Electrolux Professional publ AB

F:4KK1

Earnings Call Transcript 2021-Q1

[Jacob Broberg]

Good morning, and welcome to Electrolux Professional Q1 Presentation. My name is Jacob Broberg, Head of Investor Relations. With me today, I have Fabio Zarpellon, our CFO; and Alberto Zanata, our CEO.So I will start with handing over to Alberto. Please go ahead, Alberto.

[Alberto Zanata, President & CEO]

Thank you, Jacob, and good morning to everybody. Q1 ended with a quite mixing trend in the meaning that sales decline and with the sales, also the profitability in the quarter was below last year. But in some way, Q1 had the 2 different trends along the quarter.The first part, and when I mean first part, I mean January, February and the first couple of weeks of the month of March, were more or less in line with the trend that we experienced in the -- during the last quarter of 2020. So with many countries into lockdown, a relatively negative mood inside of the industry.During the last part of the month of March, we have to say also, comparing our performance and the performance of the industry with an already weakening industry in 2020, but during the last part of March, we had a completely different trend with basically all businesses in a positive improvement in every region. This is both for what concern the net sales and, even more important, the incoming order.Despite this trend during the second part of March, we have to say that profitability declined and that the net sales declined double digit. And the profitability declined clearly because of the missing volumes and also because in the month, we had some negative currency headwinds, in addition to the completion of the spending for the factory in Rayong.If we move to the geography, the trend that we experienced in the geography, we see that what we experienced in Q4 is still there also during the first quarter of 2021. So we have -- the Asia Pacific region is more or less on the same level of Q1 last year with China, Australia and New Zealand, Singapore continuing the recovery and in the growth of the business, while still the Southeast Asian countries that are the ones that are still locking the borders but are still countries where most of the business is generated by international tourists, the international travelers that are not in these days allowed to enter, declined.If we want to look at the different dynamics side of the other countries, in some way, Europe, but still the South European countries are suffering more than the Nordic one, in general, still Food & Beverage declining throughout all the countries, while Laundry, for instance, in Europe, are growing somewhat.The big difference that we noticed in Q1 of 2021 is recognized in the Americas where, while Latin America is -- basically, there is no business these days. We recognize the growth of the Food & Beverage business in the United States. United States, in some ways, ahead of the European countries for what concern vaccination, for what concern the reopening of the business. And this is clearly seen with the restart of the activities also for what concern our industry. That was very good, and it was an healthy growth. Obviously, for us, United States is, for the Laundry business, is a relatively small business compared to the rest, but it was very positive.The Laundry business in the United States, I believe, is following the trend of the Food & Beverage. But for us, the comparison was tough because last year, during the first quarter of the year and, in particular in March, we have been building the stock to face the pandemic, the challenge of the pandemic during the remaining part of the year.With this said, I will not specifically, the 2 -- the analysis of the 2 segments, starting from the Food & Beverage. Food & Beverage, as I already anticipated, the business Food & Beverage is suffering more than the Laundry. So this is confirmed also during the quarter, the first quarter. But the good thing is that during the month of March, comparing with the months of the fall, so already partially impacted by the pandemic last year, but the sales increased versus last year.This is the first time after more than 12 months. So it is a positive sign even if we have always to look at that one more in relation to the previous month than to last year. April and May will be -- or better last year. There were terrible months. So the comparison with last year will obviously be positive, but it's even more important to look at how the trend is evolving compared to the previous month. And I have to say that in March as well as during the first part of April, sales increased and, in particular, the order intake increased.This is valid throughout all the countries, Europe included there. We have to say that during the month of March, also profitability, that declined clearly in the quarter due to the low volume, but in the month of March, it was positive for Food & Beverage.If we move to Laundry, so to the other segment, Laundry is confirming that it is a resilient business declining and, in particular, declining because of, compared to last year, because of the comparison with the Americas or with the United States. Remember that last year, we built a large stock during the quarter, in particular in March. So the comparison is challenging for that one. Other than that, our largest market in Europe was also somewhat positive compared to the previous year.But what is important in Laundry, we have to underline that the margin is in the double digit despite the negative effect of currency. And we have also the cost of the new factory that we have been building at Rayong. So Laundry continue to be a good business. March, positive. During the coming quarter, we will not have any more the comparison of the effect of the building stock in the United States, which is the positive profitable part of the business that we have.Having said so, I would let Fabio comment on the financials. So thank you, Fabio.

