaide Dishwashing -80 Closed in 2007, production moved to Poland and Thailand
Small Appliances
Europe (HCA) Sweden Vastervik Vacuum -500 Closed in 2004, production transferred to Hungary
Professional
Europe (HCA) Denmark Tommerup Professional laundry -180 Closed in December 2004, production transferred to Thailand
Source: Redburn based on multiple press reports from Electrolux and global press
Important note: see regulatory statement on page 141 of this report.

Fig 78: Divisional split of the 11,735 jobs restructured under MF1
Professional Latin America
-3% 0%
Small Appliances
-4%
Asia Pacific
-15% North America
-42%
EMEA
-38%
By looking at the closures in Fig 77, we see that with the exception of the failed Russian
and Chinese plants, all of Electrolux’s plant closures were in HCAs (high cost areas).
Of the 11,735 jobs that were restructured, 41% were in North America and 38% were
in Europe. All of the EMEA, Small Appliances and Professional Products cuts were
made in high cost areas in Europe.
Production was mostly transferred to Hungary, Poland, Mexico and Thailand

Looking further into the detail, we see that where closures occurred almost all the
closures saw production relocate to low cost areas. The production transfers were as
follows:
x In EMEA, cold (fridge/freezer) production was transferred to Hungary and

everything else (washing, tumble drying, dishwashing and cooking) was transferred
to Poland.
x In North America, volumes from all product categories apart from cooking (which
is moving to a low cost plant in Memphis) went to Juárez in Mexico.
x Latin America was always low cost.
x In Asia Pacific, Australian production was moved to Rayong in Thailand to take

advantage of the 2010 Australia ASEA free trade agreement.
x In Small Appliances, everything moved to low cost (Hungary for Europe, Mexico
for North America and Brazil for Latin America) except the small component plant
in Sweden.
x The one exception was the Professional division, where (1) customer expectations
of short delivery times and local service facilities, (2) the size and complexity of
professional kitchen and laundry equipment, and (3) attractive pricing power and
decent margins (the best in the group) have all meant that the footprint has
remained predominantly in HCAs.

The analysis supports company claims of the dramatic footprint change already
achieved. While it is easy to be dismissive that Electrolux’s restructuring has not
affected profitability improvement, we believe its scale and comprehensiveness
provides a very robust platform for the company restructuring actions.
The next step, Electrolux’s 2012-16 restructuring plan

Fig 79: Electrolux’s three-part restructuring plan
SKr (m) Manufacturing Footprint 2 Global Operations Overhead Total plan
Costs -3,500 -1,000 -635 -5,135
Timing of costs 2012-16 2011-12 4Q 2011
Savings 1,600 3,000 680 5,280
Full savings run rate 1H 2016 4Q 2015 4Q 2012
Source: Redburn based on Electrolux
In addition to the outstanding SKr280m that we forecast to come from MF1,

Electrolux’s SKr5.3bn ‘new plan’ savings target (raised from SKr2.25bn by CEO, Keith
McLoughlin) comprises three separate plans, shown in Fig 79. These are:
x Manufacturing Footprint 2: this is an extension of Manufacturing Footprint 1

where the target is to save a further SKr1.6bn by 1H 2016 at a cost of SKr3.5bn
(SKr100m already booked). From here on, we refer to this extension as
Manufacturing Footprint 2 (or MF2).
x Global Operations: this plan, for which 55% of the charges have been booked
already, is designed to reduce component costs through modularisation. From
SKr1bn of charge, Electrolux targets SKr3bn of direct savings. Indirect benefit
should also accrue to price and mix.
x Overhead: finally, Electrolux announced the 2012 Overhead programme plans to

save SKr680m at a cost of SKr635m (already booked).
It should be noted that these are all independent of, and additional to, the company’s
ongoing target of achieving SKr1bn of gross procurement savings pa (resulting in
SKr500m of net annual saving after allowing for component cost inflation). We
address this in more detail in our EBIT bridge section in Chapter 8 (page 99).

New savings programme ramps up from 2012

Fig 80: Annual breakdown of Electrolux’s three-part restructuring plan
Costs 2011 2012E 2013E 2014E 2015E 2016E Total
Manufacturing Footprint 2 -104 -700 -900 -900 -900 0 -3,504
Global Operations -550 -500 0 0 0 0 -1,050
Overhead -635 0 0 0 0 0 -635
Total -1,289 -1,200 -900 -900 -900 0 -5,189
Savings
Manufacturing Footprint 2 0 0 175 600 600 225 1,600
Global Operations 102 510 688 800 825 75 3,000
Overhead 0 369 311 0 0 0 680
Total 102 879 1,174 1,400 1,425 300 5,280
MA EMEA 41 494 608 620 630 143 2,535
MA North America 25 131 242 432 438 108 1,376
MA Latin America 18 92 126 150 155 16 556
MA Asia Pacific 6 42 62 84 86 18 297
Small Appliances 7 62 72 62 64 8 274
Professional Products 5 26 38 52 53 8 182
Group costs 0 32 27 0 0 0 59
In terms of the timing of both charges and savings, guidance has been given for the
Global Operations and Overhead plans, but not for the phasing of Manufacturing
Footprint 2. We constructed those after dialogue with the company. Our forecasts for
the annual development of both costs and savings we have shown in Fig 80 above.
New CFO should help in execution

We like the decision to hire Tomas Eliasson as the new CFO. Mr Eliasson has a very
strong restructuring track record from his time at Assa Abloy, where he participated in
arguably the most dramatic Western restructuring in the wider European Capital
Goods sector. If he applies Assa’s systemic cost discipline to Electrolux then investors
will see results. As an aside, he also had a robust performance track record on tax
optimisation.

Total 2012-16E savings in summary

Fig 81: Total SKr5.3bn savings 2012E-16E, by type Fig 82: Total SKr5.3bn savings 2012E-16E, by division
MA Latin MA Asia
MA North America Pacific
Global 6%
America 11%
Operations Small
Overhead 26%
57% Appliances
13%
5%
Professional
Products
MF2 MA EMEA Group Costs 3%
30% 48% 1%
Source: Redburn estimates Source: Redburn estimates
A summary of the total SKr5.3bn of new plan savings is shown by savings programme
and by division in Figs 81 and 82 above.
We highlight that roughly 50% of the total savings are likely to come in the EMEA
division. With hopes for US recovery lifting the North American margin, this is the key
protection behind our EMEA margin forecast during a period of tough European
volumes. Below we examine the three restructuring programmes individually.
(1) ‘Manufacturing Footprint 2’ savings

Towards the back end of Electrolux’s 2004-11 ‘Manufacturing Footprint’ restructuring
programme (which we refer to as Manufacturing Footprint 1) the previous CEO, Hans
Stråberg, indicated a number of times that no further significant footprint
restructuring would be needed. While we maintain Manufacturing Footprint 1 (MF1)
was more successful than many realise, we were always concerned by the company’s
previous ‘the restructuring is largely over’ position. To this end, we were pleased to
see Electrolux’s announcement to extend the existing MF1 programme in
November 2011.
Fig 83: Est. profile of MF1 and MF2 savings 2004-16E Fig 84: Redburn est. split of SKr1.6bn of MF2 savings
Charges and Savings (SKr m)
800 MA North
Manufacturing Footprint
America MA Latin
600 40% America MA Asia
1% Pacific
400 749
600 600 6%
521 505 175
200 410
330 278 Small
211 225
140 140 Appliances
0 49
MA EMEA Professional 1%
2004 2006 2008 2010 2012E 2014E 2016E Products
50%
MF1 Savings MF2 Savings 2%
Source: Redburn, Electrolux Source: Redburn, Electrolux

The Manufacturing Footprint 2 (MF2) plan is to generate SKr1.6bn of further annual

savings by 2016 from SKr3.5bn of further restructuring charges by 2015. MF1 moved
the group’s manufacturing from country-based to regional-based and this move is the
‘final phase’ to create a globalised manufacturing base. We expect roughly two thirds
of the pending SKr3.5bn charge to be cash cost and one third to reflect writedowns.
We have also assumed that 88% of the charge is booked in EMEA and North America.
This implies a savings yield of 46% for MF2, which is better than the 38% delivered
so far by MF1 (and the final savings yield 41% that we forecast by the end of 2013E).
Transfer will be easier under MF2, supporting higher savings yield

We do not worry that MF2’s higher savings yield is too ambitious. Costs under MF1
were exacerbated by doubling costing. Transferring work to the newly built emerging
market plants took time under MF1, as maiden production always took time to ramp
up and optimise. The key difference between MF1 and MF2 is that under MF2
Electrolux is not going to building any new factories (other than the new low cost
Memphis plant which is already under construction). The plan is to close a
significant proportion of the remaining inefficient high cost plants and transfer the
work to existing low cost plants. As such we expect a faster and more cost effective
production transfer than under MF1, which could even result in the company’s
SKr1.6bn target proving conservative.
So what will happen to capacity utilisation under MF2?

Fig 85: Target capacity utilisation for LCA and HCA
85%
Capacity Utilisation (%)
80%
75%
70%
65%
60%
55%
2009 2010 2011 2012E 2013E 2014E 2015E 2016E
LCA HCA
In 2011, Electrolux’s global capacity utilisation was a relatively low 62%, albeit an
improvement from 60% in both 2009 and 2010. Within the global 2011 number there
was not the huge regional disparity one might imagine with utilisation in low cost
areas (LCA) only 1% above that in high cost areas (HCA). Under MF2, Electrolux is
aiming to (1) raise capacity utilisation in HCA to 75%, assuming flat volumes vs 2011,
and (2) raise capacity utilisation in LCA to 84%, assuming some growth.

Where will capacity be reduced?

Given various legal, competitive and employee considerations Electrolux, like all
companies, will not provide any details on which locations are to be restructured until
after agreements have been signed and employees informed. As such, it is impossible
to predict the exact timing of charges.
However, as we do not like to be put off by lack of disclosure, we have constructed our
own detailed plant-by-plant analysis of Electrolux’s current footprint; see Figs 86 and
87, to understand better which high cost capacity presents the best opportunity for
cost savings and what the likely divisional mix is.

Fig 86: Electrolux 2012 manufacturing footprint (1) by location, whether high or low cost, headcount and details; possible MF2 closures highlighted yellow
Continent, HCA/LCA Country Unit location Products Employees Details
EMEA
Europe (HCA) France Revin, Ardennes Washing 440 Downsizing in 2011, risk of total move to Poland as low capacity with 390k units in 2011
Europe (HCA) Germany Rothenburg Cooking 1,100 Makes ovens (c500k units) and hobs (c1 million units)
Europe (HCA) Italy Forli Cooking 650 Downsizing of cooker plant in 2012 from 1,250 employees – tough union wrangles
Europe (HCA) Italy Porcia Washing 1,200 Downsizing washer plant in 2012 from 1,450 employees. Union wrangles. c1.3 million units pa
Europe (HCA) Italy Solaro Dishwashing 1,050 Key dishwasher plant, 1 million units in 2009 (85% export), €40m invested in new line in 2010
Europe (HCA) Italy Susegana, Treviso Refrigeration 1,050 Downsizing by 450 in 2011 from 1,500. Unit production to drop to 700k pa in 2012
Europe (HCA) Sweden Mariestad Refrigeration 550 Downsized in 1Q 2007 from 1,100 employees (2006) and production lowered from 500k to 380k
Europe (HCA) Switzerland Schwanden Dishwasher, oven 280 164k units made in 2010 (with 25% exported)
Europe (LCA) Egypt 3x Olympic plants General 7,000 Acq. 2011, adds MENA trade zone, plants in 10th of Ramadan, 6 October and Cairo
Europe (LCA) Hungary Jaszbereny Fridge/vacuum 1,700 Production and number of employees down 30% over five years
Europe (LCA) Hungary Nyiregyhaza Refrigeration 1,000 Opened 2005 (€85m capex), 580 refrigerator SKUs, three production lines, c700k units

Europe (LCA) Poland Olawa Washing 1,000 Opened 3Q 2005, 350 SKUs of front/top loader and compact washers, all brands
Europe (LCA) Poland Siewertz Tumble dryers 800 Opened 4Q 2000, 260 SKUs of ventilation/condensation dryers and Iron Aid, all brands
Europe (LCA) Poland Zarow Dishwashing 700 Opened 2005, 260 SKUs of free-standing, built-in and compact dishwashers, all brands
Europe (LCA) Poland Świdnica Cooking 550 Opened December 2006, free-standing/built-in gas and electric ceramic cookers
Europe (LCA) Romania Satu Mare Cooking 1,000 Free-standing cookers 1.2 million unit capacity, competes vs local player, SC Arctic
Europe (LCA) Ukraine Ivano-Frankivsk Washing 150 Acquired in 2011, gives access to the CIS free trade framework, protected trade zone
North America
North America (HCA) US Anderson, SC Refrigeration 1,800 Production down from 2 million refrigerators in 2007 to 1.7 million in 2011
North America (HCA) US Kinston, NC Dishwashing 550 In 2012 closed one line and moved to Europe, kept other dishwasher running
North America (HCA) US Springfield, TN Cooking 2,900 Free-standing gas and electric ovens. Production of just under 2 million units per year
North America (HCA) US St. Cloud, MN Refrigeration 1,400 Refrigerators and chest freezers, stories have circled of production being transferred to other plants
North America (LCA) Mexico Juárez Fridge/laundry 3,800 Unit opened in 2006, adding refrigeration to existing vacuum then added laundry in 2010
North America (LCA) US Memphis, TN Cooking 1,240 2013 launch, 700k capacity, $190m capex, $150m tax break, near Springfield/good transport
71
72
Fig 87: Electrolux 2012 manufacturing footprint (2) by location, whether high or low cost, headcount and details; possible MF2 closures highlighted yellow
Continent, HCA/LCA Country Unit location Products Employees Details
Latin America
South America (LCA) Brazil Curitiba Refrigeration 3,200 Acquired 1996, upright/chest freezers and 1-2 door refrigerators, produced 2.5 million units in 2010
South America (LCA) Brazil Manaus Air Con./microwaves 3,700 Acquired 1996, makes in-room air conditioners and microwave ovens
South America (LCA) Brazil Sao Carlos Washing, cooking 3,500 Acquired 1996, makes washing machines, chest freezer and cookers
South America (LCA) Chile Maipú (CTI) Fridge/washer/oven 400 CTI Chilean major appliance (Fensa and Mademsa brands) acquired with CTI in 2011
South America (LCA) Argentina Rasario (CTI) Fridges/washers 700 Frimetal (GAFA brand) is #1 in Chile, acquired with CTI, made 400,000 units in 2011
Asia Pacific
Australia (HCA) Australia Dudley Park, Adelaide Cooking 550 Downsized in 2005, now 320,000 free-standing stoves and built-in ovens a year
Australia (HCA) Australia Orange Refrigeration 600 Downsized in 2005, makes 300,000 fridges/30,000 freezers pa, 75% Westinghouse brand
Asia (LCA) China Hang Zhou Cooking 700 Unit opened in 2005, last remaining Chinese facility
Asia (LCA) Thailand Rayong Washing 650 Tripling capacity by 2012 (from 600k to 1.8 million) given 2010 Oz/ASEA free trade agreement
Small Appliances
Europe (HCA) Sweden Nygård Vacuum cleaning 50 Makes bags and filters for vacuum cleaners
Europe (LCA) Hungary Jaszbereny Vacuum/fridge 1,200 Part of the bigger refrigeration unit in Hungary
North America (LCA) Mexico Juárez Vacuum cleaning 1,100 Part of the bigger Mexican unit
South America (LCA) Brazil Curitiba Vacuum cleaning 700 Part of the bigger refrigeration plant in Brazil
South America (LCA) Chile Cerrillos (CTI) Hair/Juicers/polishers 100 Somela, the small appliance unit, was acquired with CTI in 2011
Professional
Europe (HCA) France Aubusson Food service 180 Acquired 1987, new plant 2000, Dito Sama brand food preparation (peel, cut, mince, knead, etc)
Europe (HCA) France Saint Vallier Food service 40 Molteni premium €20-200k ovens for Alain Ducasse and the rich, estimate €20m sales
Europe (HCA) France Troyes Professional laundry 210 Makes 250 to 1100 litres barrier washer extractors and in-bed/cylinder ironers
Europe (HCA) Italy Vallenoncello Food service 860 Divisional HQ, larger cooking plant and smaller dishwashing plant (150 staff, 25k units pa)
Europe (HCA) Italy Villotta Food service 140 Components and semi-finished sheet factory
Europe (HCA) Sweden Ljungby Professional laundry 550 Makes 65-850 litre washer extractors with various spin speeds
Europe (HCA) Switzerland Sursee Food service 240 New 2012 highly automated site making Thermaline branded range
Asia (LCA) Thailand Rayong Professional laundry 160 Opened 2005, professional products are 130-650 litre dryers and extra-spin washer extractors

This analysis suggests that as with MF1, MF2 will be skewed to EMEA and North
America because this is where the remaining high cost plants are located (excluding
Professional). Furthermore, as there are more high cost plants left in Europe (eight)
than in North America (four). Hence we expect MF2 to be slightly more skewed
towards EMEA (50%) than North America (40%) compared to MF1 which was
more balanced between the two. Our estimated split of MF2 savings by division is
shown in Fig 84. This shows that we expect most of the balance of the MF2 savings to
come from the Australian side of Asia Pacific.
In Figs 86 and 87, we have shaded yellow the plants we see as possible candidates for
restructuring. For instance, in the US with the build up of the low cost Memphis
cooking plant very near to the large high cost Springfield cooking plant, we would
expect work to be consolidated under one roof. In Europe, the principal candidates for
restructuring are in Italy which has a large number of high cost manufacturing plants
(the legacy Zanussi footprint). Italy was quite high margin but was hit by a -10%
volume drop in 2H 2011 which increases the need for change.
And what of capacity utilisation?

To look at this another way, if we assume that headcount and capacity are the same, to
get from 62% to 75% utilisation on flat volumes, Electrolux needs a 21% capacity
reduction in both EMEA (i.e. -4,000 people) and North America (i.e. -2,300 people).
While it is easy to see where this might come from in the US, it implies that all of the
EMEA plants we have identified would need to be closed.
However, this is not quite the case as Electrolux measures capacity utilisation by
destination of final demand and not by origin of manufacture. As such the capacity
utilisation numbers given by the company for high cost areas (61.5% in 2011) actually
include the proportion of capacity from low cost plants being used to export to high
cost areas.
European utilisation to be ‘optimised’ between West and East

What this means is that in Europe, Electrolux will look to ‘optimise’ capacity
utilisation between high cost Western Europe and low cost Eastern Europe and Middle
East/North Africa. In other words, when the next Western European closures happen,
Electrolux may transfer some of the production to the remaining Western European
plants to raise utilisation. Electrolux may also shift some of the Western European
demand currently being made at the Polish and Hungarian plants back to the
remaining Western European plants as well. As all of this will help achieve the 75%
utilisation target in high cost EMEA, for utilisation to hit the 85% target in low cost
EMEA (i.e. a 36% uplift from 62.5% in 2011) Electrolux will need significant volume
growth in Eastern Europe and North Africa. On the positive front, Eastern European
market volumes grew at a very solid +10% in 2011.

North America: low utilisation but more limited potential

In North America, however, the picture is different. Our work suggests that while
capacity utilisation at Juárez (Electrolux’s low cost Mexican plant) is actually very low
due to the degree of US market volume collapse, the North American footprint has less
scope for optimisation than Europe. While Electrolux has moved vacuum,
refrigeration and laundry production to Juarez it does not appear to have managed
this particularly well given the scale of downturn. The challenge in the US will be to lift
utilisation in low cost Mexico. This should be helped by US volume recovery.
Why not move the lot to low cost?

Fig 88: Target global production split showing rationale for keeping 30% HCA
HCA: Regionally
Specific
15%
HCA: Competitive LCA Production
10% 70%
HCA: Declinging
Segments
5%
There is always a diseconomy to migrating 100% of production to low cost areas. The
question is, what is the optimal mix? Electrolux argues that 70% in LCA is the optimal
mix and that 30% of production should remain in HCA. Fig 88 shows the breakdown,
by rationale, of the 30% of global production that is more efficient in high cost areas.
This is explained as follows:
x Declining segments (5%): there is a small proportion (5%) of current global

production that relates to products that are in permanent decline, such as top
loading washing machines in Europe. It is more cost effective to ramp these down
in the existing location than to move them.
x Competitive (10%): there is a proportion (10%) of current global production

which despite being located in high cost regions is efficient, profitable and where
the advantages of moving are outweighed by the costs. For instance, Electrolux is
currently building oven production in Memphis, Tennessee, where labour costs are
low ($14.65 an hour) and the company has secured $100m of tax breaks over time.
x Regionally specific (15%): where products face high transportation costs or high
end technology it is often more profitable to produce them locally. For instance,
hobs and ovens for the built-in segment, refrigerators and all professional products
need to be made locally. Furthermore, some products need to have proximity to the
distribution channel. For example, some German customers want to be able to
adjust inventory quickly and have stayed away from the Chinese with two-month
lead times – in some instances Electrolux wants to serve retailer needs.

(2) Global Operations savings

Fig 90: Redburn est. split of SKr3.0bn of Global
Fig 89: Est. profile of Global Operations savings 2011-16E Operations savings
Global Operations savings (SKr m)
1,000
800 825
800 Purchasing
688
33%
600 510
400 Modularisation
50%
200
102 75
0 Manufact'g
17%
2011 2012E 2013E 2014E 2015E 2016E
EMEA N. Am. Latam Asia-Pac Small A. Prof.
At the November 2011 Capital Markets Day the Global Operations plan (aka
modularisation) was upgraded from SKr2.0-2.5bn of savings by 2015 to SKr3.0bn of
savings by 2015. Electrolux claimed to have “identified a greater potential within
modularization which will generate higher savings.” These extra savings came without
raising the SKr1bn charge (split evenly above the EBIT pre-IAC line in 2011 and
2012). 50% of the savings are directly from modularisation benefits but these also drive
the secondary benefits of manufacturing and purchasing savings.
We originally only included SKr1.0bn of savings but our analysis of VW’s success
in modularisation and the greater understanding we have of the plan has led us to
now forecast virtually all of the SKr3bn by 2015.
‘Modularisation’, savings through commonality

The idea behind modularisation is to copy the hugely successful cost reduction
achieved by the automotive industry (especially VW). In the last seven years,
Electrolux has done a lot to improve sourcing costs for raw materials (all the previous
success in the procurement savings line of the EBIT bridge, see Chapter 8) but the
company has done almost nothing to improve component costs.
The principal focus of Electrolux’s modularisation plan is to create common

components and common dimensioning. By changing design this way, modularisation
not only improves component costs, but also the company’s speed to market and the
execution precision of product launches. Virtually every product in the Electrolux
portfolio is being redesigned such that the back end (i.e. the inside of the appliance
which is out of sight and not a driver of consumer preference) will be entirely
constructed of common modules. Each module or ‘modular book’ is being designed
from scratch.

Modular books to be fully identified by September 2012

The plan is to fully identify 100% of the ‘modular books’ by September 2012 and then
implement the changes into production. As the savings are a function of design
changes, they do not accrue until the redesigned product is sold. As such the savings
will not fully accrue until every product has been through at a least a full model cycle.
As less than 4% of 2011 group volumes were modularised products there was only
SKr100m of savings in 2011. However, this will ramp up quickly leading to significant
savings in 2012.
As of February 2011, when we held an in-house lunch with Electrolux’s CEO, the
company had identified modular books for 60% of the product cost base. This
compared to 35% at the 2Q 2011 results. The CEO added that Electrolux was “on
track” for the September deadline.
Fig 91: Modularisation – oven door example Fig 92: Modularisation – wash group example
Source: Electrolux 2011 CMD Source: Electrolux 2011 CMD
Looking at the oven door example above, in Fig 91, we see the number of hinge types
drop from nine to two which drives a 15% saving. In the fabric care example, Fig 92,
Electrolux has identified a 17% saving. With component costs representing 19% of
group sales these savings are enough to add 3% EBIT margin in the product
categories used in the examples.
Modularisation helps Electrolux leverage its economies of scale advantage

Unlike, Samsung, Arçelik and Haier, which all sell a limited product range globally,
Electrolux sells the most comprehensive and complex range of appliance products in
the world (with Whirlpool). Furthermore, unlike Bosch-Siemens which specialises in
Europe, and even Whirlpool which is predominantly focused on the Americas,
Electrolux has the widest regional presence. Furthermore, (like Whirlpool) Electrolux
has always tried to cater for the significant variance in consumer preferences between
regions (even, say, US vs Canada), whereas the Koreans have not tailored their
products in the same way. With all this complexity, while Electrolux has always

benefited from its closeness to the customer and its understanding of regional
preference complexity, the company has traditionally failed to optimise economies of
scale. While this has improved with respect to raw materials, where Electrolux has
leveraged its buying power a lot more in the last seven years, there is a lot of scope on
component sourcing.
Electrolux’s modularisation strategy is designed to maintain these regional variances in

brand and design at the ‘front end’ while simultaneously capturing greater economies of
scale by standardising component design using modules at the ‘back end’.
Appliance modularisation will never reach automotive levels

Although the Japanese led the way on modularisation in the automotive industry, VW
is now arguably the leader. It’s staggering to think that VW is targeting total
commonality from the foot well to the front wheel across 75% of its total global
volumes over the next model cycle (seven years). While Electrolux cannot possibly
hope to achieve this degree of commonality given the heterogeneity of products (oven
vs dishwasher is not the same as Audi vs VW) and regional consumer preference
differences (e.g. top loading washers in US vs front loading washers in Europe), there
is still a lot that can be done from the current position.
Hiring a VW man for the job makes sense

Jan Brockman was appointed Electrolux global Chief Technology Officer in March 2010.
Mr Brockman came from Volkswagen Group where he served as VP of the mid-size
product line of VW (c30% of total volumes) from 2007 to 2010. VW has taken the
proportion of group volumes on modular production from 5% in 2008 to 8% in 2010 and
is targeting 25% in 2012 and 31% by 2013 which it expects to translate to 20-30%
reductions in costs. Brockman led the early adoption of modularisation at VW (notably,
with the Audi 4/5/7/8) and VW has been a significant COGS/gross margin success story
partly due to this. While Whirlpool’s ‘commonisation’ programme is arguably a few
years ahead of Electrolux, we draw Japanese parallels and are optimistic that Electrolux
has structured its modularisation plans better than Whirlpool.
Price/mix should be the hidden benefit

Electrolux has set targets for each product line. Notably, every new product has
(1) a higher gross margin target than before, (2) a target for a significant reduction in
product cost, (3) targets for improved capital intensity, and (4) targets to raise quality
and lower service calls by 20%. However, the key is that, by not having to design each
product from scratch, Electrolux is targeting being 30% faster to market from the
current three-year innovation turn towards two years. This is important. A faster
speed to market is the hidden benefit of modularisation which should bring lower
price erosion and better mix, two key levers in the margin equation that are not
included in the SKr3bn savings target.

(3) ‘Overhead’ savings

Fig 93: Est. profile of Overhead charges and savings Fig 94: Redburn est. split of SKr0.7bn of Overhead
savings
400 369 MA North

311
Overhead savings (SKr m)
America
200 2% MA Asia
0 MA EMEA Pacific
79% 3%
-200
Small
-400 Appliances
7%
-600
-635
2011 2012E 2013E Unallocated
EMEA N. Am. Asia-Pac Small A. HQ 9%
Electrolux’s third saving plan is to reduce ‘overhead’ (or G&A expense) across the
group, with a heavy skew to Europe. Having originally targeted SKr500m of charges
and SKr500m of savings this was revised upwards on 20 December to SKr635m of
charges and SKr680m of savings to be achieved by the end of 2012. From this, we
assume just under half of the savings spill into 2013E.
Speaking to Electrolux about this plan, it is a more significant change than we realised
in which Electrolux is taking out several layers of management. Rather than the
current structure of having five heads for EMEA (North, South, East, West and
Germany), Electrolux is now merging to one EMEA head for each of Kitchen,
Laundry, Marketing, Sales, Purchasing, R&D and Design each reporting directly to the
CEO. This should bring speed, transparency, and closeness to market.
What is different this time?

This change seems to be more structural than the previous 4Q 2010 ‘workforce
reduction’ (part of MF1) which was a more general blue collar reduction to adapt to
falling volumes in the downturn. This is a more significant re-organisation and more
of a white collar reduction in which Electrolux is moving its European head office for
Major Appliances from Brussels to Stockholm. Furthermore, the new EMEA CEO is
the old Group CFO (Jonas Samuelsson) who is arguably more aligned with the group
CEO than Enderson Guimarães, his predecessor.
Conclusion
Electrolux’s impressive cost actions over the past five years have maintained
margins in the face of industry margin collapse. The future savings are planned at
1.45x that of the past savings. Our plant-by-plant analysis of these savings leaves us
confident they can be achieved, pointing to exciting margin development.

06/
06/ Demand: Western volumes to show cyclical recovery, led by the US
Demand: Western volumes to

show cyclical recovery, led by
the US
After six years of brutal downturn, we now see evidence that the US
major appliance market is poised for recovery led by the US housing
market. With US housing starts, US home sales and US consumer
confidence all improving, and the statistical correlation with
appliance volumes corroborated, we forecast Electrolux’s North
American division will enjoy volume recovery of 4% in 2012. In
Europe we see signs of consumer confidence stabilising and the first
green shoots on housing permits.

After six years of decline, US major appliances are 23% below their 2005 peak.
Excitingly, we see evidence of a US recovery led by home sales and housing starts.
Our statistical analysis has highlighted these are the most closely correlated
housing series indicators to appliance volumes, leading appliance volumes by six
months. With both up 35% in the last 6-9 months, we forecast US appliance
volumes to follow into recovery. After another down year in 2012 we expect the
European appliance market to recover in 2013.
US appliances: historical context

Fig 95: Western European and US industry shipment volumes, 2001-14E
Industry shipment volumes (million)
60
55
50
45
40
35
30
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E
Western Europe US
US major appliance shipments are 23% below peak (2005) and in line with 2000
volumes, while European volumes are 13% below the 2006 peak. Our proprietary
regression work below demonstrates statistically that Western appliance volumes
move concurrently with consumer confidence but more importantly are led by
housing starts and existing home sales. Data suggest that, while a European housing
recovery is at least a year away, the US housing recovery has clearly begun.
Fig 96: 1968-2011 US major appliances have fallen as a proportion of existing home sales
US Major Appliance Shipments (000s)
60,000 1.40
50,000 1.20
US Appliance Shipments
per Existing Home Sale
1.00
40,000
0.80
30,000
0.60
20,000
0.40
10,000 0.20
0 0.00
1968 1978 1988 1998 2008
Electric Ovens Gas Ovens
Laundry Dishwashers
Fridges Freezers
US Appliances divided by Existing Home Sales
Source: Redburn, Electrolux proprietary research based on AHAM data

Analysing 40 years of the US appliance market demonstrates that in addition to the

six-year decline in the housing market there has also been a decline in the number of
appliances bought per home sold. This, in our view, adds to the scope of recovery.
Between 1990 and 2000 the average appliance volume per existing home sales was
0.35. This fell to a historical trough of 0.11 in 2008 where it has languished ever since
vs the long-term average of 0.48 (since 1968).
Fig 97: 1930-2010 per household appliance shipments; replacement cycle is back to 1990s
levels
US Appliance Shipments per Household
0.18
0.16
0.14
0.12
0.10
0.08
0.06
0.04
0.02
0.00
1930 1940 1950 1960 1970 1980 1990 2000 2010
Electric Ovens Gas Ovens Laundry
Dishwashers Fridges Freezers
Source: Redburn, Electrolux proprietary research based on AHAM data
In addition to the housing-led recovery, we also see a pent-up need in the

replacement cycle.
Trying to prove the replacement cycle is impossible as scrapped appliances are not
registered in either the US or Europe. As such, we cannot accurately assess the
installed park, we can only estimate. To attempt this we have measured annual US
shipments of each category of major appliance on a per US household basis since 1930.
This shows that shipments per household have fallen back to 1992-98 levels
(depending on appliance type), suggesting that the park has aged materially in the last
five years. In our view this points to a pent-up replacement need.
Interestingly, the appliance categories that have seen the biggest per household decline
are those with the shortest lifecycle, laundry and refrigeration. We see these as the
categories most susceptible to recovery. Before examining the potential, we have
addressed the correlation of the US appliance market with various macro drivers.

Appliance market correlation, statistical proof

Asking Electrolux, Whirlpool, GE, LG and Samsung for the specific drivers of
appliance volumes in the developed markets solicits a surprisingly varied array of
answers. Using regression analysis, we have identified that out of the responses given,
the most statistically significant macro drivers of appliance volumes are: (1) consumer
confidence, (2) housing starts, (3) home sales, (4) consumer durable demand, and
(5) automotive sales.
We have used the US appliance market for our analysis as the data are higher in
quality, frequency and availability. However, the relationships seen in the US are valid
explanatory drivers in other developed markets such as Europe and Australia. In
contrast, in the emerging markets market, penetration remains the dominant
structural driver of growth (e.g. consumers moving from hand-washing to
dishwashers and washing machines in Asia).
Fig 98: R2 coefficients of determination, drivers of US appliance volumes (1Q 2002-3Q 2011)
Consumer confidence
Appliance shipments
Housing starts (-2Q)

Consumer durables
Home sales (-2Q)

Housing starts
Home sales
Car sales
US appliance shipments (AHAM) 100% 69% 45% 75% 75% 79% 74% 87%
US car sales 69% 100% 75% 82% 86% 83% 68% 70%
US consumer durable goods 45% 75% 100% 59% 74% 67% 60% 53%
US consumer confidence index 75% 82% 59% 100% 71% 75% 66% 78%
US housing starts 75% 86% 74% 71% 100% 94% 87% 81%
US housing starts; lagged (-2Q) 79% 83% 67% 75% 94% 100% 79% 85%
US home sales (new and existing) 74% 68% 60% 66% 87% 79% 100% 79%
US home sales (new and existing); lagged (-2Q) 87% 70% 53% 78% 81% 85% 79% 100%
Source: Redburn
In trying to determine the drivers of US appliance industry volumes, we have run just
over 500 linear regressions to establish the statistical validity of various relationships.
Of all the relationships examined we have only shown the most highly correlated series
in Fig 98 above. This shows the R2 coefficients for each linear regression.
Looking at the data relative to US appliance shipments (see the top line of Fig 98 which
shows the linear regression R2 coefficients vs AHAM), we see that three series –
(1) consumer confidence, (2) housing starts, and (3) home sales (both new and
existing) – are the three most highly correlated drivers of US appliance volumes.
More excitingly, if we apply a six-month lag to housing starts and home sales, the
R2 increases. This is statistical proof that these housing series are forward-looking
leading indicators giving us a heads up on the future outlook.

Of all the linear regressions cross examined (see Appendix 3, page 120), the highest
statistical fit actually comes from home sales (both new and existing). The R2 for
coincident quarters is a meaningful 74%, but when this is lagged by two quarters (the
optimal lagging period) the R2 increases to a very robust 87%. As with housing starts,
this suggests that new and existing home sales are leading indicators and that in the
US, homebuyers have a tendency to buy appliances some six months after moving in.
Appliance market correlations: the outlook

Having established these two housing series statistically as leading indicators of
appliance volumes in mature Western markets we now move on to address current
market conditions and the outlook. For all full macroeconomic analysis of the US and
European consumer housing markets please see Appendix 3 (page 120).
Fig 99: US appliance sales vs housing starts and home sales
40%
YoY Growth (%)
20%
0%
-20%
-40%
-60%
Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12
US Appliance Shipments (AHAM) (% YoY)
US Housing Starts (% YoY)
US Home Sales (New & Existing) (% YoY)
Source: AHAM, US Census Bureau, US National Association of Realtors
US housing indicator data in the past two quarters have shown positive growth in both
housing starts and home sales (new and existing). US home sales grew YoY at 8.5% in
4Q 2011 while US housing starts grew YoY at 24.9%. These data demonstrate
unequivocally that the US housing market is already nine months into recovery.
These data demonstrate unequivocally that the US housing market is already nine
months into recovery. The view of US housing economists (including Professor Robert
Shiller of Case-Shiller fame) is that the US housing market has a natural level
underpinned by population and immigration trends. The consensus is that 1.3 million
housing starts and 5.6 million home sales represent the fundamental natural level for
the US housing market. Based on our work in Appendix 3, we expect the US market
to reach these levels by 2014. This is reflected in Figs 100 and 101 below.

Fig 100: US appliance shipments vs housing starts Fig 101: US appliance shipments vs home sales
AHAM Monthly Shipments
AHAM Monthly Shipments

4,500 2,500 4,500 10,000
US Housing starts
4,000 2,000 4,000 8,000
US Home Sales
3,500 1,500 3,500 6,000
3,000 1,000 3,000 4,000
2,500 500 2,500 2,000
2,000 0 2,000 0
Q1 02 Q1 04 Q1 06 Q1 08 Q1 10 Q1 12 Q1 14 Q1 02 Q1 04 Q1 06 Q1 08 Q1 10 Q1 12 Q1 14
US Appliance Shipments (AHAM) US Appliance Shipments (AHAM)
US Housing Starts; Lagged (-2Q) US Home Sales (New & Existing); Lagged (-2Q)
Source: Redburn, Bloomberg Source: Redburn, Bloomberg
Given the statistical correlations, we believe the appliance market will follow. Indeed
we already believe the US appliance market is three months into recovery.
Whilst there are still shadow and excess inventory overhang risks in the US housing
market that may limit housing starts (see Appendix 3), we believe that the US
appliance market will still recover in 2012. Even if housing starts falter in 2012 as
repossessions flood the market (at a discount), dis-incentivising new house starts,
we still expect home sales to recover as consumers buy up the excess stock.
Amazingly, 20% of current US house purchases are out of repossessions
The signs of stabilisation in Europe

Fig 102: US housing and Eurozone housing permits Fig 103: US vs European consumer credit growth
Consumer Credit Growth (%)
2,500 140 7%
Eurozone Housing Permits
120 5%
US Housing Starts
2,000
(Index 2005=100)
(Thousands)
100 3%
1,500 80 1%
1,000 60 -1%
40 -3%
500
20 -5%
- 0 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11
Eurozone Outstanding Consumer Credit Growth %
US Housing Starts Eurozone Housing Permits US Consumer Credit Total Outstanding Growth %
Source: US Census Bureau, Eurostat Source: European Central Bank and the Federal Reserve
In Europe, we are more cautious. The European housing market is roughly a year
behind that of the US. However, while European consumer credit and expectations for
future job creation have deteriorated, we see signs of European Consumer Confidence
and Housing Permits (similar to housing starts) stabilising in the latest data.

Conclusion
Consequently, we forecast the US market to grow at 4% in 2012 and at 3-4% in the
following two years, returning the market to 41-42 million units in 2014.
In Europe, we forecast the appliance market to fall by -3% for one last year in 2012,
and expect recovery thereafter. In 2012, we forecast Electrolux to do better than the
market due to share gains from the AEG and Electrolux launches (see Chapter 4) as
well as the company’s strong positioning in the increasingly important new
A++/A+++ energy label market (see Appendix 4, page 127).

07/
07/ Demand: emerging market structural growth, the penetration story
Demand: emerging market

structural growth, the
penetration story
Group organic sales growth should exceed historical levels due to the
significant shift in exposure to emerging markets. Our analysis of the
low household penetration supports this step-change in growth and
our forecast for emerging markets to grow organically at 7%. We
therefore argue Electrolux’s group-wide target of 4% organic growth is
broadly achievable vs a consensus view of 2.2%.