[Fabio Zarpellon, Chief Financial Officer]

Thank you, Alberto, and good morning to everybody. As anticipated by Alberto, the EBITA margin in the quarter was 6.2%. We have been observing in the quarter, as somehow along 2020, different dynamics between the 2 segments.Laundry confirm very solid profitability, double-digit profitability despite somehow lower sales and onetime costs that Alberto mentioned related to the buildup of the new Thai factory. If we exclude this onetime cost and the currency transaction impact, the profitability of Laundry, percentage-wise, was even better than quarter 1 last year. The situation in Food & Beverage is somehow different. As you have seen, we have a low single-digit profitability because of the large sales decline. In the group common cost, there is substantially no change in terms of cost year-over-year.When we look at the group overall, the reduction of EBITA value margin was driven mainly by 2 factors: lower sales and production volume and negative currency. Contribution from price was positive, in particular, in Laundry and Beverage. And we did continue in quarter 1 the cost containment action that overall mitigated significant the impact on volume, compensating close to 40% of the negative impact from the volumes.When reading through the P&L, what we can see is that gross margin declined over 3 percentage points year-over-year, means the [ tractor ] were, as I mentioned earlier, the negative volumes development and the currency. Productivity and the logistic cost somehow negatively impacted the margin as well. When it comes to the development of raw material, I have to say that despite what is happening these days in the market, raw material did not impact the profit and loss of the group. But there are risks that if the situation stays as it is, we may face negative impact, I would say, starting more on quarter 3 of this year, considering that we have a pretty good coverage for the first 2 quarters. When it comes to the selling, administrative expenses, as overall cost, we declined year-over-year, whilst the weight of the sales administration expenses on net sales somehow increased due to direct user sales in the quarter. Now let me give you also an update for what concern the structural cost reduction initiative. As you know, in the last 18 months, we have launched 2 restructuring plans. The first one in September '19 to compensate the increasing cost of the listed company. That was expected to deliver a full impact from quarter 3 last year, a full year impact of SEK 100 million. The second restructuring we launched in September last year, that is expected to provide yearly savings of SEK 110 million already from the quarter 2 of this year. I'm reporting now that the execution of 2019 plan is now completed and the ones of 2020 is absolutely on schedule. As you would see from this chart, the 2 restructuring plans did provide SEK 100 million savings in 2020, fully compensating the merging cost that we had as a listed company. And looking into the future, and particularly in 2021, additional SEK 100 million of cost reduction -- of structural cost reduction are expected from these 2 restructuring plans. Now a few words about the cost in quarter 1. Overall, the cost reduction reported both in gross profit and SG&A was around SEK 60 million or roughly 6% reduction of our cost base. Around SEK 30 million, half of it, are structural cost reduction coming from the restructuring plan that I mentioned earlier. We had no material cost variation in terms of stand-alone listed company. And the remaining SEK 30 million are what we call short-term savings. This amount of SEK 30 million includes both roughly SEK 15 million additional government subsidies. We enjoy this quarter roughly SEK 20 million government subsidies contribution. We had more or less SEK 5 million in quarter 1 last year and roughly SEK 10 million of onetime cost related to the factory in Thailand. Market -- or demand is improving. Alberto mentioned about order intake, that is improving. We will -- we are monitor carefully the situation, the development, and we will still continue to be somehow disciplined in terms of cost management. Also, in the months to come, in order to secure that, together with the sales recovery, we have also a profitability recover. This said, when we will look into the development of cost in quarter 2, I would expect an increase, of course, in the second quarter of this year compared to the second quarter of last year. And this is because we had a pretty low comparable last year when we reduced the activities to the [ mean ].Operating working capital, a few words here, I would say, pretty positive development also here. At the end of March, operating working capital in absolute term was down close to 20% compared to last year, the same currency. Operating working capital as a percentage of sales decreased to 19.4% compared to the peak we reached in September last year, that was over 20% -- 22%. And this improvement comes from reduced receivable in comparison to sales as well as longer payment term with the supplier.We are working also on the inventory. And if we take the picture at the end of March of this year compared with the same period of last year, same currency, inventory is down 13% as well. Our overall financial position remain pretty solid. Net debt at the end of March were SEK 546 million, in line with the level of December and, let me say, half of the level we had in March 2020, meaning that we have been able, during the last 4 quarters, despite the difficult market condition, to generate a good cash flow and repay half of the debt that we have. Overall, the situation in terms of liquidity of the group is confirmed very solid. We have a cash for SEK 630 million and revolving credit facility that is now of SEK 175 million in terms of availability. Credit facility, that is overall of EUR 200 million. And that in the first quarter of this year, we took also the decision to prolong by an additional year up to 2026. Last word on the development of the cash flow. Cash flow in the quarter was SEK 23 million compared to roughly SEK 16 million we delivered in quarter 1 last year. We have been able to deliver this cash flow despite an EBITDA that was significantly behind last year. And this was achieved thanks to reduced increase in terms of working capital as well as reduced capital expenditure. When it comes to -- particular to the capital expenditure, SEK 34 million was spent in the quarter. The majority of it, close to around SEK 20 million, related to the buildup of the new production facility in Thailand. Production facility, construction that is expected to be completed overall in terms of spending in the second quarter of this year. Once this initiative will be over, as we anticipated in the previous calls, I expect that the CapEx of this group compared to sales, that will go back to more the historical level around 2% on the sales. When it comes to the cash flow and the monitor of the situation, the liquidity of the group, I would add a last comment that we are strictly monitor the development of the financial capabilities and capacity of our customers and our suppliers because we want to continue to preserve the solidity and the quality of the balance sheet also going forward as well as the availability of our supplier base after a long period of business slowdown. And with that, back to you, Alberto.

[Alberto Zanata, President & CEO]

Thank you, Fabio. Thanks a lot. And let me spend a couple of words on the things that we are bringing to market that we brought during Q1, and we will also help us to develop and to capture the growth of the business. In Q1, we started the production of a -- we completed, let me say, the Line 6000 washer and dryer ranges. This is a very successful line of a washer and dryer that gave us the possibility to perform well in 2020. With this completion, we are increasing the features for what concern are the connectivity, the digitalization of the appliances that is far ahead in the Laundry. You remember that our target is that by next year, we will have more than 90% of the Laundry product that will be connectable. A large portion is also connected, we have to say, in particular in the United States, where we have these larger coin shops and is performing, I would say, very well. The second product that we have been launching is the line of the frozen beverage dispenser. This is good for the season, good for the recovery. We have also to say that during the month of March, we finally saw change of the brand, at least in this part of the business. And for sure, new products are helping in this recovery. And this is a product, besides giving more quality of the drinks that are served, is also ensuring a higher hygiene and safety.This is -- the idea to add the UV lamps for the sanitization of these appliances is something that came up during the innovation challenge last year when during the pandemic, we involved all our people to generate innovative ideas. And I'm very proud to say that our people came up with a lot of good innovative solutions, but now we are bringing to market to become a unique selling proposition. In addition to this one, we have to say that Fabio already mentioned and I did, so that during the month of March, we freed the old factory, the old Laundry factory. All the Laundry lines are inside of the new factory in Rayong and that during the month of April, we started to move also the Beverage lines into the new factory. And we are going to complete this move by the middle of May. So we will be ready the 1st of June to do the official opening of this new factory.We will not be able to do this in person because of the travel restrictions that are in place. For sure, we will connect with our team. And we are very proud that they've been able to complete a SEK 220 million investment. That is, if not the largest, one of the largest investments that we did on time and respecting the cost despite all the challenges that the pandemic posed to us. So very happy for that because this will be an important investment, not only because we have been able to concentrate 2 factory into 1 because this is -- could become the house of many new products that we are going to distribute globally. On the positive side, I want also to spend a couple of words on the trade show for the first time after roughly a year, I would say. There have been 2 physical events in our industry, one in China, one in Dubai, where we attended and customers came and visited our booth as well, obviously, the others. In this event, we took also the opportunity -- they all happened in March. We took also the opportunity to introduce the new ovens, also the SkyLine ovens that we launched just 2 years ago, but it's already in the second release.Most of the innovation are related to, again, connected features. All the investments, I believe, will be in this area, and not only our investments, but investments in this industry to provide customers with the connected solution for the product, but even more for the entire kitchen or laundry operations. So very proud for this product that again are at the right time now to give us the possibility to be even stronger during the recovery. With this said, I would like, in some way, to summarize the Q1 in a few words. Sales improved in March, and this improvement continues now in April. Also, the order intake was relatively good in March. When I mean relatively, I mean improving compared to the previous month, still obviously lower to the level that we had in 2019. The other positive sign is that the order intake was higher than the net sales. So this means that we started to build the order stock. Majority of the stock is in a relatively short term in the meaning that we see that the market that is recovering is mainly the replacement. So operators that are reopening during this month, they are looking for single product to replace