Fig 104: Electrolux organic sales growth 2001-14E Fig 105: Electrolux average organic sales growth
8% 5%

3.8%
6% 4%
4%
3% 2.2%
2%
2% 1.5%
0%
-2% 1%
-4% 0%
-6% 2001-11 Redburn 2012E- SME Consensus
2001 2003 2005 2007 2009 2011 2013E 14E 2012E-14E
Source: Redburn, Electrolux Source: Redburn, Electrolux, SME.direkt consensus
Our analysis of global household appliance penetration rates demonstrates that

emerging markets should grow at 7%, well in excess of Western markets. Since 2008
Electrolux has seen the fastest revenue migration to emerging markets in our coverage,
shifting its exposure from 25% to 37% of group sales in 2012. Our penetration rate
analysis supports this, lifting to 50% by 2020. Given this step-change in exposure, we
argue the company can broadly achieve its organic growth target of 4%, twice the
consensus of 2.2%.
Increasing emerging market exposure

Fig 106: Electrolux sales, 1999-2014E, split by region
100%
Regional Split of Sales (%)
30% 28% 28% 28%

80% 40% 42% 39% 40% 40% 39% 40% 35% 33% 32% 33% 32%
5%
5% 5% 6% 6% 6% 6% 5%
60% 2% 2% 5% 5% 5% 5% 5% 5%
28% 28%
32% 29%
40% 40% 39% 38% 37% 33%
46% 42% 42% 41% 42% 41% 38%
20% 32% 37% 38% 40%
23% 25% 25% 29%
12% 14% 15% 15% 14% 15% 17% 20%
0%
1999 2001 2003 2005 2007 2009 2011 2013E
LCC (excl. W Eu, N Am, Jap, Oz, NZ) Western Europe Other Mature North America
Source: Redburn and Electrolux
Since 1999 (see Fig 106), Electrolux’s regional exposure to low cost countries (LCCs)
increased from 12% to 32% in 2011. This shift towards emerging market exposure has
accelerated further in 2012 due to Electrolux’s recent acquisitions of Olympic and CTI.
x Olympic: despite delays due to the Egyptian revolution, Olympic was finally closed
in September 2011. The company has a 30% market share in Egypt and gives
Electrolux access to the North African protected trade zone. After taking into
account Olympic’s fall in revenues from SKr2.5bn in 2010 to SKr2.1bn in 2011 (we
estimate), the drop in underlying margins from 11% to 8-9% (we estimate), and the

seven-year buy out fee (2.25% of sales a year) then the acquisition was relatively
fully priced at 15x EV/EBIT. Nonetheless, it gives Electrolux access to the largest
customer service network in Egypt and a fast growing market which would
otherwise be closed given the trade restrictions.
x CTI: closed in October 2011, CTI has SKr3.2bn of sales and a 16% margin. The
company enjoys a 36% market share in Chile (through its Fensa, Mademsa and
Somela brands) and a leading position in Argentina (with its GAFA brand). At 10x
EV/EBIT, CTI was attractively priced for a business growing revenues at 14%.
While it should be noted that risks surround the sustainability of such a high
margin in this difficult appliance industry, the Southern Cone also enjoys trade
restrictions that prohibit imports.
With the full benefit of Olympic and CTI, we calculate that the proportion of
Electrolux’s group in emerging markets will lift from 32% in 2011 to 37% in 2012.
Fig 107: 2009 sector sales regional exposure Fig 108: 2012E sector sales regional exposure
2009 Sales Exposure (by Geography)
2012E Sales Exposure (by Geography)
100% 11% 16% 16% 14% 17% 100%

28% 21% 35% 34% 18% 16% 17% 24% 12% 28% 18% 23%
80% 80% 30%
32% 32% 33% 26% 30% 30% 42%
60% 46% 45% 60% 29% 27% 40% 41%
35% 43% 39%
33% 42%
40% 40%
57% 52% 51% 57% 54% 53% 47% 46% 45%
20% 40% 38% 38% 36% 32% 20% 42% 36% 30%
24%
0% 0%
Sandvik
Electrolux
Siemens
Schneider
SKF
ABB
Abloy
Alstom
Copco
Sandvik
Siemens
Electrolux
Schneider
SKF
Assa
ABB
Atlas
Abloy
Alstom
Copco
Assa
Atlas
RoW (inc E. Europe) W. Europe N. America RoW (inc E. Europe) W. Europe N. America
Our definition of ‘RoW’ is everything outside of Western Europe and North America. Our definition of ‘RoW’ is everything outside of Western Europe and North America.
As such, RoW includes Japan, Australia, New Zealand and South Africa. As country As such, RoW includes Japan, Australia, New Zealand and South Africa. As country
revenue disclosure is not universal, our RoW differs from a pure emerging market revenue disclosure is not universal, our RoW differs from a pure emerging market
definition definition
To put Electrolux’s emerging market exposure into context we have compared it to

our European Capital Goods coverage in Figs 107 and 108. At 45%, Electrolux’s huge
revenue exposure outside of Western Europe and North America (i.e. not the same
definition as emerging market) is in line with the sector average. This middle ranking
position is a huge uplift for Electrolux. Only three years ago (2009), Electrolux had
32% of group sales in RoW, 8% below the then coverage average of 41%, putting it
second lowest (ahead of Assa Abloy).
With 85% of the world’s population in low cost countries and penetration rates in the
emerging markets still well below Western levels, Electrolux’s goal of ultimately having
half of its sales in emerging markets is achievable. We forecast this to be reached by
2020 – for it to be achieved earlier would require acquisitions.

Emerging market potential

Even without the SKr5.3bn of acquired revenue growth from Olympic and CTI,
Electrolux has seen materially higher organic sales growth in its emerging market
businesses than in its mature businesses. While the proportion of group sales to
emerging markets has increased steadily over time, there has been a noticeable
acceleration in the change in the last five years, due to the collapse in the
Western markets.
Fig 109: Electrolux 2011 sales by country (bubble size) plotted by 2000-11 sales growth
CAGR (X-axis) vs 2000-11 employee growth CAGR (Y-axis), Olympic and CTI included
35%
Poland
25%
Egypt
15%
2000-2010 Employee CAGR
Canada Belgium Argentina

Brazil
France Russia
5%
Italy
Hungary Switzerland Vietnam

-5% Peru
USA Australia
Holland Chile Colombia
Germany Sweden Czech Rep. South Africa Bubble Size represents revenue
-15% Spain
North America
UK China
Western Europe
Norway
-25% Emerging (RoW)
-10% -5% 0% 5% 10% 15% 20% 25%
2000-2010 Sales CAGR
To show a more granular regional picture, we have analysed individual country

revenue and employee data since 2000. In Fig 109, we have compared Electrolux’s
2011 revenue by country (shown by bubble size) against the CAGRs for both revenue
and employee growth (1999-2011). We have coloured the North American and
Western European country bubbles in shades of grey and everything else in yellow.
Excluding Switzerland (11th) and Belgium (18th), the 20 fastest growing countries are
all emerging market based. Of the top ten, those with revenues over SKr1bn (and
therefore the scale to influence group revenues) are Brazil (18% CAGR), Egypt (15%
CAGR), Russia (10% CAGR), Argentina (9% CAGR), Chile (6% CAGR) and Poland
(4% CAGR). Furthermore, if we include South East Asia (cSKr1.5bn with 15% CAGR),
then we find 24% of group sales with a ten-year revenue CAGR of 15%.

We calculate that Electrolux’s 32% of emerging market sales has shown a 7% CAGR
since 2000. Over the same period the 65% of mature markets revenues suffered a
-3% CAGR decline. We believe this group of countries remains a significant engine
of future growth driven by future product penetration and that this growth rate is
sustainable.
Product penetration: the key driver for the emerging markets

Fig 110: Per household average appliance penetration by region
79% 75% 73%

80%
60% 53%
42%
40% 31% 31%
14%
20% 9%
0%
USA Australia W. Europe E. Europe Brazil Argentina China / SE Africa / Indonesia
Asia ME
Global per Household Penetration for All Major Appliances
Source: Redburn based on Electrolux Annual Reports (2007-10), Whirlpool (2011 CMD), Energy Information Administration 2009
Residential Energy Consumption Survey, Euromonitor and GfK
The degree of appliance penetration remains much lower in the emerging markets
than in the West. This simple difference remains the key reason why there is an
ongoing and structural premium growth story to the emerging markets.
As penetration rates usually differ significantly by product category, even within a

country, looking at the country average data shown in Fig 110 is something of an over-
simplification. However, despite this, it highlights the stark difference between
emerging and developed markets.
Fig 111: 2011 market penetration rates by appliance category for Electrolux’s key markets, ranked by average
USA Australia W. Europe E. Europe Brazil Argentina China/SE Asia Africa/ME Average
Hot (cooking) 93% 94% 97% 95% 98% 67% 55% 33% 79%
Fridge 100% 99% 99% 95% 97% 55% 54% 28% 78%
Washing machine 92% 97% 95% 83% 41% 50% 58% 16% 67%
Microwave 98% 81% 82% 63% 37% 29% 40% 15% 56%
Freezer 41% 45% 49% 25% 17% 5% 6% 3% 24%
Tumble dryer 67% 60% 38% 1% 3% 4% 1% 2% 22%
Dishwasher 63% 47% 49% 6% 2% 5% 2% 3% 22%
Average 79% 75% 73% 53% 42% 31% 31% 14%
To help visualise this chart, we have shaded penetration rates of 60% and over in yellow and those of 40% and below in grey
Source: Redburn based on Electrolux Annual Reports (2007-10), Whirlpool (2011 CMD), Energy Information Administration 2009 Residential Energy Consumption Survey,
Euromonitor and GfK

Turning to a more detailed category analysis, we have compiled Fig 111 to show the
spectrum of penetration rates by the various major appliance categories for each of
Electrolux’s principal countries and regions. To help visualise the data, we have shaded
penetration rates of 60% and over in yellow and those of 40% and below in grey. We
have then ranked average penetration rates by both product categories and by regions.
Regionally, 2011 penetration rates averaged 76% across the US, Western Europe
and Australia, this was over twice the 34% average of the other five regions which
ranged from 53% in Eastern Europe down to 14% in Africa/ME.
There is still a specific penetration opportunity in Western markets in freezers and

dishwashers, and to a degree in tumble dryers. As the principal engine of group
growth is continued household penetration in emerging markets we have addressed
this Western opportunity in Appendix 4 (see page 127).
Sizing emerging market growth

EMEA: over a quarter of the division exposed to +8% market growth
Fig 112: Major Appliances EMEA 2012E country split
Other W. Europe Germany

18% 12%
Italy
Other E. Europe 9%
12%
France
Other Africa/ME 8%
4%
Switzerland
Russia
Egypt UK Sweden 9%
5% 9%
8% 6%
Low cost countries emboldened

To date we have always seen Electrolux’s Major Appliance EMEA division (to give it
the full title) as being a heavily Western European division. It is only through our
country-by-country analysis that we realised EMEA now has over a quarter of its
revenues in emerging markets with Russia, Eastern Europe and Africa/ME
representing a significant 29% of sales. With a low 53% penetration density in
Eastern Europe and an ultra low 15% in Middle East/Africa supporting our forecast
of 8% average market volume growth in these regions in the next five years, the
EMEA division should enjoy around +2% growth in addition to whatever Western
Europe brings.

Latin America to grow at 6%

Fig 113: Major Appliances Latin America 2012E country split
Mexico Other
3% 11%
Argentina
8%
Chile
12%
Brazil
66%
Electrolux’s Latin American division is 100% emerging market exposed with over
85% of sales coming from Brazil (66%), Chile (13%) and Argentina (8%) where
average penetration rates are 30-40%. Brazil has delivered 15% sales CAGR in the last
decade. This roughly continued in 2011 with Electrolux seeing 17% volume in Brazil vs
a market of only +6%. We feel confident that premium growth is likely to continue in
Latam, and we forecast market growth of 6% in the next five years.
Asia Pacific: 40% of sales exposed to 12% market growth

Fig 114: Major Appliances Asia Pacific 2012E country split
Indonesia Other
Malaysia
2% 11%
3%
Vietnam
4%
Australia
Thailand
54%
4%
Japan
5% China
NZ
13% 4%
Low cost countries emboldened

While the Asia Pacific division is dominated by Australia and New Zealand
(roughly 60% of sales); emerging market exposure is still a significant c40% of sales.
While Australian penetration rates are similar to those in the US and Europe, making
its growth purely cyclical rather than structural, the rest of the division faces structural
growth. Apart from Africa, South East Asian penetration rates are the lowest in the
world, lower in many areas than in China. For instance, average penetration rates in
Indonesia are 9% vs 32% in China. With the drag from the Indian and Chinese mass-
market exits behind us, the very low penetration rates in South East Asia and China
support 12% market growth which should add about 5% of growth to the division in
addition to whatever Australia/NZ brings.

Consequently with 8% Eastern Europe/MENA, 6% Latin America, and 12% South

East China we forecast emerging markets to grow organically at 7%.
Conclusion
Driven by increasing household penetration we forecast emerging markets to grow
organically at 7%. With Electrolux’s emerging market exposure continuing to lift,
the group-wide target of 4% organic growth is broadly achievable vs a consensus
view of 2.2%.

08/
08/ Financials: Electrolux to smash 6% EBIT margin target
Financials: Electrolux to smash

6% EBIT margin target
Our 2013E EPS forecast is 30% ahead of consensus. While our
revenues are ahead, it is the margin case that we are most enthusiastic
about. We forecast a 7.0% EBIT margin in 2013; this is materially
above the company’s 6% target and the 5.8% consensus. In 2012, we
forecast one-offs to drop out, savings to ramp up, raw materials
headwinds to ease, volumes to recover and prices to improve,
especially in the US. Beyond 2013, we forecast the European market to
follow the US into recovery, significant further savings, less aggressive
Korean pricing pressure and structurally lower steel cost inflation.

Redburn vs consensus
Fig 115: Electrolux’s EBIT margin (pre-IAC) vs consensus and Electrolux’s group target
8% Company 6% target Redburn 7.7%

7.0%
7% 6.1%
EBIT Margin pre-IAC (%)
6% 5.2%
4.6% 4.9% 6.1%
5% 4.4% 5.8%
4% 1.5% 3.1% 4.8%
3%
Consensus
2%
1%
0%
2006 2007 2008 2009 2010 2011 2012E 2013E 2014E
EBIT pre-IAC SME consensus Electrolux target
Source: Redburn, SME.direkt, Electrolux
Our enthusiasm for the Electrolux investment case is based on our EPS forecasts that
are 30% ahead of consensus in 2013E. While this is predicated on both revenue and
margin surprise, it is the margin potential we are most excited about. In 2013E, we
forecast Electrolux to exceed its own 6% company margin target, with a 7.0% EBIT
margin before ‘items affecting comparability’ (IAC). This is well in excess of the 5.8%
consensus (SME.direkt).
Revenue forecasts 4% ahead in 2012

Fig 116: Redburn sales forecasts vs consensus (SKr bn) Fig 117: Redburn sales growth vs consensus (%)
125 121 12% 10.4%

120 10%
Sales growth (%)
116 115
Sales (SKr bn)
8% 6.3%
115 112 112
6% 3.8% 3.5%
110 108 3.5% 3.1%
4%
105 2%
100 0%
2012E 2013E 2014E 2012E 2013E 2014E
Redburn Consensus Redburn Consensus
Source: Redburn, SME.direkt Source: Redburn, SME.direkt
We forecast revenues to reach SKr121bn by 2014E which is 5% ahead of consensus.

Our revenue growth forecasts are based on two core assumptions:
x Premium growth in emerging markets, led by household penetration: since 2000

Electrolux’s emerging markets exposure has grown at 7% organic CAGR vs -3% in
mature markets over the same period. With average emerging market penetration
rates still as low as 34%, we see a simple and compelling case for continued 7-10%

premium sales growth in emerging markets which are now a much bigger part of
the group (37% of 2012E sales vs 12% in 1999).
x Western recovery, led by the US in 2012: based on our regression analysis to

identify US appliance volume correlations, we believe the US appliance market is
already three months into recovery. Housing starts and home sales exhibit high
79% and 87% R2s when lagged six months and have both been in recovery for
6-9 months. With the US market having fallen 23% from the 2005 peak to the 2011
trough and the Western European market having fallen 13% from the 2006 peak,
recovery in the West will mark a significant change. We forecast the US market to
grow 3-4% in each of the next three years and the Western European market to
drop again in 2012 (-3%) before following the US into recovery. We expect
Electrolux to gain market share in Europe in 2012 from two new product launches
and the new energy labelling system.
EBIT (pre-IAC) forecasts 27% ahead in 2013

Fig 118: EBIT pre-IAC vs consensus Fig 119: EBIT margin vs consensus Fig 120: Reported EPS vs consensus
10,000 9,300 8% 7.7% 25

8,200 7.0% 20.5
EBIT Margin (pre-IAC)
EBIT Pre-IAC (SKr m)
Reported EPS (SKr m)
8,000 5.8% 6.1% 20 17.7

7,049 6% 5.2%
5,875 6,462 4.8% 15.4
6,000 5,209 15 12.2 13.6
4% 10.5
4,000 10
2,000 2%
5
0 0% 0
2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E
Redburn Consensus Redburn Consensus Redburn Consensus - average
Source: Redburn, SME.direkt Source: Redburn, SME.direkt Source: Redburn, SME.direkt
Our entire Electrolux Buy thesis hinges heavily on our materially higher than
consensus EBIT margin forecasts of 7.0% in 2013E and 7.7% in 2014E, pre-IAC.
Supporting our forecasts, inter alia, are the following four core assumptions:
x Appliance industry to move into more rational phase: at the very heart of our
margin case lies our work on the global appliance industry. This suggests the
Koreans (whose margins have dropped from a 12% annual average in 1996-2000 to
1.4% in 2010-11) now have little financial room to manoeuvre, are under greater
pressure to lift returns, face rising shipping and labour costs and have seen much of
their cost advantage eroded by Western appliance companies restructuring their
manufacturing footprints (where Electrolux has been a leader). Consequently, we
forecast less pricing pressure and improving volumes and savings to
increasingly drop through to the EBIT line.
x Pricing to improve in 2012, especially in the US: supported by the latest

Appliance CPI data (+6% in the US in January 2012), we continue to argue that

2012 will see strong pricing in the North American division (we forecast +2.8%)
leading to +0.7% of positive group price effect (+SKr750m impact to EBIT). This
compares favourably to the -1.2% seen in 2011 (-SKr1.3bn impact to EBIT).
x Raw material headwind to ease in 2012 and structurally thereafter: after an

especially tough SKr2bn raw material headwind in 2011, our Redburn Electrolux
raw material basket model supports a drop in headwind to -SKr250m in 2012E; this
is better than Electrolux’s -SKr500m guidance (which was lowered recently from
-SKr1bn). Beyond 2012, we argue that (1) the easing Chinese fixed investment
bubble, (2) the significant amounts of cheaper iron ore capacity coming on stream
in the next four years, and (3) the five-year increase in excess world steel capacity,
all support less medium-term steel price inflation relative to history.
x SKr5.5bn of restructuring savings by 2016E: we forecast Electrolux’s savings in

the next five years to be 45% higher than the SKr3.7bn achieved over the last five
years. In terms of timing we expect SKr1.0bn of savings in 2012 and SKr1.3bn in
2013. We forecast 48% of the total savings to come in EMEA and 26% in North
America. This is key to our favourable margin forecasts in both Western divisions.
x Mix improvements from brand and modularisation: we forecast SKr290m of

favourable mix benefit in 2012, supported by launches in the higher margin AEG
and Electrolux brands in EMEA and recovery in the premium US market segment
boosting higher margin Electrolux brand over mass-market Frigidaire brand.
Beyond 2012, we expect mix to enjoy ongoing benefits from Electrolux’s increased
brand investment from 1.2% in 2005 to 2.4% in 2012E and from the faster
innovation cycle (40% quicker to the market) targeted by the modularisation
programme.
Fig 121: Electrolux Redburn EPS vs consensus Fig 122: Redburn sector earnings vs consensus
Redburn Forecasts vs Consensus
25.0 33% 40% 30%

30% 30% 24%
20.0 15% 14%
20% 11% 6%
7% 5%
16% 10%
15.0
0%
10.0 -10%
-10%
-20%
5.0
Sandvik
ABB
Electrolux
Atlas
Siemens
Schneider
Alstom
Assa
SKF
0.0
2009 2010 2011 2012E 2013E 2014E
High - Low Consensus Redburn EPS Yr1 EPS Yr2
Source: Redburn, SME.direkt Source: Redburn, SME.direkt, Bloomberg (for all other companies)
In concert with our revenue forecasts, this margin development results in our SKr17.7
EPS forecast in 2013, which is 30% ahead of consensus. Comparing this ‘Year 2’ upside
vs consensus to that of our other eight companies, this puts Electrolux at the top of our
relative-to-consensus pecking order.

Fig 123: Redburn forecasts with divisional detail vs SME.direkt 2012E-14E

-------- 2012E -------- Diff -------- 2013E -------- Diff -------- 2014E -------- Diff
SKr m Redburn Consensus (%) Redburn Consensus (%) Redburn Consensus (%)
EMEA 35,454 34,614 2% 36,163 35,453 2% 36,887 na na
North America 30,698 29,457 4% 32,323 30,922 5% 33,616 na na
Latin America 22,269 20,764 7% 23,382 22,012 6% 24,551 na na
Asia Pacific 8,391 8,389 0% 8,895 8,776 1% 9,428 na na
Small Appliances 9,285 8,772 6% 9,470 9,151 3% 9,660 na na
Professional Products 6,080 5,855 4% 6,232 6,016 4% 6,387 na na
Net sales 112,178 107,947 4% 116,466 111,769 4% 120,531 115,246 5%
Sales growth 10.4% 6.3% 3.8% 3.5% 3.5% 3.1%
EMEA 1,586 1,586 0% 2,350 1,901 24% 2,700 na na

North America 1,233 897 37% 2,089 1,360 54% 2,418 na na
Latin America 1,243 1,176 6% 1,612 1,436 12% 1,848 na na
Asia Pacific 784 806 -3% 897 854 5% 949 na na
Small Appliances 734 669 10% 833 797 5% 878 na na
Professional Products 864 719 20% 960 765 25% 1,048 na na
EBIT pre-IAC 5,875 5,209 13% 8,200 6,462 27% 9,300 7,049 32%
EMEA 4.5% 4.6% 6.5% 5.4% 7.3%

North America 4.0% 3.0% 6.5% 4.4% 7.2%
Latin America 5.6% 5.7% 6.9% 6.5% 7.5%
Asia Pacific 9.3% 9.6% 10.1% 9.7% 10.1%
Small Appliances 7.9% 7.6% 8.8% 8.7% 9.1%
Professional Products 14.2% 12.3% 15.4% 12.7% 16.4%
EBIT margin (pre-IAC) 5.2% 4.8% 7.0% 5.8% 7.7% 6.1%
Items affecting comparability (IAC) -700 -686 2% -900 -741 21% -900 -737 22%
Reported EBIT 5,175 4,523 14% 7,300 5,720 28% 8,400 6,312 33%
EPS 12.16 10.48 16% 17.66 13.63 30% 20.52 15.42 33%
DPS 6.60 6.52 1% 9.40 6.89 36% 10.70 7.33 46%
Source: Redburn, SME.direkt
Divisionally vs consensus, we expect North America, EMEA and Professional to drive

the surprise.

Fig 124: 2012E divisional EBIT margins vs consensus Fig 125: 2013E divisional EBIT margins vs consensus
2013E EBIT Margin pre-IAC

2012E EBIT Margin pre-IAC
15% 15%
10% 10%
5% 5%
0% 0%
c
ic a
p 's
tam
l
EA
c
ic a
p 's
tam
l
EA
na
Pa
na
Pa
Ap
er
Ap
EM
er
sio
ia
EM
sio
ia
La
La
Am
Am
As
As
es
al l
es
al l
of
of
Sm
Sm
N.
N.
Pr
Pr
Redburn Consensus Redburn Consensus
Source: Redburn, SME.direkt Source: Redburn, SME.direkt
Understanding our forecasts, the Electrolux EBIT bridge

Fig 126: Electrolux annual EBIT bridge, 2004-16E
SKr m 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
EBIT (pre-IAC) prior year 7,638 6,767 4,064 4,575 4,837 1,543 5,322 6,494 3,155 5,875 8,200 9,300 9,885
Volume 3,132 -1,959 299 505 -1,405 -4,424 -205 486 504 704 601 393 115
Mix n/a n/a n/a 375 -160 850 1,400 80 290 135 140 145 -148
Price -1,895 641 -246 -444 584 2,250 -920 -1,333 751 164 -657 -695 -566
Raw materials -1,800 -3,700 -900 -2,100 -1,000 1,300 -1,100 -2,000 -250 -200 -400 -600 -600
Branding costs n/a n/a -453 -328 -211 571 -758 120 -600 -300 -200 -100 -100
Transportation costs n/a n/a n/a n/a n/a -300 0 -600 -550 -280 -280 -280 -150
FX -1,068 51 70 -189 -182 -295 655 150 -49 0 0 0 0
Acquisitions -156 -60 0 0 0 0 0 5 365 91 0 0 0
Procurement savings 900 2,000 1,900 1,500 700 400 1,150 475 350 300 300 300 300
Global operations savings 0 0 0 0 0 0 0 102 510 688 800 825 75
Manufacturing footprint savings 49 211 521 749 405 1,198 800 520 140 315 600 600 225
2012-13 overhead savings 0 0 0 0 0 0 0 0 369 311 0 0 0
Global operations charges 0 0 0 0 0 0 0 -550 50 500 0 0 0
Overhead charges 0 0 0 0 0 0 0 -635 635 0 0 0 0
Pension accounting change 0 0 0 0 0 0 0 0 0 -100 200 0 0
One-offs -33 113 -680 195 -2,025 2,230 150 -159 209 0 0 0 0
EBIT (pre-IAC) current year 6,767 4,064 4,575 4,837 1,543 5,322 6,494 3,155 5,875 8,200 9,300 9,885 9,033
As a team, we are big fans of EBIT bridges and their explanatory power. We have
never and will never plug in a company EBIT margin target, we always derive.
Electrolux’s EBIT bridge is more complex than most and as a low margin company the
EBIT is sensitive to the various moving parts. To understand these moving parts we
have summarised the influencing factors behind each line of the bridge below.
x Volume: we forecast US market recovery in 2012 and European market recovery in

2013 combined with strong emerging market growth. This leads to 3-4% group
volume growth in each of the next three years, with an average volume drop-

through of 20%, so we expect Electrolux to add SKr500-700m to EBIT in each of

the next three years from this source.
x Mix: we forecast a favourable 2012 mix of SKr290m with both EMEA (AEG and
Electrolux launches vs Zanussi decline) and North America (market recovery to lift
high margin premium segment, Electrolux brand vs Frigidaire) helping with some
offset in Latin America (from retailer consolidation). Beyond 2012, we forecast a
small ongoing annual favourable mix effect of about SKr140m a year. This leaves
upside from increasing brand investment and modularisation effects.
x Price: we forecast a +0.7% price effect in 2012, led by +2.8% in the US. Beyond
2012, we assume a small positive group price in 2013 followed by a return to annual
price headwinds of -0.6% a year. Our longer-term cautioning allows for upside
from the ‘increasingly rational market’ argument.
x Raw materials: we forecast a -SKr250m RM headwind in 2012 (better than

-SKr500m guidance) and -SKr200m in 2013 (see above). Beyond 2013, we lift up to
-SKr600m headwind a year, which is 40% of the 2004-11 average given Chinese
fixed investment outlook and the structural capacity issues in the global steel and
iron ore markets.
x Branding costs: we forecast a significant SKr600m brand cost increase in 2012 (in
line with guidance) from the significant product launches in 2012 in EMEA, Brazil,
Professional, China and Floorcare. Beyond 2013, we forecast more increases (albeit
less than 2012) as Electrolux raises its brand spend towards 3% of sales.
x Transportation and sourced product costs: even though land transportation costs
are up in 2012 (trucking costs are linked to the oil price), given marine shipping
costs are down, we believe Electrolux’s transportation costs should be relatively
unchanged in 2012. While sourced product costs (vacuums and air conditioners are
outsourced) are likely to see continued inflation in China, we see as conservative
Electrolux’s guidance for a cost increase of SKr600-700m in 2012. Given the
headwind already seen in the last nine months of 2011, we forecast SKr550m.
x FX: we forecast a -SKr49m EBIT benefit from FX in 2012, and nothing thereafter.
x Acquisitions: we forecast SKr365m of EBIT impact in 2012 from the acquisitions

of Olympic and CTI. We expect a loss from Olympic in 1H 2012, given the political
troubles in Egypt, and for this to reverse in 1H 2013. Despite this reversal being in
Olympic’s second year, which should move into the organic line, we have kept
1H 2013 the effect in the acquisition line for visibility.
x Procurement savings: between 2004 and 2011, Electrolux achieved SKr9bn of

procurement cost savings (or SKr1.1bn a year) from efficiency gains in the use of
raw materials and components and the squeezing of suppliers. These savings are
independent of any restructuring cost savings. With the consolidation of raw

material suppliers largely achieved (a big part of the previous savings), we forecast
this line to lower to SKr300m a year. The reduction also relates to the fact that
component cost savings from modularisation will now be partly reflected in the
‘Global Operations’ line and not here.
x Global Operations, Manufacturing Footprint and Overhead savings: see

restructuring Chapter 5 (see page 59) for the detail of how the SKr5.5bn of country
savings spreads.
Fig 127: One-off items above the line and not in items affecting comparability (SKr m)
One-offs above the line 2010 2011 2012E 2013E 2014E
Reversal of warranty provisions 150
Frigidaire launch costs and US office consolidation -200
Global operations -550 -500
Overhead cost -635
WEEE related costs -190
Olympic & CTI acquisition costs -89
Disposal gains in Professional +170
Double manufacturing costs in Juarez -100
Pension accounting change -100 +200
Total -50 -1,394 -500 -100 200
x One-offs: while restructuring charges relating to the manufacturing footprint

programmes are broken out below the EBIT line, in items affecting comparability
(IAC), all other one-offs are reported in EBIT pre-IAC. Given the frequent
confusion on this issue, we have broken these items out in Fig 127. In 2011, one-
offs above the line were very significant, ballooning from -SKr50m in 2010 to
-SKr1,394m. As these one-off charges (and they are genuinely one-off) drop out
over the next two years, Electrolux will see SKr1.3bn of improvement to EBIT pre-
IAC, allowing for the additional pension accounting cost in 2013 (from -SKr100m
to -SKr200m) which totally drops out in 2014.
From this we expect 2012E margins to lift to 5.2% and 2013E margins to lift to 7.0%.
The significant SKr2.7bn increase in 2012E EBIT can largely be explained by roughly
SKr0.9bn of one-offs dropping out, SKr1.4bn of savings (including procurement),
SKr0.4bn of announced acquisition contribution and a strong SKr1.5bn volume price
and mix contribution offset by SKr1.4bn of increased raw material, branding and
transport/sourced product cost.
The significant SKr2.3bn increase in 2012E EBIT can be explained by the SKr0.5bn
Global Operations dropping out, another SKr1.6bn of savings (including
procurement) and SKr1.0bn of volume price and mix offset by SKr0.8bn of increased
raw material, branding and transport/sourced product cost.
Risk to 2012E but confidence in 2013E and 2014E

While we are confident that Electrolux margins will exceed 7% in the next three years,
timing is always a challenge. We are actually more concerned about our 2012E
forecast than the outer years as the exact timing of price increases coming through
remains uncertain. Equally, the degree of extra surprise that may come with the
additional product launched in 2012E poses some risk to our SKr5.9bn EBIT pre-IAC
forecast.
2011-14E cumulative bridge

To visualise how we get from SKr3.2bn of EBIT pre-IAC in 2011 to SKr9.2bn in 2014
we have charted a three-year bridge in Fig 128.
Fig 128: 2011-14E EBIT (pre-IAC) walk
1,484 9,300
1,055 680
258 (850) 1,998
1,809 564
(1,100)
(1,110) 950
3,155 456
(49)
Transport
Procurement
Footprint
2011
Raw Mats
Global Ops
Mix
Branding
2014E
FX
Overhead
Volume
Price
Acquisitions*
One-Offs **
* already announced acquisitions

Source: Redburn
Not overly dependent on the macro

We have stress-tested how dependent our forecasts are on volumes. If neither US nor
European volumes recover and both remain flat through 2012 and 2013, ceteris
paribus, then our 2013E EPS would fall from SKr17.7 to SKr16.1 and would still be
18% ahead of consensus.
Valuation and performance

Fig 129: Electrolux EV calculation and valuation multiples
EV calculator (SKr m) 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
Share price (SKr; historic avg. and current) 150 84 118 169 137 150 150 150 150 150
Average number of shares (fully diluted) (m) 283 283 284 285 285 285 285 285 285 285
Market capitalisation (€m) 42,352 23,647 33,558 48,110 39,144 42,794 42,794 42,794 42,794 42,794
Long-term borrowings 4,887 9,963 10,241 8,413 9,639 10,907 9,336 9,857 7,922 6,373
Short-term borrowings 5,701 3,168 3,364 3,139 4,170 4,170 4,170 4,170 4,170 4,170
Cash and cash equivalents -5,546 -7,305 -9,537 -10,389 -6,966 -6,966 -6,966 -6,966 -6,966 -6,966
Basic net debt 5,042 5,826 4,068 1,163 6,843 8,111 6,540 7,061 5,126 3,577
Plus: pensions and other benefits 6,266 6,864 2,168 2,486 2,111 5,611 5,611 5,611 5,611 5,611
Plus: minorities (book value) 1 0 0 0 109 109 109 109 109 109
Less: associates (book value) -32 -27 -19 -17 -18 -18 -18 -18 -18 -18
Fully adjusted net debt 11,277 12,663 6,217 3,632 9,045 13,813 12,242 12,763 10,828 9,279
Electrolux EV (Redburn adjusted) 53,629 36,310 39,775 51,742 48,189 56,608 55,037 55,557 53,622 52,073
Valuation multiples: 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
EV/sales 0.51 0.35 0.36 0.49 0.47 0.50 0.47 0.46 0.44 0.42
EV/EBITDA 7.11 6.15 4.54 5.21 6.47 5.77 4.70 4.22 3.86 3.98
EV/EBIT (pre-restructuring) 11.15 12.53 7.47 7.85 11.10 8.88 6.71 5.97 5.42 5.77
EV/EBIT (post-restructuring) 12.06 31.91 10.58 9.53 15.97 10.94 7.54 6.61 5.97 5.77
EV/IC 1.77 1.03 1.14 1.59 1.37 1.42 1.28 1.21 1.11 1.05
ROIC/WACC (post-restructuring) 1.56 0.51 1.32 2.01 1.05 1.66 2.02 2.15 2.13 2.04
P/E (pre-restructuring) 13.00 11.39 8.05 9.32 11.56 9.18 7.22 6.35 5.95 6.74
P/E (post-restructuring) 14.62 74.83 12.87 12.04 18.98 12.36 8.51 7.33 6.80 6.74
Dividend yield 3.1% 0.0% 2.9% 4.7% 4.7% 4.8% 6.8% 7.8% 8.3% 7.3%
FCF yield 4.1% 15.1% 22.1% 11.2% 9.3% 5.7% 11.6% 13.6% 15.2% 12.6%
Source: Redburn, Electrolux, Bloomberg
Our valuation work supports 45% further upside to the Electrolux share price.
As detailed in Fig 129, Electrolux is trading on 8.5x 2013 post-restructuring P/E (a 15%
discount to the sector), offers a 12% 2013E free cashflow yield (26% better than the
sector) and a 6.8% 2013E dividend yield (44% better than the sector). We would also
highlight that Electrolux is trading on 0.47x 2013E EV/sales in a year where we
forecast a 6.3% post-restructuring margin.
Electrolux is still trading on a discount to historic levels

Fig 130: 2000-12 daily Electrolux 12-month forward rolling P/E (based on consensus) vs
daily Electrolux 12-month forward rolling EPS (based on consensus)
12 Month Rolling Electrolux P/E
30 20
12 month rolling Electrolux

25
15
Consensus EPS
20
15 10
10
5
5
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
P/E 12 Month Rolling EPS 12 month rolling
Source: FactSet
Based on FactSet, we have created the daily 12-month forward rolling consensus EPS
and P/E for Electrolux, as shown in Fig 130. Since the turn of the millennium,
Electrolux has averaged a 12.0x daily consensus 12-month forward P/E. On the
current FactSet 12-month forward consensus (SKr12.8), Electrolux is trading on 11.3x.
Given our 30% upside to EPS consensus and our forecast that Electrolux will deliver
SKr20.5 of EPS in 2014E, historic multiple analysis is more than supportive of our
SKr240 target price. 12x our SKr20.5 of EPS in 2014E would imply a SKr246 share
price by the end of 2013 (ahead of our SKr240 target even when discounted).
Furthermore, we could also argue that as Electrolux’s growth profile has improved vs
history, the multiple should also expand.
Restructuring, pre or post, we go conservative

We have valued Electrolux on a post-restructuring basis. One of the key errors in the
Capital Goods sector, where restructuring is a fact of life, is to value companies
excluding restructuring charges. We are strict about this and do not value pre-
restructuring for any company. However, despite this rigid methodology to value
companies, it is still interesting to note that for Electrolux, we forecast restructuring to
reach a peak of SKr900m in 2013-15 and to diminish thereafter to SKr300m a year as
the footprint optimises after a 12-year focused plan to relocate the manufacturing
footprint to low cost areas. As such, in our valuation we ignore the SKr4bn value (9%
of the market cap) of restructuring dropping down in 2015 (i.e. a SKr600m drop in
charge at 6.5x P/E).
EV steps up due to pension accounting change

Note that due to an accounting change, from the corridor method to a regular
marking-to-market method, Electrolux’s net pension deficit will increase by SKr3.5bn
in 1Q 2013. In the context of a SKr42bn market capitalisation this is a significant 8%
impact to the EV. This change was announced at 4Q 2011, has already been reflected
by the market, is in our numbers, and importantly has no cashflow impact.
Our EV/IC vs ROIC/WACC methodology

Our primary valuation methodology for all companies under our Capital Goods
coverage is a ROIC-based analysis. We believe valuations should ultimately be driven
by the productivity of the capital put to work (here defined by ROIC). Economic
theory suggests that the valuation of the invested capital (EV/IC) should be directly
proportionate to the real economic return (ROIC/WACC) an enterprise generates. So
if a company is expected to exceed its WACC by 50% in every year to perpetuity, then
it should trade at 1.5x its invested capital, in a constant growth framework.
ROIC/WACC to hit 2.2x in 2013E

Fig 131: Electrolux ROIC vs WACC
20%
14.3% 14.3% 15.1% 15.2% 14.9%
ROIC and WACC (%)
15% 12.0% 11.5%

9.8%
8.0%
10%
5%
3.6%
0%
2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
ROIC (Redburn, Post Tax & Restructuring) WACC
We forecast Electrolux to return more than double its WACC between 2013E and
2015E, with a ROIC/WACC multiple of 2.0x in 2013E and 2.2x in 2014E.
These returns are not discounted

With a 2013E EV/IC of 1.25x, the 2013E ROIC/WACC of 2.0x is not priced in. This
supports our SKr240 target price. While this is true of our entire coverage (hence our
very bullish sector stance since last September), this is especially true for Electrolux,
(see Fig 133).
Fig 132: Redburn SKr240 target price vs historical share price performance
250
Redburn downgrades to Sell at SKr184 Redburn SKr240 Target
Share Price (SKr)
200
150
100
Redburn upgrades to Buy at SKr97
50
02/01/06 02/01/07 02/01/08 02/01/09 02/01/10 02/01/11 02/01/12 02/01/13
Source: Redburn, Bloomberg
Fig 133: 2013E EV/IC vs ROIC/WACC, our valuation cornerstone
5.5x 45° line