products that are down, that broke down or that are completing already existing installation. There are still some projects, but not as much as we were used to see. This kind of trend, so both for the Laundry sales, order intake and order stock applied to Food & Beverage and Laundry, I have to say that -- and it is normal, I would say, the recovery is faster and it is expected to be -- or better, higher in the Food & Beverage market because it was the business that was suffering the most during April and May and partially June. The Food & Beverage business was dramatically down, less than half of the business was away. This recovery, in general, we see this sign of recovery in the Thailand plant to -- most of the geography, even if we clearly see that United States is faster than the European market to recover, while Asian countries, Oceania are confirming the positive trend already achieved during the last quarter of last year. On the cost side, structural costs are coming in place, and that is good. At the same time, and I believe Fabio was pretty clear with that chart, all the temporary costs or majority of the temporary costs that gave us the possibility to maintain a profitable level last year are fading away. Clearly, with the reopening of the activities, we will also reduce the number of government subsidies, obviously, and at the same time, also the working term reduction of these kind of activities, the traveling or other things, will -- this cost will restart already in Q2.We are continuing to invest. I was talking about the product. I'm talking about the factory. During the Q2, we will complete the move of the Beverage line and the factory in Thailand. We will role out the new IT system. The first one was in the French factory. We will have the second one in the Beverage Italian factory. We will have the -- we will continue to add the connected features to our product, in particular, the SkyLine. And we will continue to bring also other products to market in addition to the one that I just mentioned.This is what is going to happen. And before closing, I also want to take another opportunity to inform you that since we have been listed a year ago, March 23, 2020, we didn't have the possibility to travel, to visit and to meet with you all and with the financial community in general. And this is the reason why we are thinking to organize the Capital Markets Day in September in Ljungby. That is the place where we have our Laundry refractory. I believe it's a great place where we can see and we can give to whoever wants to join us in that place an important idea of what the Laundry business is, why the Laundry business has been resilient, so much resilient during this very challenging past year, but also why we believe that we have -- we are leading the market through innovation and through the solution that we are offering to our customers.With this said, thanks a lot. And yes, we are back to possible questions.

[Operator]

[Operator Instructions] Our first question is from Lucie Carrier of Morgan Stanley.

[Lucie Anne Lise Carrier, Executive Director]

I have 3 questions, and I will go one at a time. The first one, I wanted to come back to the comments you've made on March and the fact that March was growing in Food & Beverages. You said that the trends were still quite positive in April. But I was hoping you can maybe help us understand the sequential trend between April and March, whether you were seeing an acceleration or whether the year-on-year acceleration was maybe more due to the comp effect, just for us to be able to calibrate maybe a little bit better the magnitude of the recovery.

[Alberto Zanata, President & CEO]

Yes. So thanks for asking first. I'm talking about comparing to the previous months, so more than comparing to last year, where you rightly said that the percentages are becoming bigger in these days. Because if I look at the net sales in April compared to last year, we can be, in some way, yes, let me say, we can be mislead considering that the business last year was really low during the month of April and May. I was talking mainly compared to the previous months.So compared to the beginning of March, January and February, we see a slight increase of the net sales and even more an increase of the order intake. So the order that we are receiving, that is what is going to come in the following months. So that is the sign of recovery that I'm saying. I'm not only comparing that to last year because it would be a little bit misleading, I believe.