Relative
5.0x EV/IC = ROIC/WACC
Overvaluation
4.5x
4.0x
Atlas Copco
3.5x
2013E EV/IC
3.0x
Relative
2.5x Undervaluation
2.0x Assa Abloy SKF ABB
Alstom Sandvik
1.5x
Schneider
1.0x Electrolux R2 = 0.973
0.5x Siemens
0.0x
0.0x 1.0x 2.0x 3.0x 4.0x 5.0x
2013E ROIC/WACC
Source: Redburn
Fig 134: Detail of company RoNA calculation vs Redburn ROIC and WACC calculations
Net assets and invested capital (SKr m) 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
Inventories 12,398 12,680 10,050 11,130 11,957 13,278 13,795 14,283 14,587 14,567
Trade receivables 20,379 20,734 20,173 19,346 19,226 21,351 22,181 22,965 23,456 23,423
Accounts payable -14,788 -15,681 -16,031 -17,283 -18,490 -20,533 -21,332 -22,086 -22,558 -22,526
Basic working capital 17,989 17,733 14,192 13,193 12,693 14,096 14,644 15,162 15,485 15,464
Provisions -11,382 -13,529 -9,447 -10,009 -9,776 -13,331 -13,648 -13,710 -13,710 -12,979
Prepaid & accrued income, taxes and other -8,736 -9,335 -9,899 -9,086 -8,097 -7,481 -7,323 -7,174 -7,080 -7,087
Working capital -2,129 -5,131 -5,154 -5,902 -5,180 -6,717 -6,327 -5,722 -5,305 -4,602
Property, plant and equipment 15,205 17,035 15,315 14,630 15,613 16,087 16,612 19,030 19,265 19,476
Goodwill 2,024 2,095 2,274 2,295 6,008 6,008 6,008 6,008 6,008 6,008
Other non-current assets 4,437 4,602 5,197 6,706 8,717 9,370 10,034 10,696 11,353 12,005
Deferred tax assets and liabilities 1,206 2,340 1,874 2,175 1,853 1,853 1,853 1,853 1,853 1,853
Net assets (company) 20,743 20,941 19,506 19,904 27,011 26,601 28,180 31,865 33,174 34,740
Average net assets 20,644 20,538 19,411 19,545 22,091 26,806 27,390 30,022 32,519 33,957
Average net assets, excl. IAC comparability 23,196 21,529 20,320 20,940 23,354 26,806 27,390 30,022 32,519 33,957
Average invested capital (Redburn definition) 30,342 35,150 34,789 32,545 35,181 39,921 42,843 45,820 48,317 49,755
Return on net assets (company) – reported 21.7% 5.8% 19.4% 27.8% 13.7% 19.3% 26.7% 28.0% 27.6% 26.6%
Return on net assets (company) – pre-IAC 20.9% 7.2% 26.2% 31.0% 13.5% 21.9% 29.9% 31.0% 30.4% 26.6%
ROIC (Redburn) – post tax and restructuring 12.0% 3.6% 9.8% 14.3% 8.0% 11.5% 14.3% 15.1% 15.2% 14.9%
WACC 7.7% 7.1% 8.2% 8.0% 7.2% 7.0% 7.1% 7.0% 7.2% 7.3%
ROIC – WACC (spread) 4.3% -3.5% 1.6% 6.3% 0.8% 4.6% 7.2% 8.1% 8.1% 7.6%
Economic profit 1,313 -1,224 542 2,063 290 1,824 3,083 3,708 3,899 3,765
09/
09/ Appendix 1: supply-side regional market share issues
Appendix 1: supply-side
regional market share issues
Market share in Europe and the US appears to have stabilised after
eight years of slight deterioration, primarily to the Koreans. In
Australia and Latin America, Electrolux has taken a huge amount of
share; this trend continues. These trends give us confidence that
Electrolux is not structurally losing market share but taking it and will
therefore benefit from market growth.
The analysis in this appendix relates to Chapter 1.
Looking at Electrolux’s market share data by region, we can see the slightly negative
impact that the Koreans (and Arçelik) had on the company’s US and European
market share. However, while Electrolux has lost 4% of European share and 2% of
US market share in the last eight years, we see some evidence that the US market
share has stabilised in the last three years and that the European market share
stabilised in 2011 (and even picked up in 2H 2011). In the higher margin
Australian and Latin American markets, Electrolux has done very well. We
calculate that Electrolux has taken 9% of Australian market share and 10% of Latin
American market share since 2003 (excluding the recent CTI acquisition).
Fig 135: Electrolux major appliance value market share by region, 2003-11
50%
Electrolux Major Appliance
Value Market Share (%)
40% Australia
30% Latin America

North America
20%
EMEA
10%
0%
2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Electrolux annual reports
In Fig 135 above we have summarised Electrolux’s market share by region, in Figs 136
and 137 below we have addressed global market share at a company level.
Fig 136: Global appliance revenues (€m) 1999-2014E
100,000 Fagor
Maytag
Candy
80,000 DeLonghi
Sharp
Miele
Sales (€ mn)
60,000
Indesit
GE
40,000 Panasonic
BSH
Electrolux
20,000 Whirlpool
Samsung
0 LG
Arçelik
1999 2001 2003 2005 2007 2009 2011 2013E Haier
Fig 137: Global appliance market shares

Global appliance market share (%) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E
Whirlpool (inc. Maytag) 13% 15% 16% 16% 19% 19% 18% 17% 17% 16% 15% 14% 14% 13% 13% 12%
Electrolux (Group, excl. Husq) 13% 13% 14% 14% 14% 13% 13% 12% 12% 12% 12% 12% 11% 11% 11% 11%
Panasonic (Home Appliances) 8% 8% 10% 11% 10% 9% 9% 9% 8% 8% 8% 8% 8% 9% 9% 9%
BSH (Group) 6% 6% 6% 7% 7% 7% 8% 8% 8% 9% 9% 10% 9% 9% 9% 8%
Samsung (Digital Appliance) 2% 1% 2% 3% 4% 4% 5% 4% 5% 5% 6% 6% 6% 7% 8% 8%
Haier (Group) 1% 1% 1% 1% 2% 2% 2% 2% 3% 3% 4% 4% 5% 6% 7% 7%
LG (Household Appliance) 2% 1% 2% 3% 3% 4% 5% 6% 6% 6% 7% 6% 6% 7% 7% 7%
Arçelik (Group) 1% 1% 1% 2% 2% 2% 3% 3% 4% 4% 4% 4% 3% 3% 4% 4%
GE (Appliances) 6% 6% 6% 7% 8% 7% 6% 6% 6% 6% 6% 5% 4% 4% 3% 3%
Miele (Group) 3% 3% 2% 2% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%
Indesit (Group) 2% 2% 2% 2% 2% 3% 4% 4% 3% 4% 4% 4% 3% 3% 3% 2%
Sharp (Appliance) 2% 2% 2% 3% 3% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2%
Fagor (Group) 1% 2% 2% 1% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 1% 1%
DeLonghi (Group) 1% 1% 1% 1% 1% 1% 2% 2% 1% 1% 2% 2% 2% 2% 1% 1%
Candy (Group) 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%
Other 39% 38% 33% 28% 20% 19% 18% 20% 18% 18% 17% 18% 20% 20% 20% 20%
Electrolux, Whirlpool, Panasonic, BSH & GE 46% 49% 52% 55% 58% 57% 54% 52% 52% 50% 50% 49% 47% 45% 44% 44%
Arçelik, Haier, Samsung and LG 5% 4% 5% 8% 11% 13% 15% 16% 18% 19% 20% 20% 20% 23% 25% 26%
Top 5 concentration 46% 49% 52% 55% 58% 57% 54% 51% 52% 51% 51% 50% 49% 49% 48% 48%
Source: Redburn global appliance industry benchmarking model based on company data, Redburn forecasts (Electrolux) and Bloomberg consensus forecasts
Regional market share variations

Fig 138: SKr206bn Europe market share (by value), 2011 Fig 139: SKr172bn US appliance market share (by value)
LG Gorenje Other BSH Other

2.3% 2.1% 21.1% Samsung
22.0% 9%
Candy 6%
2.5% Whirlpool
LG 38%
Samsung Electrolux
9%
2.5% 14.0%
GE
Miele Indesit
Fagor 16%
3.5% Arcelik Whirlpool 12.0%
4.0% Electrolux
5.0% 9.0% 22%
Source: Redburn based on company data and GfK data Source: Redburn based on company data and IBISWorld
European market share losses finally stabilising

In the more fragmented European appliance market Electrolux has a number two value
position, with around 14% of the market, and a number three volume position behind
Indesit which has a lower ASP. Over the last decade Electrolux has lost about 5% of
European market share to LG, Samsung and Arçelik. This competitive share loss
continued in 2009 and 2010 but principally due to the Quelle bankruptcy. In 2011,
Electrolux’s European market share stabilised, helped by AEG’s new product launch which
drove European market share gains in 2H 2011 for Electrolux, the first for some time.
US market share outperformance

In the more concentrated US appliance market, Electrolux, which has a 22% market
share and a number two position, has done very well. While Whirlpool has lost 5% of
market share and GE has lost 4% over the last two years to the Koreans, Electrolux’s
share has remained broadly flat. This was arguably helped by Electrolux’s exposure to
the mass market (vs premium) and the cooking segment which has seen less Korean
competition.
Quarterly market share progression

Fig 140: EMEA volumes vs European market Fig 141: North American volumes vs US market
15% Share loss from Quelle bankruptcy 15%

10%
Volume Growth (%)
10% and exit of unprofitable lines

Volume Growth (%)
5% 5%
0% 0%
-5% -5%
-10% -10%
-15% -15%
-20% -20%
Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12E Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12E
MA EMEA MA North America
Electrolux European Market Electrolux US Market
In Figs 140 and 141 we outline the recent MA EMEA and MA North America volume
growth on a quarterly basis vs market volumes. We have identified recent quarterly
trends:
x In EMEA we see evidence of share gains in 4Q 2011 helped by the newly launched
AEG Neue Kollektion range in Germany, Benelux and Austria. In 4Q 2011
Electrolux volumes grew at 1% vs the European market declining -2%.
x In North America, we see evidence that Electrolux actually lost market share in
4Q 2011 with volume growth of -7.1% vs the North America market at -4.0%. This
came after growing 5% in 3Q 2011 vs the market at -4% and Whirlpool at -3% so is
not of a significant concern for now.
Brazilian market share gains have been very strong

Fig 142: SKr50bn Brazil, 2011 Fig 143: SKr13bn Australia, 2011 Fig 144: SKr43bn SE Asia, 2011
Other Other LG
16% 25% Other 16%
Esmalt. W'pool 29%
E'lux
5% 37% Hitachi
W'pool 41% Panas'c
Mabe 2% 4%
16%
12% Sams'g E'lux
7% 4% Sharp
LG
E'lux Fisher Sanyo 9%
8% Tosh'b Sams'g
30% Paykel 5%
8% 9%
17%
Source: Redburn based on company reports Source: Redburn based on company reports Source: Redburn based on company reports
In contrast to Western share losses, Electrolux has gained a huge amount of share in
Brazil, having lifted its market share from a number five position in 1999 with a 12%
market share to a clear number two with 30% of the market in 2011. Strong
management and strong branding combined with failures at Mabe have driven this.
While the Koreans have announced plans to enter Brazil, plants that were due to be built
by now have yet to break ground.
Australian share success now faces more challenges

As with Brazil, Australia has been a success story for Electrolux in the last five years,
having lifted market share from 32% in 2006 to 41% in 2011. After the Email Ltd
acquisition in 2001, Electrolux did a good job with brand, the production shift to
Thailand and marketing. Equally, Electrolux was helped recently by financial difficulties
at key competitor Fisher & Paykel (F&P). Looking forward, we see some risk of recovery
at F&P and increasing intensity from the Koreans.
South East Asia small share

Electrolux has a small 4% market share and seventh market position in the SKr43bn
South East Asia market. In a market that is growing at 13-14%, Electrolux has been
growing slightly faster and taking slight share each year.
Quarterly market share progression

Fig 145: Latin American volumes vs European market Fig 146: Asia Pacific volumes vs US market
50% 50%
Volume Growth (%)

40%
Volume Growth (%)
40%
30%
30% 20%
20% 10%
10% 0%
-10%
0% -20%
-10%
Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12E
Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12E MA Asia Pacific
MA Latin America Electrolux Australia Market
Electrolux Brazil Market SE Asia Market
Reviewing the share progression on a recent quarterly basis highlights positive trends
in both Latin America and Asia Pacific:
x In Latin America, Electrolux appeared to take a lot of market share in 4Q 2011

with +20% volume, vs Brazilian market +2% (approximately 65% of Electrolux’s
Latin American sales are in Brazil).
x In Asia Pacific, Electrolux also took a lot of share in 3Q 2011 with +20% volume, vs
Australian market +4%. While approximately 70% of Electrolux’s Asia Pacific sales
are in Australia, it is important to note that Electrolux’s volume growth still
exceeded the +10% market growth seen in the smaller South East Asian market.
The European appliance market remains fragmented

Fig 147: 2011 European value share excluding OEMs Fig 148: 2008 European value share excluding OEMs
LG Gorenje Other
BSH LG Gorenje Other BSH
2.8% 2.1% 17.8% 2.3% 2.1% 21.1%
23.0% 22.0%
Candy Candy
2.8% 2.5%
Samsung Samsung Electrolux
3.0% Electrolux 2.5% 14.0%
13.3%
Miele Indesit Miele Indesit
Fagor Fagor
3.5% 3.5% Arcelik Whirlpool 12.0%
6.5% Arcelik Whirlpool 11.3%
4.0% 5.0%
5.5% 8.5% 9.0%
Source: Redburn based on company data and GfK data Source: Redburn based on company data and GfK data
Turning to the home briefly, a challenge of the European appliance market is that it
remains relatively fragmented. Having said this, with the top five players holding 59%
of the market, it is not as bad as many think. Indeed, 59% is actually the average top
five concentration of the 12 largest industries in our European Capital Goods
coverage.
On a volume basis, Electrolux has lost 0.75% of European market share between 2008
(Fig 147) and 2011 (Fig 148). We calculate that this almost entirely relates to Quelle,
the German mail order company and one of Electrolux’s largest European customers,
which announced bankruptcy in 2009. In fact, excluding Quelle, Electrolux’s market
share has been relatively stable in the last four years. Furthermore, the headline
European market share data stabilised in 2011, helped by AEG’s new product launch
which drove European market share gains in 2H 2011.
Fig 149: European average selling prices indexed to industry average (100)
Selling Price (index to 100 market
300
2010 v 2008 European Average
240
240
average) (excl. OEMs)
250
200
130
130
115
117
150
110
108
108
105
100
90
90
90
90
89
89
89
89
83
100
50
0
Miele BSH LG E'lux Samsung Fagor Gorenje Indesit W'pool Arcelik
2008 2011
Source: Redburn based on company data and GfK data
While volume market share is helpful to cover fixed costs, it can be overrated. If the
key is to optimise margins and returns, pricing is very important. Here the news is
good, as Electrolux’s European average selling prices moved from being 8% ahead of
the industry average in 2008 to 10% ahead in 2011. As we discuss in Chapter 4,
Electrolux (which had some of the lowest ASPs in the industry ten years ago) has been
heavily focused on moving up the price/mix curve by improving the product design
(higher R&D spend), concentrating brands and spending more on marketing.
US appliance market, Korean pricing pressure and the retailers

Fig 150: US appliance market share (by value) 2011 Fig 151: US appliance market share (value) 2009-11
50%
US Value Market Share (%)
Other
Samsung Whirlpool
9% 40%
6% Electrolux
Whirlpool 30%
GE
LG 38%
20% LG
9%
Samsung
10%
GE
16% 0%
Electrolux 2009 2010 2011
22%
Source: Redburn, company data Source: Redburn, company data
In complete contrast to the more fragmented European appliance market, the US

appliance market is relatively concentrated with the top three appliance makers
comprising 76% of the market (see Fig 150). However, due to the concentration of the
retailers (see below), the US appliance manufacturers don’t enjoy the structural pricing
power normally associated with such market share concentration. In the last five years,
the US market has suffered a massive market volume collapse combined with aggressive
pricing competition from the Koreans, which have both taken market share.
Importantly, however, Electrolux has done relatively very well in the US. We were
surprised to calculate, based on reported regional disclosure, that while Whirlpool and
GE have lost quite a lot of market share in the US in the last two years Electrolux has not.
This is shown in Fig 151, which highlights that over the last two years Whirlpool has lost
5% of market share and GE has lost 4% whereas Electrolux has remained broadly flat.
While this is partly due to the mix differences – for instance, Electrolux is more cooking
exposed and less laundry exposed in the US than GE and Whirlpool – partly it is a
function of Electrolux’s high mass-market exposure (through the Frigidaire brand)
which has benefited from trading down in the recession.
US retailer consolidation
Fig 152: 2010 US retailer ‘big four’ sales and gross margin
70,000 40%
34.3% 35.1%
60,000 35%
Gross Margin (%)
50,000
27.4% 30%
Sales (€m)
25.2%
40,000
25%
30,000
20%
20,000
10,000 15%
20% 5% 20% 16%
0 10%
Home Depot Best Buy Lowe's Sears
Home Appliances Group Sales Gross Margin
In Fig 152 we have presented an analysis of those retailers in the US that represent
Electrolux’s largest customers. One of the key challenges of operating in the US
appliance market is the concentration of the US retailers. In 2011, the top four US
retailers made up 70% of the appliance distribution market, compared to Europe where
the top four retailers make up 20% of the market.
Fig 153: 2011 US appliance market retailer share Fig 154: 1999-2013 gross margins of the retailers
Others 35%
Gross Margin (%)

30%
30%
Sears 25%
Best Buy 27%
20%
9%
15%
Home
1999 2001 2003 2005 2007 2009 2011 2013
Depot Lowe's
Sears Home D. Lowe's Best B.
15% 19%
Source: Redburn, company data Source: Redburn, company data
One notable risk amongst the US retailers is the deterioration of Sears which has been
steadily losing share to Lowe’s, Home Depot and Best Buy since the Kmart merger in
2005. Having closed 171 of its large US stores since the Kmart deal, Sears announced in
December 2011 that it would close up to 120 further stores in 2012. Furthermore in
January 2012 CIT, the largest US factoring company, said it would no longer approve
credit for Sears suppliers. Sears represented 8% of Whirlpool’s 2010 revenue (second
largest US customer behind Lowe’s) and 6% of Electrolux’s 2010 revenue (the largest
US customer).
Electrolux to re-enter the Chinese market at the high end

Electrolux failed in China with a budget strategy that did not work. The decision was
made in 2006 to exit China and since the peak in 2004 revenues have dropped from
SKr3.0bn to SKr0.5bn. The good news is that the heavy losses have been stemmed with
margins recovering from -40% in 2007 to -2% in 2011. With this chapter behind it,
Electrolux plans to emulate the auto companies like VW and enter the Chinese market
at the luxury end to build a base for the trading of the next two decades.
The good news is that there is an available channel because Chinese retailers Suning
and Goming would like Electrolux to replace lost Haier, Midea and Gree volumes as
the locals pursue the building out of their own retailer networks. Any growth in China
is likely to be margin dilutive as it is still a competitive market even at the high end.
10/
10/ Appendix 2: supply-side barriers to entry
Appendix 2: supply-side
barriers to entry
Contrary to perception, there are some barriers to entry in the
appliance industry. We identify two bulwarks that afford Electrolux’s
margin some protection. Firstly, technological challenges will prevent
the Koreans from entering the high margin cooking segment where
they currently have no capability. Secondly, Electrolux has done a
good job in raising its proportion of production in protected trade
zones, where importers face high duties.
Product and regional mix

In contrast to its competitors, Electrolux’s mix is both regionally diverse and
cooking heavy.
Fig 155: Competition ranked by 2012E sales compared to 2010-12E average EBIT margins
2010-2012E Average Clean EBIT

15,000 11.2% 12%
8.0% 8.3%
7.1%
2012E Sales (€m)
5.4% 5.4% 5.6% 5.8% 5.5% 8%

4.6% 4.3%
10,000 3.7%
2.7%
Margin
4%
-0.7%
5,000
2.4% 0%
0 -4%
Arçelik
Indesit
LG
Electrolux
Samsung
Haier
GE
Candy
DeLonghi
BSH
Whirlpool
Gree
Sharp
Panasonic
Fisher&P.
2012E Sales 2010-2012E Average Clean EBIT Margin
While there is a correlation between scale and margin in every industry, this can often
be masked by mix effects or cost base differences such that smaller players can be more
profitable than larger players. This is true in the global appliance industry. For
instance, why are DeLonghi, Arçelik and BSH all more profitable than scale leaders
Whirlpool and Electrolux?
Regional and category mix differences

Fig 156: 2011 competitor revenue split by region Fig 157: 2011 competitor revenue split by category
2011 Sales split by Geography
100% 100% Other

Latam/RoW
2011 Sales split by Type
80% 80% HVAC

Asia Pacific Floor
60% 60%
E Eu/ME/Afr Laundry
40% 40% Dish
W. Europe
20% 20% Cook
N. America Cold
0% 0%
Arçelik
Arçelik
Indesit
Indesit
LG
LG
Electrolux
Electrolux
Haier
Haier
Samsung
GE
BSH
DeLonghi
BSH
DeLonghi
Whirlpool
Whirlpool
Panasonic
Panasonic
Source: Redburn based on company data and company conversations Source: Redburn based on company data and company conversations
Looking at the revenue mix differences between the various players, we see two
distinct differences between Electrolux and peers.
(1) Electrolux is regionally diverse

As shown in Fig 156, Electrolux is the most regionally balanced appliance company in
the world with a regional mix that is the closest to a third in Europe, a third in North
America and a third in the rest of the world. Electrolux’s Western exposure is lower
margin than the rest. This should give Electrolux a regional margin advantage over
Whirlpool, BSH, Arçelik, Indesit and DeLonghi.
(2) Electrolux is relatively cooking exposed

Where Whirlpool is more of a laundry player and BSH is more of a dishwasher player,
Fig 157 shows that Electrolux is more of a cooking player. As highlighted in the
Electrolux data in Fig 158 below, cooking is the highest margin major appliance
category in the industry alongside air conditioning (or HVAC). This helps explain the
high margins at relatively small DeLonghi and also at BSH which also has a strong
cooking exposure (in addition to its heavy exposure to its higher than average margin
dishwasher category). Conversely, the lowest margin category is cold (fridge/freezer)
where everyone has a varying degree of exposure. LG and Samsung started off in
refrigeration and then moved into laundry where they hurt Whirlpool.
If we strip out Electrolux’s higher margin Asia Pacific, Small Appliances and
Professional Products divisions, actually the remaining North American, EMEA and
Latin American divisions are relatively under earning vs the competition. We believe
Electrolux’s favourable category mix naturally supports better margins which
should be realised by the savings, price and mix actions coming.
Stronger barriers to entry in cooking

Fig 158: Group major appliance revenue and margins Fig 159: Major appliance exposures by division
40,000 10% 12% 100% Aire Care

9%
10%
30,000 80%
6% 8% Dishwasher
4% 60%
20,000 6% Laundry
4% 40%
10,000 1% Hot (Cooking)
2%
20%
0 0% Fridge Freezer
0%
Fridge Hot Laundry Dish- Aire Care
Freezer (Cooking) washer EMEA NA Latam APAC Major
App.
2012 Sales (SKr m) 2012 Clean EBIT Margin (%)
Source: Redburn has estimated margins, revenue is disclosed by Electrolux Source: Redburn has estimated divisional splits, group split is disclosed by Electrolux
Unlike laundry where the barriers to entry are lower, we see higher barriers to entry in
cooking and a limited risk of the Koreans aggressively entering the market. The
Koreans do not currently have a cooking capability (especially gas cooking where
managing the heat, the air flow, the burners and the enamelling are all technologically
challenging) and we would not expect them to enter this market in the next five to ten
years. In the interim, Electrolux’s stated strategy is to work on lifting the barriers to
entry in cooking using technology, intellectual property and capital to protect its share
and margins.
Downsizing non-core refrigeration

The problem with refrigeration is high capital intensity and low margins result in poor
ROCE. Equally, refrigeration requires compressors. As Electrolux does not have any
in-house capability it has to buy its compressors in from suppliers, one of which is
Whirlpool’s Brazilian Embraco business, which must add a frustrating dimension.
However, wholly exiting the cold category is not an option. Roughly half of
Electrolux’s current refrigeration revenues are “must have.” A number of customers
such as the building channel, the kitchen OEMs and some retailers all demand a one
stop shop. By exiting cold Electrolux would lose business in the other major appliance
categories by not being able to provide a full range. However, despite this, Electrolux’s
plan is to downsize its remaining non-“must have” refrigeration business. The plan is
not an immediate cut off but to exit through natural attrition by favouring price over
volume. We like margin over volume.
Free trade zones vs restricted trade zones

Through the acquisitions of CTI, Olympic and the Ukrainian Merloni plant,
Electrolux has increased the proportion of its revenue in markets with restrictive trade
protection.
Electrolux has enjoyed such protection in Brazil since the 1996 Refripar acquisition
but has added access to the protected Southern Cone of Chile and Argentina through
CTI. In the trade protected CIS region (Russia, etc) Electrolux gained access with the
Ukrainian plant bought out of bankruptcy. Finally, through the Olympic acquisition,
Electrolux has accessed the highly protected MENA trade zone of the Middle East and
Northern Africa (including Turkey).
While these are not competition free zones, margins are double to triple the group
average in restricted trade zones. Equally, neither the Koreans (nor anyone else for
that matter) can export into these markets without paying duties so any new
competition will have to build locally. The Koreans have already done this in Russia
and plan to do so in Brazil (although the LG Brazilian plant was due to start
construction a year ago and still hasn’t started) but at least the competition is on a level
playing field.
We estimate Electrolux now has 30% of group revenues in restricted trade zones.
11/
11/ Appendix 3: US and European consumer and housing outlook
Appendix 3: US and European

consumer and housing outlook
In addition to US housing starts and home sales, US consumer
confidence is also a highly correlated driver of US appliance volumes.
Here we see clear evidence of a US consumer recovery. While we see
some risks to US housing starts from the inventory overhang, we
believe home sales and appliance volumes will recover even if housing
starts falter. In Europe we see signs of stabilisation.
Our statistical analysis shows that US appliance sales are more correlated to US
new and existing home sales and US housing starts lagged by two quarters than any
other regression run. However we also found a strong correlation with US
consumer confidence. Below, we provide a detailed analysis of the development and
drivers of US consumer confidence, US housing starts and US home sales.
We see robust job creation and consumer credit availability suggesting the US
consumer confidence recovery has more to go. In Europe the data are weak. With
respect to US housing, significant shadow and excess inventory in the US housing
market could limit the US housing start recovery as repossessions continue to flood
the market at a discount, limiting the need for new home building. Even if this risk
plays out, we still expect the US home sales market to continue to recover with
consumers buying up this excess stock rather than newly built homes. As home
sales are the more important driver of US appliance sales, we argue US appliance
recovery is still likely even if the US housing starts falter in 2012 due to a technical
overhang.
However, by lagging housing starts by two quarters the R2 increases to 79%.

Pleasingly and logically, this suggests that housing starts are a leading indicator
and that appliance volumes follow some six months after.
Consumer confidence improving in the US, stabilising in Europe

Fig 160: US, European and Brazilian consumer confidence indices (monthly)
- 160
European Consumer Confidence
-5 140
US and Brazil Consumer
-10 120
Confidence
-15 100
-20 80
-25 60
-30 40
-35 20
-40 0
Europe US Brazil
Source: Redburn, US Bureau of Economic Analysis, Conference Board and the Federal Reserve
Of the 500 or so linear regressions we ran, consumer confidence demonstrated the

third highest correlation with appliance volumes, with an R2 of 75%. Looking at the
monthly US and European data shown in Fig 160, we note that the US Conference
Board’s consumer confidence index climbed again in February 2012 to 70.8 from
61.5 in January 2012, a 13-month high.
In contrast to the recent improvement in US consumer confidence, European

consumer confidence has suffered from the debt crisis in Europe. However, we see
some stabilisation lately as European consumer confidence in February 2012 was
-20.3, a slight rise from -20.7 seen in January 2012.
Turning to Electrolux’s other significant region, Brazil, last summer’s concerns that a
consumer slowdown was pending seem to have ebbed away with consumer confidence
rallying to near-record highs.
Consumer confidence surveys are largely based on surveys with worryingly small
sample sizes. Given this, it is worth considering the two underlying drivers, notably:
(1) the availability of consumer credit and (2) the labour market.
Fig 161: US vs European consumer credit growth Fig 162: US vs European job creation
Consumer Credit Growth (%)
7% 3%
Employee Growth (%)
5%
1%
3%
1% -1%
-1%
-3%
-3%
-5% -5%
Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 05 Q1 07 Q1 09 Q1 11
Eurozone Outstanding Consumer Credit Growth % Change in Eurozone Employee Payroll (%)
US Consumer Credit Total Outstanding Growth % Change in US Non-Farm Payroll (%)
Source: European Central Bank and the Federal Reserve Source: Eurostat and US Bureau of Economic Analysis
x Consumer credit rebuilding in the US but not in Europe: unlike the ‘lost decade’
of Japan during which the banks failed to recapitalise after being crippled with bad
debts, American policy makers did a good job of learning from history and were
quick to recapitalise the banks after the housing bubble burst. For this reason,
successive Fed quarterly loan officers’ surveys have shown that US banks are
increasingly willing to lend to the consumer and the US appears to have avoided
the widespread fear that it is ‘turning Japanese’. While US consumers continue to
repay mortgage debt, consumer credit, by contrast, has begun to expand in 2011
(see Fig 161). By contrast, while Eurozone banks have also recapitalised to a similar
level, wholesale funding for European banks has remained tight and consumer
credit availability has deteriorated again with a -2% contraction in 4Q 2011.
Brazilian consumer credit data is not widely available.
x US labour market improving Europe OK but likely to deteriorate: in the US,

recent job market data have been strong with 4Q 2011 non-farm payrolls up 1.4%,
accelerating to the highest level since early 2007. While the picture is weaker and
decelerating in Europe (see Fig 162) it was still in positive territory at +0.2% in 4Q
2011 with continued net job creation. Looking forward, the Manpower Quarterly
Employment Survey indicates that US employer hiring intentions have improved
by +2% from +7% in 4Q 2011 to +9% in 1Q 2012. In Europe, hiring intentions

deteriorated in 16 out of 20 countries and by -3% on average in 1Q 2012 compared
to the 4Q 2011 survey (with Spain -5%, Greece -5%, Germany -2%, France -2%, UK
-1% and Italy one of the few improvers at +2%). Emerging market employment
trends remain highly expansionary with some slowing (especially in Eastern
Europe). At +33%, Brazilian hiring intentions remain the most positive of all 41
countries surveyed by Manpower.
Housing starts and new and existing home sales

Fig 163: US housing vs Eurozone housing permits
2,500 140
Eurozone Housing Permits

120
2,000
US Housing Starts
(Index 2005=100)
100
(Thousands)
1,500 80
1,000 60
40
500
20
- 0
US Housing Starts Eurozone Housing Permits
Source: US Census Bureau, Eurostat
Having peaked at 2,273k in January 2006 (see Fig 163), US housing starts then
witnessed a massive 79% collapse to a 478k low in April 2009. After the collapse, US
starts then flat-lined for two years before recovering by 38% to 675k (February 2012).
Despite the recovery, current housing starts are still way below the 1.48 million
monthly SAAR averaged since records began in 1959. With demographics supporting
a sustainable 1.3 million starts a year (i.e. this is the long-run average number of
household formations), the US market is likely to enjoy a continued recovery. With
much of 2011’s recovery coming in 2H, the white goods market may benefit from its
traditional six-month lag heading into 2012.
In Europe, while housing starts are not available, we have managed to find housing
permits (which are almost the same thing) from Eurostat. Rather interestingly, this
shows that the European house builder recession has followed a very similar path to
the US with an almost perfect one-year lag. While the quantum of peak-to-trough
collapse was not quite as extreme as the 79% seen in the US, it was still a very
significant 61% in Europe, troughing ten months after the US in February 2010. Since
then European housing permits have largely flat-lined but have yet to see a recovery. If
the series’ 12-month lag behind the US continues to hold then European recovery
would happen in 2Q 2012.
Inventory overhangs may limit US housing start recovery

While US housing starts have historically proved an accurate lead indicator for appliance
volumes, we see a risk that exceptional circumstances in the current US housing market
lead to a breakdown in this relationship in the next few years. As such in the US, we
would focus more on US existing home sales and less on housing starts.
We see two types of US housing inventory overhang that may delay the need to build
new homes in the US even if the demand for homes increases, notably:
x ‘Excess inventory’ in the form of high vacancy rates.
x ‘Shadow inventory’ from delinquencies and foreclosures.
‘Excess inventory’ of 600-700k vacant US homes – a year to liquidate

Fig 164: US vacant housing units 2001-11 Fig 165: US homeowner and rental vacancy rates
Homeowner Vacancy Rate (%)
12,000 3.0% 12%

US Vacanct Houses for Sale
Rental Vacancy Rate (%)

11,000 2.5% 10%
(Thousands)
10,000 2.0% 8%
9,000
50 year demographic 1.5% 6%
8,000 20 year averages
trend line 1.0% (1.9% and 8.7%) 4%
7,000
Q1 01 Q1 03 Q1 05 Q1 07 Q1 09 Q1 11
Q1 01 Q1 03 Q1 05 Q1 07 Q1 09 Q1 11
US Homeowner Vacancy Rate (%)
US Total Vacant Housing Units US Rental Vacancy Rate (%)
Source: Census Bureau, excluding rented, sold and held off market units Source: Census Bureau
A constant challenge for US economists is to identify the natural level of vacancies to

establish whether current vacancies are above or below the normal rate. We have
attacked this problem two ways. Firstly, by overlaying the 50-year trend line for US
housing vacancies over the ten-year quarterly data, as shown in Fig 164, evidence
suggests that the US has c600k excess vacancies over and above the demographic
adjusted norm. Secondly, by comparing current homeowner vacancy rates (2.4%) and
rental vacancy rates (9.8%) to the 20-year averages (1.9% and 8.7%, respectively) we
argue that in the US currently 0.5% of owned homes (or 375k) and 0.9% of rented
homes (or 342k) represent excess inventory (of 717k US homes).
While all analysis of this type is flawed, the fact that both solutions are supportive of
each other gives us some confidence in saying that currently, there are roughly 600-
800k vacant homes in the US relative to normal levels. Given the collapse in housing
starts and more latterly housing completions to well below the 1.3 household
formation norm, the US currently has a liquidation rate of c700k a year. This suggests
that, ceteris paribus, housing starts may languish at around 600-700k a year for one
more year before returning to the 1.3 million norm. Sadly, this level of data just does
not exist in Europe.
‘Shadow inventory’: the burgeoning stock of delinquent and foreclosure homes

Fig 166: US foreclosure and delinquency rates Fig 167: US foreclosure re-sales as % of all US home sales
New & Existing Home Sales
US Foreclosure re-sales as % of
5% 12% 10,000 25%
Delinquency Rate (%)

Foreclosure Rate (%)
all Homes Transations

4% 10% 8,000 20%
8%
3% 6,000 15%
6%
2% 4,000 10%
4%
1% 2% 2,000 5%
0% 0% - 0%
Q1 01 Q1 03 Q1 05 Q1 07 Q1 09 Q1 11 Jan-01 Jan-04 Jan-07 Jan-10
Motgage Foreclosures as % of Total Loans (%) Existing Home Sales New Home Sales
Motgage Delinquencies as % of Total Loans (%) Foreclosure re-sales as %
Source: Mortgage Bankers Association Source: Zillow.com, US National Association of Realtors and Census Bureau
In addition to the excess inventory in US housing caused by excessive vacancies, we

also need to consider the so-called ‘shadow inventory’. Currently, 12.4% of all US
mortgage borrowers are either delinquent (8.0%) or in foreclosure (4.4%).
Furthermore, 22% of all US mortgage borrowers are technically in negative equity.
With a third of US homes wholly owned with no mortgage, this implies that 8% of
US homes (or 10 million US homes) are in some form of financial distress with
roughly 700k homes being repossessed annually (repossession is only one of the
three stages of foreclosure, the others are pre-foreclosure and auction). This is
roughly double the historic rate.
The consequence of this increased homeowner distress is that repossessed properties

are flooding the market in auction and block sales from the banks at c30% discounts to
new homes. As such while the US consumer may start buying more homes alongside
the improved US labour market, they may choose to buy cheaper houses out of
foreclosure re-sales. Indeed, we can see from Fig 167 that, according to Zillow,
roughly 20% of all US home sales are coming out of repossession, vs the norm of
2-3%. Given virtually all US home sales are now from existing homes, as new home
sales have nearly totally evaporated, this equates to 900k homes out of the current run
rate of 4.4 million existing home sales pa coming out of repossession, out of a total
backlog of homes in foreclosure of 2 million.
At this current run rate and assuming current conversion rates of delinquencies and
foreclosures into repossessions, there is a sufficient ‘shadow inventory’ to depress
housing starts for another two to three years. However, if US house prices, which have
flat-lined for two years, pick up then this problem will ease, and vice versa.
Furthermore, at this time of high shadow inventory, mortgage availability has

deteriorated (unlike consumer and business credit) due to tightening mortgage
underwriting standards under wave after wave of US loan quality initiatives. So while
house prices are very cheap (down 50%) and consumer credit is easing in the US,
prospective US home buyers can’t get mortgage credit currently. This may be a
challenge for new and existing home sales in the US as well.
Having said this, the US problem is very regional. For instance, the top five states
account for 52% of all US foreclosures and Florida alone accounts for 25%.
Furthermore, vacancies and the availability of mortgage credit are also similarly
regionalised. As such, we may see a housing recovery sooner in the other 45 states with
the localised inventory overhang problems unwinding over a very long troubled
period in certain states.
Fig 168: New and existing US home sales and YoY change 2001-11
10,000 60%
New & Existing Home Sales
Total Home Sales Growth %

8,000 40%
6,000 20%
4,000 0%
2,000 -20%
- -40%
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11
Existing Home Sales New Home Sales Overall Growth (%)
Source: National Association of Realtors
12/
12/ Appendix 4: Western structural growth opportunities
Appendix 4: Western structural

growth opportunities
Despite market concerns over the macro environment, structural
growth opportunities do exist in the West. In Europe, less than half of
households own a dishwasher or a freezer, while built-in, higher
margin, appliances are becomingly increasingly popular. The shift to
energy efficient smart appliances should also provide growth, where
Electrolux has a strong positioning in the increasingly important
A++/A+++ energy label market.
Beyond the structural opportunities in emerging markets, we also see some

structural growth opportunities in the West. Some product opportunities still exist
in Europe, where only half of households own freezers and dishwashers. We also
see opportunities for growth in the ‘built-in’ appliance market where we estimated
margins are close to 15%. Finally, the shift to energy efficient appliances should
also benefit Electrolux due to its marked success in following market leader
Bosch/Siemens into the A++ and A+++ product categories.
Product penetration potential in the West

While ovens, fridges and washing machines are fully mature in the West, freezers,
tumble dryers and dishwashers still have some potential for structural growth even in
Western markets. Indeed, the humble fridge reached total saturation in the US and
Western Europe nearly 20 years ago and second fridge penetration is now the only
source of Western growth. According to the Energy Information Administration’s
2009 Residential Energy Consumption Survey, 23% of homes in the US now have a
second refrigerator compared to 18% a decade ago. 20 years ago people did not expect
houses to have five or more TVs. While certainly not modelled by us, who knows how
far multiple per house penetration can go.
Dishwashers, freezers and dryers – some further Western penetration potential

The major product categories with the lowest global penetration rates are dishwashers,
freezers and tumble dryers. Here, even in the US and Europe, we still see ongoing
penetration adding 0.5% a year to the growth rate.
Less than half of European households own a dishwasher, due, in part, to the
misconception that dishwashers consume large quantities of water (today’s models
consume 10-15 litres of water per cycle, in contrast to 80-90 litres for comparable
manual dishwashing). In emerging markets, the penetration potential is still very
significant. For instance, in Brazil, only 2% of households own a dishwasher.
As with dishwashers, less than half of European households own a freezer. Research
shows that one of the main consumer problems associated with freezers is defrosting.
Most of Electrolux’s freezers are now frost-free.
Built-in vs free-standing, the source of some Western growth

Fig 169: European appliance volume split Fig 170: US appliance volume split
Free- Built-in Free-

standing standing Built-in
32%
68% 86% 14%
While the West is predominantly a story of full saturation in the high volume
categories and some growth potential in dishwashers, freezers and tumble dryers, there
is another pocket of growth worth addressing; namely, the shift from lower margin
free-standing appliances to higher margin built-in appliances.
Built-in kitchen appliances are becoming increasingly popular worldwide and this
trend is particularly strong in Europe, the Middle East, South East Asia and Australia.
In Europe, the built-in market is now 32% of volumes, whereas in the US the built-
in market remains relatively limited at 14%. Built-in appliances are primarily sold by
kitchen specialists who integrate the kitchen cabinets and appliances. Built-in
appliances normally generate higher profitability than free-standing appliances.
In recent years, Electrolux has consolidated its position in the built-in appliances
sector through new business partnerships with leading kitchen specialists and a
number of product launches, most recently the ‘Neue Kollektion’ launch from AEG.
Kitchen specialists currently account for approximately 25% of the Western European
market (the corresponding figure for Germany and Italy is approximately 40%).
Importantly, Electrolux has indicated that margins in built-in are close to 15%
(i.e. 3x standalone). Continued penetration of built-in should also be helpful.
Energy efficiency and the new labelling standards