[Lucie Anne Lise Carrier, Executive Director]

I was hoping maybe you could also give a little bit more -- I think you did, but the sound was not very good, so apologies if it's a reiteration. But I was hoping you could maybe give us some indication about the nature of the recovery you are seeing. So is it equipment? Is it maintenance where you are seeing an acceleration? Is it kind of a grading existing setting? And also, do you see that across all of your markets in Food & Beverage? Or is it focused maybe on some specific part of the market or some product type as well, maybe?

[Alberto Zanata, President & CEO]

Yes. So first, what we call customer care, that is the maintenance, what you described as maintenance. That, in March, declined less than the sales of product. And that is a very good sign because until now, we had customer care declining more than the sales of the product because our customers didn't allow us to enter the site. Their operations were closed. Also this one, you can consider a sign of the current recovery because this also means that many customers started to prepare, to restart up their kitchen or their laundry operations.So customer care, in particular in March, recovered, but still not on the level of 2019, but we saw a sign of recovery for this one. For what concern the product, I said clearly, Food & Beverage are recovering more than Laundry, but that is not because of the difference. It's because Food & Beverage had a sharp decline during the past months and the past this year.I don't see major differences among the different categories. Clearly, where we see -- and we have new product, SkyLine Ovens and the Blast Chiller, the Line 6000 in Laundry. This new frozen beverage product, yes, you have something more to say to our customers, something more to say in the market, and this is making easier to have something to say, an opportunity to talk to customers.There is one area that is suffering more than any other, is still suffering quite heavily, it is the high of the coffee. But this is more related to the fact that we are unbalanced towards France, in particular in a specific roaster that is operating in France. But -- so it is our customer that is really suffering. And as a consequence, our business is significantly down. It's the only one where the sign of recovery are much weaker than in all the other businesses. Other than that, I would say that in general, we see a pretty flat and a well-distributed recovery of the business.I mentioned the United States and then the concept of the product that are addressing the chain customers. During the past year, I mentioned more than once that this kind of segment was suffering because they were putting on hold the investments. They were not allowing us to visit even the test sites. They restarted that during the fall. This went on during the winter, and now they are coming to decision. So there will be an acceleration over there.

[Lucie Anne Lise Carrier, Executive Director]

And I guess my last question, to Fabio, please, on the savings. Thanks for the helpful table you included on Slide 7. I just -- I was hoping you could remind us, you had SEK 60 million of savings in the first quarter. Based on that, how much do you expect for the rest of the year? And will you expect a different type of phasing as we go into 2021, i.e., with some quarters having higher savings than others?

[Fabio Zarpellon, Chief Financial Officer]

Okay. Here, let me talk of what I expect to happen in the remaining part of the year. As I mentioned earlier, because of the restructuring plan that we launched in 2019 and 2020, structurally, we are going to reduce our fixed cost base going forward. At the same time, when comparing starting from quarter 2 last year, I expect overall the group cost to increase quarter-on-quarter because we are comparing with a pretty low, I would say, the historical low level in quarter 2 last year.What will happen in the remaining part of the year? In the remaining part of the year, as we did in the last quarter, we will continue to monitor strictly the cost of development. But I will say that if -- as we see the market recovering, we will restart investing because our goal is to profitable grow this business. So we will monitor the situation. We have a reduced fixed cost base that I will say it has been an important move to reduce the breakeven point of this group. But for the future, I would look more into what we are going to invest to profitable grow this business.

[Operator]

Our next question is from Mattias Holmberg of DNB.

[Mattias Holmberg, Analyst]

Mattias Holmberg from DNB here. I have one question perhaps on the proposed combination of Middleby and Welbilt. How do you see this changing the market dynamics? And I recall you talking a lot about part of your strategy being to become a sort of recognized U.S. player. If you see any obstacles or opportunities from these 2 players combining.

[Alberto Zanata, President & CEO]

Okay. First, I would say that it is quite early to comment about that one in the meaning that, as it is clearly, they have to go through the DOJ's approvals and all the other process that are normal in this kind of things.For what concern our position in the United States, obviously, it's not impacting the Laundry one. For what concern the Food & Beverage, we have a sort of a pretty focused approach in the United States, this one. We are not going to the market. We are not serving the market with a full portfolio as we do in Europe or in Asia, Oceania. We have a pretty selected number of products that are targeting specific customer segments. And in this case, I would not say -- I would say that it is not changing so much. It will not change our approach to the customers this kind of much.That could be impacted then related to what is happening, current regulation according to the dynamic of the distribution, surely yes. But in this moment, I would say that is relatively too early to comment about that.

[Mattias Holmberg, Analyst]

Great. That's a clear answer. And one follow-up. You discussed a bit about the sales decline in Laundry, and you talked about the comps effect from last year where you had a customer who did some prebuying or stocked up. Can you, first of all, make any comment if that comparable effect is isolated to Q1? Or could we see any of that in Q2 as well? And also, if you could clarify the 45% sales decline that you had in Americas in Laundry. Is that entirely related to that specific effect? Or is there anything else in that?

[Alberto Zanata, President & CEO]

Okay. So first, last year, just after the, let me say, the first time in Asia on the spread of the virus, together with our distributor in the United States, it was decided to build up a stock in the United States. Remember that in February, March, United States was not affected from the virus. So at least there were not -- the effects were not so clear in the United States as they were coming to be clear at least in the South European countries.So with this said, there was -- everybody was afraid about lack of components, a lack of product coming from Asia, from China. Without having a factory in Thailand, it was a conscious decision to build up stock in the United States to face the demand of this product in case there were disruption during the supply chain. Disruption, but in reality, didn't happen, honestly. But it is what it is. And during -- in particular the month of March, and it was pretty minimal, I would say, probably in April, if I remember well. So we didn't have so much in April. We built up the stock in the United States. The stock that in the United States, we have been, in some way, depleting because then the pandemic hit the United States.So after the end, the demand in the United States had dropped significantly also in Laundry. So we have been using this stock for a quite long period of time. This is the reason why we are saying that our performance in Laundry in the United States are quite significantly impacted. So we reported a drop because last year, we had this peak. So we should see this not happening in Q2 and Q3 and so on. Secondly, the drop in the Laundry in the quarter is mainly due to the United States. It's not entirely. Because in Europe, in reality, somewhat, we have been growing the Laundry. In Asia-Pac, in some countries, we have been growing the Laundry business. Still, we have Thailand, all the 3 -- Southeast Europe, Asian country, that are important market, by the way, for us, Thailand, Indonesia, Philippines. They are a good market for Laundry. Malaysia. Those markets are still very low level because I think I mentioned earlier, these are markets where the business is going around, international travelers. And in this moment, you cannot enter this market. So other than that, I would say the Laundry business was somewhat better than last year. But with this tough comparison with the United States, we reported a decline.

[Operator]

Our next question is from Gustav Hagéus of SEB.

[Gustav Hagéus, Research Analyst]

I'm wondering, I think you previously stated that sort of input costs and raw material costs is not a major factor to you this year because you, if I understood you correctly, you have agreed to terms on those import costs at an attractive level. But I understand it's a difficult question. But if you were to try to look into 2022 and assume that raw material and input costs were flat from here, what roughly would be the impact to earnings as you see it from those items in 2022?

[Alberto Zanata, President & CEO]

I believe, Fabio, you can...

[Fabio Zarpellon, Chief Financial Officer]

I can give some flavor of how we see the situation. First of all, I confirm what I anticipated earlier. When we look into quarter 1, raw material price development in the market did not affect the profitability of the group nor I expect that this would happen in quarter 2, and this is because we have, let me say, covered our purchasing in the first part of this year. In this -- exactly these days, we are working with the supplier to negotiate new conditions for the second part of the year. And I will say that somehow, today, it's too early to give an overview even on the second part of the year. I would, let me say, bring this topic in terms of -- to give you more color during the quarter 2 call. I would say that in these days, it's too early to make an assessment even on the second part of the year.It's clear that if price remain at this level, they will have an impact in the business, in the profitability of the group. All the rest equal, I will say, not really material overall for the P&L of the group based on what we know today.

[Gustav Hagéus, Research Analyst]

Okay. And thank you for the table for the temporary and structural cost savings overview. That's super helpful. Could you try to assess sort of -- the share of the temporary costs that our government support, how do you see that? Do you see that unwinding in H2 or in Q2? Or is your preliminary assessment that that's going to be something that you could probably maintain throughout the year? Or if you could give a little bit of color on that, that would be helpful, too.