Fig 171: Global energy consumption Fig 172: Residential energy consumption
Transport Electronics
Computers
28% Other 6%
2%
Heating 6% Cooking
16% 7%
Residential Washing
Water
21% 9%
Industry Heating
33% 7% Fridges
Non- 14%
Lighting
Residential Cooling
17%
18% 16%
Source: Electrolux, 2010, ‘Smart Appliances for Smarter grids’ Source: Electrolux, 2010, ‘Smart Appliances for Smarter grids’
With 21% of global energy consumption occurring in the home and 30% of this being
from major appliances, energy efficiency is not insignificant in the white goods
industry. According to Bosch-Siemens, between 80% and 95% of energy usage by
those home appliances occurs during the utilisation phase. With base load electricity
prices having roughly trebled in the last ten years, energy efficiency has moved from
being a green issue to being a consumer priority.
Bosch-Siemens recently stated that 30% of appliances in Europe are over ten years
old and our work on the US appliance market (see Chapter 6) suggests a similar level
of old units in the installed base. Given the lack of replacement demand in the West
since 2006 and the huge advances in energy efficiency, there is demand potential from
the replacement of old appliances with energy efficiency appliances.
US 2010 ‘agreement’
Fig 173: North America: new ‘energy efficient and smart appliance agreement of 2010’ standards
Effective by New federal minimum energy standards
Refrigerator/Freezers Jan-14 30% lower energy use, ice maker energy included, built-ins models recognised
Clothes Washers Jan-15 ~40% average energy and water savings, top/front loading differences, 2-stage top loading standards
Clothes Dryers Jan-15 5% increase in efficiency, improve automatic dryer shut off capability to save additional energy
Room Air-Conditioners Jun-14 10-15% increase in efficiency, higher capacity units recognised
Dishwashers Jan-13 14% energy savings, 23% water savings
Source: AHAM
Even in the US, super-efficiency has now become an influential selling point in the
competitive home appliances market. According to the EPA, 90% of US consumers
reported the ‘Energy Star’ label (10-30% more energy efficient) as influential to their
purchasing decision for appliances. In August 2010, all US appliance manufacturers signed
the ‘Energy Efficient and Smart Appliance Agreement of 2010’. This set new national
minimum efficiency standards in the US, established tax credits for highly efficient US
appliances and included “smart grid readiness” in the Energy Star qualification.
New EU energy labels

The introduction of the new energy labels in Europe is a significant change for the
industry and the first major change for 15 years. While labelling has existed since the
original EU energy labelling directive was passed in 1992 (and implemented between
1993 and 1997), a new EU energy label format became mandatory on 30 November
2011. This has added up to three additional classes, A+, A++, and A+++, to the
existing A to G classification for refrigerators, freezers, washing machines and
dishwashers. While efficiency differences vary by category, as a rough rule of thumb,
an A+++ appliance is 60% more energy efficient than a simple A-rated appliance, an
A++ is 40% more efficient and an A+ is 20% more efficient. In 2011, over 95% of
appliances sold in Europe fell into energy efficiency class A or above, making the
previous energy efficiency labels more or less redundant. The progression of energy
label shares in Western Europe is shown in Fig 174 below.
Fig 174: 1993-2011 cold appliance unit sales, split by energy efficiency label (with %s shown for A to A+++)
100% 2% 3% 4% 5% 7% 1% 1% 3% 4% 8% 1% 1% 1% 2% 3% 6% 8% 4% 20 A+++
13% 16% 11% 15%
Freezer Unit Share of Energy
10% A++
Western European Fridge /
20% 20%
80% 29% 26% A+
38% 32% 15
45% 40%
Units (million)
51% A
45%
Label (%)
60% 55% B
60% 10
61% C
40% 59%
55% D
47% 5 E
20% 40%
F
0% 0 G
Units (m)
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Source: compiled by Redburn based on various GfK and European Commission studies
By way of case study, it is interesting to note that the original introduction of energy
labels (in 1996 for washing machines) was followed by a period of premium volume
growth. To be more precise, while Western European market-wide washing machine
unit volumes averaged only +1% pa growth between 1993 and 1996, in the five years
following label introduction, 1997-2001, pa average volume growth accelerated to
+4%. Given current European replacement needs, the new labelling should result in a
degree of favourable volume growth support.
Since the market peaked in 2006, Western European appliance volumes have seen an
average annual decline of -2.7%. With the annual average decline over the same period
for washing machines (Fig 174) at a very similar -2.5%, we see washing machines as
highly reflective of the overall market. Digging into the -2.5% pa washing machine
decline, we see there is a massive divergence between energy efficient and inefficient
growth. We calculate that since 2006, Western European washing machines with A+,
A++, and A+++ classes have enjoyed an average volume increase of 27% pa, whereas
A to G class machines have suffered an average volume decrease of -15% pa.
Fig 175: 2011 Western European average selling prices Fig 176: 2001-11 YoY change in average selling prices
by label class for four high volume product categories for W. European freezers (upright, no frost, >90cm)
2011 ASP (€) Washing machine Dishwasher Fridge Freezer 20%
Change in ASP for Western European
Upright Freezers (No frost, >90cm)
A+++ € 774 € 755 n/a € 1,186

A++ € 501 € 662 € 545 € 740 10%
A+ € 497 € 654 € 424 € 646
0%
A € 422 € 478 € 329 € 475
-10%
Price premium (%)
A+++ vs A++ 54% 14% n/a 60% -20%
A++ vs A+ 1% 1% 29% 15% 2001 2003 2005 2007 2009 2011
A+ over A 18% 37% 29% 36% A++ A+ A
Data is taken for: washing machine (front load 7 kg), dishwasher (full-size), fridge Source: GfK
(2-door, freezer at bottom) and freezer (upright, no frost, >90cm)
Source: GfK
The good news is that the industry is able to command some pretty hefty price
premiums for the top label class (A+++) compared to the second best (A++)
ranging from 14% in dishwashers to 60% in freezers. The bad news is that average
selling prices in Europe are still falling. This is principally due to the damaging effect
of the PIIGS countries but also due to the increase in sales via the internet which is
increasing price transparency. While we expect online sales intensity to increase (from
10% of 2011 European volumes) any stabilisation in PIIGS could allow this ASP
increase to help Electrolux’s EMEA pricing in the next few years.
For the manufacturers, improving the energy efficiency intensity of the portfolio faster
than the competition is currently a key factor for winning market share and improving
ASPs which are a key driver of margin.
To assess the competitive dynamic in the ‘super-efficient’ market we have used the
example of one of the largest appliance product categories in the market, the front
loading washing machine. Washing machines are the biggest appliance category in
Europe at roughly 40% of major appliance market revenues and within the washing
machine category, front loading washing machines are by far the biggest category, at
84% of unit volume (vs top loaders 12% and washer dryers 4%).
Fig 177: 2011 front loading washing machine, proportion of unit sales by label
Brand W. European average Bosch Siemens Whirlpool Hotpoint Indesit Beko Electrolux AEG Zanussi
Manufacturer BSH BSH Whirlpool Indesit Indesit Arçelik Electrolux Electrolux Electrolux
A+++ 10% 22% 34% 1% 3% 0% 1% 5% 25% 1%
A++ 9% 14% 19% 4% 6% 4% 6% 20% 17% 8%
A+ 17% 13% 16% 11% 11% 16% 22% 7% 22% 15%
Source: Redburn based on GfK data and various company comments
The data are very encouraging. They suggest that, while Bosch-Siemens (BSH) has
developed a clear market leadership at the high end of the new energy labels and
especially in the ‘super-efficient’ category (A+++), Electrolux has also moved up the
premium curve, having developed a strong second position, meaningfully ahead of
Whirlpool, Indesit and Arçelik.
In 2010, when the ‘super-efficient’ market grew by 70%, BSH claimed a “significant”
margin advantage from the top end category. In terms of profitability, BSH is the clear
European margin leader; averaging 6-7% EBIT margins in the last five years vs
Electrolux at 3.6%. Moving the product portfolio away from the mass market towards
the premium segment is a key part of Electrolux’s increased R&D spending. Heading
up the premium curve with the AEG’s summer 2011 product launch helped
Electrolux’s EMEA margins in 2H11 (they lifted to 5% vs Whirlpool at -2%).
This margin progression should take a step further with the 2012 new product
launch in Europe for the ‘Electrolux brand’.
Smart appliances, the communication wave

Consuming up to 20% of all residential electricity, household appliances play a key
role in helping to reduce the carbon impact of living. Smart grids facilitate both the
generation and use of energy on a local, distributed level.
There is also a nascent move to smart appliances. The electricity grid is moving from a
one-way analogue grid to a two-way digital grid in which communication can move
from the power plant to the home. There has been much talk about smart appliances
which can sense their own energy consumption, communicate with other devices, the
utility and the user to optimise performance and costs (e.g. washing machines
switching on at 3am when electricity prices are their lowest).
Fig 178: Global smart appliance market value ($m)

Global Smart Appliance Market
30,000 26,149
25,000
19,942
20,000
14,597
15,000
9,773
10,000 6,266
3,772
5,000 2,150
40 509 984
-
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Pike Research
While we are always extremely cautious of consultant-based market projections, it is

interesting to note that Pike Research expects the global smart appliance market to
grow from $0.5bn in 2011 (i.e. 0.3% of the 2011 global appliance market) to $26bn
by 2019 (i.e. to the equivalent of 17% of the 2011 global appliance market).
First mover advantage in smart appliances can be claimed by the European players. Smart
appliances need a NIU (network interface unit) to communicate over the home network
with the smart meter and Electrolux was one of the first, launching its proprietary
communication ‘Electrolux Appliance Protocol’ and testing with Enel and Telecom
Italia in 2010. In July 2010, Indesit unveiled a smart washer capable of communicating
with the smart grid. In 2011, Miele rolled out its smart grid ready clothes washer and
Siemens tested its “Smart Watt” model in 100 households in Germany.
Initially, Samsung and LG were slow to respond but more recently have come out
fighting with plans to leverage their existing consumer electronics capabilities in
handsets, PCs and smartphones to take market share with smart appliances. Equally,
Haier plans to launch its Chinese ‘Smart Life’ connected-appliance technology in the
US to let users control home appliances remotely.
While we are pleased to see Electrolux as a forerunner in smart appliances, we do see

the Korean natural communication and electronic capability as a risk to monitor.
13/
13/ Appendix 5: further financial details
Appendix 5: further financial

details
We are upgrading our 2012E and 2013E Electrolux EPS by 1% and
13%, respectively, and our target price from SKr180 to SKr240. We
now forecast a group EBIT margin (pre-IAC) of 5.2% in 2012E and
7.0% in 2013E. With organic sales growth of 3.8% in 2013E, this
equates to 2013E EBIT growth of 40% and 2013E EPS growth of 45%.
Included below are the detailed financials behind our assumptions.
Our 2012E and 2013E forecast changes

Fig 179: New vs old forecasts
SKr m, Dec Y/E ----------- New ------------- ---------- Old ------------- ----- Change (%) ------
2011 2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E
MA EMEA 34,029 35,454 36,163 36,887 35,832 36,369 36,915 -1% -1% 0%
MA North America 27,665 30,698 32,323 33,616 30,502 31,722 32,197 1% 2% 4%
MA Latin America 17,810 22,269 23,382 24,551 22,127 23,233 24,395 1% 1% 1%
MA Asia Pacific 7,852 8,391 8,895 9,428 8,308 8,723 9,160 1% 2% 3%
Small Appliances 8,359 9,285 9,470 9,660 9,285 9,541 9,827
Professional Products 5,882 6,080 6,232 6,387 6,138 6,292 6,449 -1% -1% -1%
Group sales 101,598 112,178 116,466 120,531 112,192 115,881 118,944 0% 1% 1%
MA EMEA -4.1% 0.3% 2.0% 2.0% -0.4% 1.5% 1.5%

MA North America -1.3% 6.0% 5.3% 4.0% 5.3% 4.0% 1.5%
MA Latin America 13.2% 10.4% 5.0% 5.0% 9.7% 5.0% 5.0%
MA Asia Pacific 3.2% 3.1% 6.0% 6.0% 2.0% 5.0% 5.0%
Small Appliances 6.0% 3.0% 2.0% 2.0% 3.0% 2.8% 3.0%
Professional Products -2.2% 3.0% 2.5% 2.5% 4.0% 2.5% 2.5%
Group organic sales growth rates (%) 0.2% 4.2% 3.8% 3.5% 3.6% 3.3% 2.6%
Group Acquisition impact on sales (%) 1.7% 3.9% 0.0% 0.0% 4.4% 0.0% 0.0%
Group currency impact on sales (%) -6.3% 2.4% 0.0% 0.0% 2.4% 0.0% 0.0%
MA EMEA 709 1,586 2,350 2,700 1,525 1,919 2,122 4% 22% 27%
MA North America 250 1,233 2,089 2,418 1,413 1,817 2,011 -13% 15% 20%
MA Latin America 820 1,243 1,612 1,848 1,186 1,541 1,869 5% 5% -1%
MA Asia Pacific 736 784 897 949 676 799 898 16% 12% 6%
Small Appliances 543 734 833 878 761 914 1,052
Professional Products 841 864 960 1,048 872 940 987 -1% 2% 6%
Group costs -744 -568 -541 -541 -600 -600 -600 -5% -10% -10%
Group EBIT (pre-IAC) 3,155 5,875 8,200 9,300 5,833 7,330 8,339 1% 12% 12%
Items affecting comparability (IAC) -138 -700 -900 -900 -686 -823 -1,098
Group reported EBIT 3,017 5,175 7,300 8,400 5,147 6,506 7,241 1% 12% 16%
MA EMEA 2.1% 4.5% 6.5% 7.3% 4.3% 5.3% 5.7%

MA North America 0.9% 4.0% 6.5% 7.2% 4.6% 5.7% 6.2%
MA Latin America 4.6% 5.6% 6.9% 7.5% 5.4% 6.6% 7.7%
MA Asia Pacific 9.4% 9.3% 10.1% 10.1% 8.1% 9.2% 9.8%
Small Appliances 6.5% 7.9% 8.8% 9.1% 8.2% 9.6% 10.7%
Professional Products 14.3% 14.2% 15.4% 16.4% 14.2% 14.9% 15.3%
Group EBIT margin (pre-IAC) (%) 3.1% 5.2% 7.0% 7.7% 5.2% 6.3% 7.0%
Group reported EBIT margin (%) 3.0% 4.6% 6.3% 7.0% 4.6% 5.6% 6.1%
Net financial expense -237 -560 -503 -506 -560 -508 -523
Reported PBT 2,780 4,615 6,796 7,894 4,587 5,998 6,718 1% 13% 18%
Tax -716 -1,154 -1,767 -2,052 -1,147 -1,560 -1,747
Reported net income 2,062 3,461 5,029 5,841 3,440 4,439 4,971 1% 13% 18%
Reported diluted EPS (SKr) 7.24 12.16 17.66 20.52 12.08 15.59 17.46 1% 13% 18%
DPS (SKr) 6.50 6.60 9.40 10.70 6.50 8.30 9.60 2% 13% 11%
Fig 180: Electrolux annual P&L, 2007-15E

SKr m, Dec Y/E 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E
MA EMEA 45,472 44,342 44,073
36,596 34,029 35,454 36,163 36,887 37,256
MA North America 33,728 32,801 35,726
30,969 27,665 30,698 32,323 33,616 34,120
MA Latin America 9,243 10,970 14,165
16,260 17,810 22,269 23,382 24,551 25,533
MA Asia Pacific 9,167 9,196 8,033
7,679 7,852 8,391 8,895 9,428 9,806
Small Appliances 8,422 8,359 9,285 9,470 9,660 9,853
Professional Products 7,102 7,427 7,129 6,389 5,882 6,080 6,232 6,387 6,515
Group costs 20 56 6 11 1 1 1 1 1
Group sales 104,732 104,792 109,132 106,326 101,598 112,178 116,466 120,531 123,084
MA EMEA 2.9% -5.2% -6.6% -9.9% -4.1% 0.3% 2.0% 2.0% 1.0%
MA North America 1.4% -0.4% -5.3% -8.1% -1.3% 6.0% 5.3% 4.0% 1.5%
MA Latin America 18.7% 16.0% 22.7% 8.6% 13.2% 10.4% 5.0% 5.0% 4.0%
MA Asia Pacific 8.1% 1.4% -22.3% -8.4% 3.2% 3.1% 6.0% 6.0% 4.0%
Small Appliances 6.0% 3.0% 2.0% 2.0% 2.0%
Professional Products 3.7% 2.2% -11.2% -4.2% -2.2% 3.0% 2.5% 2.5% 2.0%
Group organic sales growth rates (%) 4.0% -0.6% -4.9% 1.5% 0.2% 4.2% 3.8% 3.5% 2.1%
Group acquisition impact on sales (%) 0.0% 0.0% 0.0% 0.0% 1.7% 3.9% 0.0% 0.0% 0.0%
Group currency impact on sales (%) -3.1% 0.7% 9.0% -4.1% -6.3% 2.4% 0.0% 0.0% 0.0%
MA EMEA 2,067 -22 2,349 2,297 709 1,586 2,350 2,700 2,898
MA North America 1,711 222 1,476 1,442 250 1,233 2,089 2,418 2,543
MA Latin America 514 715 878 951 820 1,243 1,612 1,848 2,011
MA Asia Pacific 330 369 458 793 736 784 897 949 969
Small Appliances 802 543 734 833 878 943
Professional Products 584 774 668 743 841 864 960 1,048 1,062
Group costs -369 -515 -507 -534 -744 -568 -541 -541 -541
Group EBIT (pre-IAC) 4,837 1,543 5,322 6,494 3,155 5,875 8,200 9,300 9,885
Items affecting comparability (IAC) -362 -355 -1,561 -1,064 -138 -700 -900 -900 -900
Group reported EBIT 4,475 1,188 3,761 5,430 3,017 5,175 7,300 8,400 8,985
MA EMEA 4.5% 0.0% 5.3% 6.3% 2.1% 4.5% 6.5% 7.3% 7.8%
MA North America 5.1% 0.7% 4.1% 4.7% 0.9% 4.0% 6.5% 7.2% 7.5%
MA Latin America 5.6% 6.5% 6.2% 5.8% 4.6% 5.6% 6.9% 7.5% 7.9%
MA Asia Pacific 3.6% 4.0% 5.7% 10.3% 9.4% 9.3% 10.1% 10.1% 9.9%
Small Appliances 9.5% 6.5% 7.9% 8.8% 9.1% 9.6%
Professional Products 8.2% 10.4% 9.4% 11.6% 14.3% 14.2% 15.4% 16.4% 16.3%
Group EBIT margin (pre-IAC) (%) 4.6% 1.5% 4.9% 6.1% 3.1% 5.2% 7.0% 7.7% 8.0%
Group reported EBIT margin (%) 4.3% 1.1% 3.4% 5.1% 3.0% 4.6% 6.3% 7.0% 7.3%
Net financial expense -440 -535 -277 -124 -237 -560 -503 -506 -484
Reported PBT 4,035 653 3,484 5,306 2,780 4,615 6,796 7,894 8,501
Tax -1,110 -287 -877 -1,309 -716 -1,154 -1,767 -2,052 -2,210
Tax rate (%) 27.5% 44.0% 25.2% 24.7% 25.8% 25.0% 26.0% 26.0% 26.0%
Reported net income 2,925 366 2,607 3,997 2,062 3,461 5,029 5,841 6,291
Average # shares (FD) 283.3 283.2 284.1 284.6 284.7 284.7 284.7 284.7 284.7
Reported diluted EPS (SKr) 10.33 1.29 9.18 14.04 7.24 12.16 17.66 20.52 22.09
DPS (SKr) 4.25 0.00 4.00 6.50 6.50 6.60 9.40 10.70 11.36
Fig 181: Electrolux quarterly P&L, 2011-13E