[Fabio Zarpellon, Chief Financial Officer]

Yes. Okay. Let me develop further more around it. So we have -- let me divide our cost market into 3 parts. We have, from one side, the structural costs that are coming from the 2 restructuring plans. And the execution of this initiative is according to plan. And I expect overall, in 2021, additional SEK 100 million compared to what we had in 2020. That was another SEK 100 million. We have the second piece, that is the government subsidies. Government subsidies, they contributed roughly SEK 95 million in 2020. We report we have had SEK 20 million in quarter 1 compared to SEK 5 million in quarter 1 last year. I have to say that I hope they will decrease in the incoming quarter, but because this means that the market and our business will go back more towards a normalized level. So to answer to the second piece, I expect government subsidies to decrease as long as we increase the capacity utilization of our factories. The third leg that is related to the discretionary spending, as I mentioned, we have a low comparable in quarter 2 2020, where most of the activities we are putting on hold and expect that this discretionary spending to increase already in the second quarter. Going forward, it's clear our duty to strictly monitor the development and the investment in the discretionary spending according to the order intake development. I believe we have demonstrated a longer 2020, but also in this first quarter that the cost management is a top priority of this group.

[Gustav Hagéus, Research Analyst]

Okay. If I could just add one final question relating to what we've previously discussed on the merger happening -- or at least seemingly happening in the U.S then. They explained in the rationale for combining the 2 companies that they aim to increase R&D investments or innovation investments and specifically in sort of digital and IoT solutions as well as ventless ovens.Could you talk -- or stoves. Could you talk a little bit about if you feel that there's a pressure on increased investments in those areas stemming out of this coalition potentially, whether or not you feel comfortable that you will be sort of top end and be in front of the market in these areas also a year from now if this merger is actually happening?

[Alberto Zanata, President & CEO]

Okay. So first, I would say that both companies, Middleby and Welbilt, are already increasing investments in the IoT solution. They are the only 2 companies that, at least for the cooking side of the kitchen, they were already trying to provide customers with a system approach. Even if, I would say, I didn't see so many installation, but it's normal because we are at the beginning of the stage. So we already did this one. And I'm pretty sure that as well as other companies, they will increase investment in IoT. So I would say, we know that. I believe we have to think to ourselves to what we can invest and how fast we can do this investment and bring them to market.The thing that is positive on our thinking, that we have been approaching the market as one company already for many years. And as a consequence also in terms of architecture, structure and design, they are in some way already standardized. We are not there yet, but we are already in that path, let me say. But it's surely important to have a critical mass and to create solutions that are really adding value to the customer. Not only we are linking to this, to the program of essential, what we call essential, so that is our customer care program, that actually, this is -- that is not my opinion. It is our opinion, we make a big difference when we will talk about creating value for the customers.

[Gustav Hagéus, Research Analyst]

Okay. Can I just sneak in one final question? We talked a little bit before with your German competitor about some initial indications of price pressure, in particular, perhaps regarding a combi oven. Do you still see that? Or is that fading now as markets are seemingly improving?

[Alberto Zanata, President & CEO]

Let's say, I've been talking about pressure in general. Even if a contribution from price was positive in Q1, so we still have a positive contribution for price in Q1. What we see is that -- and I think I mentioned that in this moment, we see more replacement. So single use, of course, more than the full project. The full project are not so many. They are coming, but they are not so many.And what we clearly see that being a few, everybody wants to get them. And as a consequence, competition -- price competition on the project is much higher than what it was a year ago. That is what we see. So when we talk about projects, in general, the overall price of the entire laundry or kitchen solution that is compared to alternative ones. So it's not specific on one product, but I would say, that is quite -- it is more related to the kind of business, let me say, and it is because of the current situation.

[Jacob Broberg]

Yes, Jacob over here. We have a question from Stefan Stjernholm of Nordea. Also coming back to raw material, actually 3 questions. Are we able to compensate raw material with price? That's the first question. The second one, how large will the extra cost for the factory in Thailand be in Q2? And the third question, when do you expect sales to be back to 2019 levels? What's your best guess?