(SKr m, Dec Y/E) Q1 11 Q2 11 Q3 11 Q4 11 Q1 12E Q2 12E Q3 12E Q4 12E Q1 13E Q2 13E Q3 13E Q4 13E
MA EMEA 7,656 7,660 8,964 9,749 8,169 8,128 9,299 9,858 8,333 8,291 9,485 10,055
MA North America 6,728 7,544 7,122 6,271 7,259 8,570 8,047 6,822 7,695 9,084 8,450 7,095
MA Latin America 3,998 3,708 4,101 6,003 5,383 4,957 5,303 6,625 5,652 5,205 5,569 6,956
MA Asia Pacific 1,746 1,945 1,981 2,180 1,903 2,073 2,099 2,316 2,017 2,198 2,225 2,455
Small Appliances 1,930 1,794 2,056 2,579 2,209 2,081 2,312 2,683 2,253 2,122 2,358 2,737
Professional Products 1,378 1,491 1,426 1,587 1,437 1,554 1,463 1,625 1,473 1,593 1,500 1,666
Group sales 23,436 24,143 25,650 28,369 26,361 27,365 28,524 29,929 27,423 28,494 29,586 30,964
MA EMEA -5.7% -5.2% -3.8% -2.2% -1.5% -1.0% 1.0% 2.0% 2.0% 2.0% 2.0% 2.0%
MA North America 1.8% -3.2% 2.1% -5.9% 3.0% 5.0% 8.0% 8.0% 6.0% 6.0% 5.0% 4.0%
MA Latin America 9.3% 11.2% 13.9% 17.1% 15.0% 10.0% 10.0% 8.0% 5.0% 5.0% 5.0% 5.0%
MA Asia Pacific 5.7% 0.3% 3.4% 4.1% 3.0% 1.0% 3.0% 5.0% 6.0% 6.0% 6.0% 6.0%
Professional Products 0.3% -6.5% -0.9% -1.3% 3.0% 3.0% 3.0% 3.0% 2.5% 2.5% 2.5% 2.5%
Group organic sales growth rates (%) 0.9% -2.0% 1.5% 0.0% 3.6% 3.3% 4.8% 5.0% 4.0% 4.1% 3.7% 3.5%
Group acquisition impact on sales (%) 0.0% 0.0% 0.7% 5.7% 5.6% 5.5% 4.5% 0.5% 0.0% 0.0% 0.0% 0.0%
Group currency impact on sales % -7.7% -10.0% -4.8% -2.7% 3.3% 4.6% 1.9% 0.1% 0.0% 0.0% 0.0% 0.0%
MA EMEA 311 156 444 -202 139 122 582 743 422 351 724 853
MA North America -71 138 107 76 129 398 383 322 369 649 582 488
MA Latin America 139 114 222 345 243 215 344 441 332 301 431 548
MA Asia Pacific 174 177 172 213 180 181 179 244 207 209 207 275
Small Appliances 114 23 169 237 145 56 212 321 173 83 235 343
Professional Products 177 274 199 191 164 235 240 225 186 259 264 251
Group EBIT (pre-IAC) 696 745 1,098 616 856 1,075 1,823 2,121 1,555 1,729 2,331 2,584
Items affecting comparability (IAC) 0 0 -34 -104 -175 -175 -175 -175 -225 -225 -225 -225
Group reported EBIT 696 745 1,064 512 681 900 1,648 1,946 1,330 1,504 2,106 2,359
MA EMEA 4.1% 2.0% 5.0% -2.1% 1.7% 1.5% 6.3% 7.5% 5.1% 4.2% 7.6% 8.5%
MA North America -1.1% 1.8% 1.5% 1.2% 1.8% 4.6% 4.8% 4.7% 4.8% 7.1% 6.9% 6.9%
MA Latin America 3.5% 3.1% 5.4% 5.7% 4.5% 4.3% 6.5% 6.7% 5.9% 5.8% 7.7% 7.9%
MA Asia Pacific 10.0% 9.1% 8.7% 9.8% 9.5% 8.7% 8.5% 10.5% 10.3% 9.5% 9.3% 11.2%
Professional Products 12.8% 18.4% 14.0% 12.0% 11.4% 15.1% 16.4% 13.8% 12.6% 16.2% 17.6% 15.1%
Group EBIT margin (pre-IAC) (%) 3.0% 3.1% 4.3% 2.2% 3.2% 3.9% 6.4% 7.1% 5.7% 6.1% 7.9% 8.3%
Group reported EBIT margin (%) 3.0% 3.1% 4.1% 1.8% 2.6% 3.3% 5.8% 6.5% 4.9% 5.3% 7.1% 7.6%
Net financial expense -59 -49 55 -184 -140 -140 -140 -140 -126 -124 -129 -124
Reported PBT 637 696 1,119 328 541 760 1,508 1,806 1,204 1,381 1,977 2,234
Tax -180 -135 -294 -107 -135 -190 -377 -451 -313 -359 -514 -581
Tax rate (%) 28.3% 19.4% 26.3% 32.6% 25.0% 25.0% 25.0% 25.0% 26.0% 26.0% 26.0% 26.0%
Reported net income 457 561 824 220 406 570 1,131 1,354 891 1,022 1,463 1,653
Average # shares (FD) 284.7 284.7 284.7 284.7 284.7 284.7 284.7 284.7 284.7 284.7 284.7 284.7
Reported diluted EPS (SKr) 1.61 1.97 2.89 0.77 1.43 2.00 3.97 4.76 3.13 3.59 5.14 5.81
DPS (SKr) 6.50 6.60 9.40
Fig 182: Electrolux balance sheet, 2007-15E

SKr m, Dec Y/E 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E
Property, plant and equipment 15,205 17,035 15,315 14,630 15,613 16,087 16,612 19,030 19,265
Goodwill 2,024 2,095 2,274 2,295 6,008 6,008 6,008 6,008 6,008
Other intangible assets 2,121 2,823 2,999 3,276 5,146 5,158 5,198 5,240 5,277
Investment in associates 32 27 19 17 18 18 18 18 18
Deferred tax assets 2,141 3,180 2,693 2,981 2,980 2,980 2,980 2,980 2,980
Financial assets 2,284 280 434 577 517 517 517 517 517
Other non-current assets 0 1,472 1,745 2,836 3,036 3,677 4,301 4,921 5,540
Total non-current assets 23,807 26,912 25,479 26,612 33,318 34,445 35,634 38,714 39,606
Inventories 12,398 12,680 10,050 11,130 11,957 13,278 13,795 14,283 14,587
Trade receivables 20,379 20,734 20,173 19,346 19,226 21,351 22,181 22,965 23,456
Tax assets 391 511 1,103 367 666 666 666 666 666
Derivatives 411 1,425 377 386 252 252 252 252 252
Other current assets 2,992 3,460 2,947 3,569 3,662 4,067 4,225 4,374 4,468
Short-term investments 165 296 3,030 1,722 337 337 337 337 337
Cash and cash equivalents 5,546 7,305 9,537 10,389 6,966 6,966 6,966 6,966 6,966
Total current assets 42,282 46,411 47,217 46,909 43,066 46,916 48,422 49,843 50,732
Total assets 66,089 73,323 72,696 73,521 76,384 81,361 84,055 88,557 90,338
Total equity 16,039 16,385 18,841 20,613 20,535 18,645 21,795 24,960 28,204
Minority interest 1 0 0 0 109 109 109 109 109
Total equity 16,040 16,385 18,841 20,613 20,644 18,754 21,904 25,069 28,313
Long-term borrowings 4,887 9,963 10,241 8,413 9,639 10,907 9,336 9,857 7,922
Derivatives 0 0 0 0 0 0 0 0 0
Deferred tax liabilities 935 840 819 806 1,127 1,127 1,127 1,127 1,127
Provisions for pensions and other benefits 6,266 6,864 2,168 2,486 2,111 5,611 5,611 5,611 5,611
Other provisions 3,813 4,175 5,449 5,306 5,300 5,355 5,672 5,734 5,734
Total non-current liabilities 15,901 21,842 18,677 17,011 18,177 23,001 21,746 22,329 20,394
Accounts payable 14,788 15,681 16,031 17,283 18,490 20,533 21,332 22,086 22,558
Tax liabilities 2,027 2,329 2,367 1,868 1,717 1,717 1,717 1,717 1,717
Other liabilities 10,049 10,644 11,235 10,907 10,497 10,497 10,497 10,497 10,497
Short-term borrowings 5,701 3,168 3,364 3,139 4,170 4,170 4,170 4,170 4,170
Derivatives 280 784 351 483 324 324 324 324 324
Other provisions 1,303 2,490 1,830 2,217 2,365 2,365 2,365 2,365 2,365
Total current liabilities 34,148 35,096 35,178 35,897 37,563 39,606 40,405 41,159 41,631
Total equity and liabilities 66,089 73,323 72,696 73,521 76,384 81,361 84,055 88,557 90,338
Fig 183: Electrolux cashflow, 2007-15E

SKr m, Dec Y/E 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E
Reported EBIT 4,475 1,188 3,761 5,430 3,017 5,175 7,300 8,400 8,985
Depreciation and amortisation 2,738 3,010 3,442 3,328 3,108 3,429 3,514 3,876 4,014
Capital gain/loss included in operating income 0 -198 0 4 -207 0 0 0 0
Restructuring provisions -701 1,738 434 294 110 55 317 63 0
Share based compensation 72 -41 18 73 29 0 0 0 0
Financial items paid -271 -729 -185 -72 -214 -560 -503 -506 -484
Taxes paid -815 -918 -929 -1,316 -861 -1,154 -1,767 -2,052 -2,210
Cashflow from operations pre-WC 5,498 4,050 6,541 7,741 4,982 6,945 8,859 9,780 10,305
Change in inventories -206 923 2,276 -1,755 269 -1,321 -517 -488 -305
Change in accounts receivable 993 1,869 1,209 -216 244 -2,125 -831 -784 -490
Change in other current assets 40 -178 487 -977 200 -405 -158 -149 -93
Change in accounts payable -885 -686 628 2,624 1,379 2,043 799 754 471
Change in operating assets and liabilities -94 -425 1,254 263 -976 0 0 0 0
Extra contributions to pension funds 0 0 -3,935 0 0 0 0 0 0
Changes in operating assets and liabilities -152 1,503 1,919 -61 1,116 -1,807 -707 -667 -417
Cashflow from operations 5,346 5,553 8,460 7,680 6,098 5,138 8,153 9,113 9,888
Investments/divestments in operations 0 -34 4 7 -5,556 0 0 -2,135 0

Capital expenditure -3,430 -3,158 -2,223 -3,221 -3,163 -3,208 -3,348 -3,464 -3,549
Capitalisation of production development costs -520 -544 -370 -396 -604 -707 -732 -737 -738
Other -119 -19 -378 -864 -726 -641 -623 -620 -620
Cashflow from investments -4,069 -3,755 -2,967 -4,474 -10,049 -4,556 -4,703 -6,956 -4,907
Change in short-term investments 1,463 -128 -2,734 1,306 1,444 0 0 0 0

Change in short-term borrowings 3,927 -681 -1,131 -1,768 -619 0 0 0 0
New long-term borrowings 0 5,289 1,639 380 3,503 0 0 0 0
Amortisation of long-term borrowings 0 -2,923 -1,040 -1,039 -1,161 0 0 0 0
Dividend -1,126 -1,204 0 -1,138 -1,850 -1,851 -1,879 -2,676 -3,047
Sale/(repurchase) of shares -5,455 17 69 18 0 0 0 0 0
Cashflow from financing -1,191 370 -3,197 -2,241 1,317 -1,851 -1,879 -2,676 -3,047
Net cashflow from continuing operations 86 2,168 2,296 965 -2,634 -1,268 1,571 -520 1,935
Total cashflow from discontinued operations 0 0 0 0 0 0 0 0 0
Net cashflow 86 2,168 2,296 965 -2,634 -1,268 1,571 -520 1,935
Fig 184: Summary financials (SKr m)

Income statement (reported) 2010 2011 2012E 2013E 2014E Growth (%) 2010 2011 2012E 2013E 2014E
Orders na na na na na Organic order growth na na na na na
Revenue 106,326 101,598 112,178 116,466 120,531 Organic sales growth 1.5% 0.2% 4.2% 3.8% 3.5%
Gross profit 23,629 18,758 24,160 27,999 30,995 Sales growth -2.6% -4.4% 10.4% 3.8% 3.5%
EBIT (post-NRIs) 5,430 3,017 5,175 7,300 8,400 Adj. EBITDA growth 13.2% -24.9% 31.6% 19.5% 12.5%
Reported EBIT margin (%) 5.1% 3.0% 4.6% 6.3% 7.0% Adj. EBIT growth 23.9% -34.2% 46.9% 28.6% 13.4%
Net financial expense -124 -237 -560 -503 -506 Adj. PBT growth 28.2% -36.6% 41.7% 32.4% 14.3%
PBT 5,306 2,780 4,615 6,796 7,894 Adj. EPS growth 23.6% -34.4% 37.7% 27.2% 13.7%
Total tax -1,309 -716 -1,154 -1,767 -2,052 DPS growth nm nm nm nm nm
Net income (continuing) 3,997 2,064 3,461 5,029 5,841
Minorities 0 -2 0 0 0 Profit and cost margins 2010 2011 2012E 2013E 2014E
Other (discont., prefs and other) 0 0 0 0 0 Gross profit margin 22.2% 18.5% 21.5% 24.0% 25.7%
Net income (all in) 3,997 2,062 3,461 5,029 5,841 Adj. EBITDA margin 9.3% 7.3% 8.7% 10.1% 10.9%
Adj. EBIT margin 6.2% 4.3% 5.7% 7.0% 7.7%
EPS (FD) 14.04 7.24 12.16 17.66 20.52 Adj. net income margin 4.9% 3.3% 4.2% 5.1% 5.6%
DPS 6.50 6.50 6.60 9.40 10.70
Weighted avg shares (FD, mn) 285 285 285 285 285 Personnel costs/sales 11.9% 12.5% 11.3% 10.9% 10.5%
Depreciation and amort./sales 3.1% 3.1% 3.1% 3.0% 3.2%
Redburn (pre-restructuring) 2010 2011 2012E 2013E 2014E R&D/sales 1.5% 1.6% 1.8% 2.0% 2.2%
Adj. EBITDA 9,922 7,448 9,804 11,713 13,176 Effective tax rate 24.7% 25.8% 25.0% 26.0% 26.0%
Adj. EBIT 6,594 4,340 6,375 8,200 9,300
Adj. vs reported EBIT 100 1,185 500 0 0 Other items 2010 2011 2012E 2013E 2014E
Adj. PBT 6,470 4,103 5,815 7,696 8,794 Employees (average) 51,544 52,916 52,946 52,977 53,007
Adj. net income 5,161 3,385 4,661 5,929 6,741 Book to bill (orders/sales) na na na na na
Adj. EPS 18.13 11.89 16.37 20.82 23.68 Cash conversion (FCF/NI) 130.8% 177.2% 70.0% 98.9% 99.5%
Adj. EPS (post-restructuring) 14.04 7.24 12.16 17.66 20.52 WC/sales 12.4% 12.5% 12.6% 12.6% 12.6%
Inventory/sales 10.5% 11.8% 11.8% 11.8% 11.8%
Cashflow 2010 2011 2012E 2013E 2014E Capex/depreciation -1.09 -1.21 -1.14 -1.16 -1.08
EBITDA 9,922 7,448 9,804 11,713 13,176 Net debt (EV)/EBITDA 0.37 1.21 1.41 1.05 0.97
Provisions 294 110 55 317 63
Interest paid -72 -214 -560 -503 -506 Net debt to EV net debt 2010 2011 2012E 2013E 2014E
Tax paid -1,316 -861 -1,154 -1,767 -2,052 Basic (ST + LT debt – cash) 1,163 6,843 8,111 6,540 7,061
Dividends from associates 0 0 0 0 0 Mkt secs, leases and converts 0 0 0 0 0
Other 77 -178 0 0 0 Pension deficit (net of tax) 2,486 2,111 5,611 5,611 5,611
Operating cashflow pre-WC 8,905 6,305 8,145 9,759 10,680 Adjusted net debt 3,649 8,954 13,722 12,151 12,672
Change in working capital -61 1,116 -1,807 -707 -667 Mins, assocs, advances, other -17 91 91 91 91
Operating cashflow 8,844 7,421 6,338 9,053 10,013 Net debt (EV) 3,632 9,045 13,813 12,242 12,763
Capex (PP&E and intangibles) -3,617 -3,767 -3,914 -4,079 -4,201
Acquisitions and disposals 7 -5,556 0 0 -2,135 Valuation 2010 2011 2012E 2013E 2014E
Other -864 -726 -641 -623 -620 Average/current share price 169.04 137.48 150.30 150.30 150.30
Investing cashflow -4,474 -10,049 -4,556 -4,703 -6,956 Market capitalisation 48,110 39,144 42,794 42,794 42,794
Dividends paid -1,138 -1,850 -1,851 -1,879 -2,676 Group EV 51,742 48,189 56,608 55,037 55,557
Other (incl. share capital) 18 0 0 0 0 P/E (pre-restructuring) 9.32 11.56 9.18 7.22 6.35
Financing cashflow -1,120 -1,850 -1,851 -1,879 -2,676 EV/sales 0.49 0.47 0.50 0.47 0.46
FX and other -113 -90 0 0 0 EV/EBITDA 5.21 6.47 5.77 4.70 4.22
Reconciliation to basic net debt -232 -1,112 -1,200 -900 -900 EV/EBIT (pre-restructuring) 7.85 11.10 8.88 6.71 5.97
Net cashflow 2,905 -5,680 -1,268 1,571 -520 EV/IC 1.59 1.37 1.42 1.28 1.21
FCF yield (geared vs M. cap) 10.9% 9.3% 5.7% 11.6% 13.6%
FCF to equity (post-tax) 5,227 3,654 2,424 4,973 5,811
Economic profit 2010 2011 2012E 2013E 2014E
Balance sheet 2010 2011 2012E 2013E 2014E Invested capital (average) 32,545 35,181 39,921 42,843 45,820
Total assets 73,521 76,384 81,361 84,055 88,557 NOPLAT 4,656 2,820 4,605 6,108 6,925
Total liabilities (52,908) (55,740) (62,607) (62,151) (63,488) ROIC (post-tax) 14.3% 8.0% 11.5% 14.3% 15.1%
Shareholders equity (20,613) (20,535) (18,645) (21,795) (24,960) WACC 7.1% 7.7% 7.0% 7.1% 7.0%
Minorities and prefs 0 (109) (109) (109) (109) ROIC/WACC 2.01 1.05 1.66 2.02 2.15
RECOMMENDATIONS
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Redburn Partners LLP believes the stock price will depreciate in absolute terms by at least 10% over one year.
Redburn Partners LLP currently has no strong opinion on the likely movement of this stock.
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Electrolux, The Rational Returns, March 2012

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Fundamental Research / Capital Goods / 19 March 2012

James Moore, Philip Wilson

+44 (0)20 7000 2135

+44 (0)20 7000 2025

Electrolux Price: SEK150.30

The Rational Returns 1Q 2012 results,

Thesis: The global appliance market has reached an inflection

x Margins to exceed 7%: hitherto, Electrolux management excelled at protecting

x Sales growth to accelerate: increased emerging market exposure, where low

15% End of Western Entrance of low cost

12.0% 16% Rational

Important note: see regulatory statement on page 141 of this report. 3

Sales by operating segment (2012E) Profit by operating segment (2012E)

Asia Pacific 12% Asia Pacific

Source: Redburn Source: Redburn

Price (SEK) Relative (SXXP) 25 100 200

+/- 1STD Red. Con. Estimates Momentum - Sales

Source: Bloomberg Source: Redburn, Bloomberg Source: www.redburn.com/ideas

Summary financials and valuation

4 Important note: see regulatory statement on page 141 of this report.

Executive summary .......................................................................................................6

Important note: see regulatory statement on page 141 of this report. 5

Global appliance industry to move into more rational phase

14% End of Western Entrance of low

10% 8.8% phase Rational

6 Important note: see regulatory statement on page 141 of this report.

Koreans under greater pressure, with less room for attack

Fig 5: Proportion of production in low cost areas, 2011 vs 2003, Electrolux vs LG

Source: Redburn, company disclosure

Important note: see regulatory statement on page 141 of this report. 7

Two Korean risks to consider

And what of the Western competition?

8 Important note: see regulatory statement on page 141 of this report.

Whirlpool’s 8% target (a significant 2% above Electrolux’s target)as very

Pricing to structurally improve, starting with the US in 2012

Source: US Bureau of Labor Statistics, Eurostat

Important note: see regulatory statement on page 141 of this report. 9

Raw material pressure to ease in 2012 and structurally thereafter

YoY Change (%)

Source: Electrolux Source: Redburn, Bloomberg

We have constructed an Electrolux weighted raw material basket which suggests, at

1,500 1,400 1,425 1,425

Source: US Bureau of Labor Statistics, Eurostat

10 Important note: see regulatory statement on page 141 of this report.

Electrolux to benefit from ongoing restructuring

Modularisation will unlock a competitive advantage

Important note: see regulatory statement on page 141 of this report. 11

Western volumes to recover, led by the US

12 Important note: see regulatory statement on page 141 of this report.

Emerging market exposure growing, with significant penetration

28% 28% 28%

Canada Belgium Argentina

Hungary Switzerland Vietnam

Source: Redburn based on the Electrolux country sales disclosure

Important note: see regulatory statement on page 141 of this report. 13

Source: Redburn, Electrolux Source: Redburn, Electrolux, SME.direkt consensus

Consequently, we now forecast Electrolux’s average organic sales growth to exceed

14 Important note: see regulatory statement on page 141 of this report.

Brand repositioning and the mix effect

50% Dual-branding local

Source: Redburn, Electrolux

25,000 20% 20,000 12%

20,000 15% 15,000

Frigidaire Kenmore Electrolux Electrolux AEG - Zanussi