[Alberto Zanata, President & CEO]

Okay. So I would let Fabio comment about the raw material and the cost in the Thai factory. I can give a comment about the trend of sales. Sales are still below 2019 level. It is -- I believe, the next -- the coming months will be very important because they will show us how fast the recovery can be. If I look at the market results that have been published a few months of, I believe, the middle of March, they are also -- they are still working on a double scenario. So they are all working on a scenario where we already have a recovery at the beginning of next year, and there are some others a little bit later.One thing, in my opinion, is clear is that the speed in the different regions will be different in the meaning that I believe the Asia Pacific market, if we excluded -- so Asia and Oceania, most probably, we will be back to the 2019 level end of this year, beginning of next year. United States, it could be on a similar level, considering the speed of the recovery during the past weeks. But I would say that it's too early to say that one. In some ways, Europe, that is lagging behind in terms of recovery. We are also talking about stimulus. U.S. government put a lot of money to stimulus, the investments in the food industry. We are also looking at what could happen in the European market in order to help our customers, not ourselves, but our customers to restart doing investment. We have always to remember that this is a business where our customers, they have to make investments to renovate the kitchen, to renovate the laundry operation, to open new installations during the coming weeks and months.Fabio?

[Fabio Zarpellon, Chief Financial Officer]

Yes, on the 2 questions, as I anticipated earlier for what concern raw material discussion has gone exactly in these hours, in these days with our supplier base, I confirm what I anticipated earlier. So we will not see any material impact in the first part of this year.I expect that if price will remain -- the market price will remain at this level also in the quarters to come to have an impact starting from quarter 3 this year and in quarter 4. But I will say it's somehow too early to give you an order of magnitude because from one side, there are requests from our supplier base; on the other side, we have strongly negotiated to keep the cost increase to the bare minimum. During, I believe, quarter 2 call, we will be in condition to give you more flavor on what it means in terms of impact, in terms of profitability that I expect will be, all the rest equal, negative, but I would say not material for 2021 profit level of the group. For what concern instead the Thailand initiative, 2 information. The initiative will be completed by quarter 2. In quarter 2, we are going to have roughly remaining CapEx of around SEK 20 million. And as I mentioned earlier, once this initiative is completed, our CapEx level will be back around 2% of sales going forward. For what concern instead of the onetime cost that will affect the P&L, I expect we are more or less at the same level of cost that we had in quarter 1, that was SEK 10 million in quarter 2. And then, I would say, from a negative one cost impact, the initiative is, I would call it, completed. And we should start to see the benefits coming out from the consolidation from quarter 3 onwards.

[Operator]

Our next question is from Johan Eliason from Kepler Cheuvreux.

[Johan Eliason, Analyst]

This is Johan Eliason. Just a short question coming back from your comparison with your German oven here that's sort of guiding for a minus 10% decrease in Q1. I have to see what they found in [ supper ]. But you ended up, obviously, at minus 21% when you're talking about Beverage, Food being very weak. But how about Europe and Thailand? Are you sort of performing in line with this? Or do you think someone is gaining share on the back of new products introduced?

[Alberto Zanata, President & CEO]

So if I look at the single category of the oven in general, I would say that at least that during the past quarter, so we have been performing in line with the competitors. So I would not say that we have been losing market share. Again, on the opposite, as I think I mentioned earlier, with the new things we are bringing to market, we want to gain market share. There is also a difference between the geographical differences clearly. We are pretty strong on the South European market. Competitors have a really large share of sales also in the United States, so that is recovering faster. So if I look at the past results, again, it's an event where very similar volume is away in the market -- or the market branding of the product.

[Johan Eliason, Analyst]

And then if I may, you -- at the Capital Markets Day now 2 years ago, you talked about this new SkyLine offering, integrating ovens with the large chillers. Have you sort of seen the take-up of this combined offering, also given this uncertain market?

[Alberto Zanata, President & CEO]

Yes, yes, yes. Blast chillers are doing very well, also because the adoptions of the blast chillers is increasing. So this means not in every kitchen where ovens are used that there is a blast chiller. But the increase, there are more and more operators that are looking for both the oven and the blast chiller, and we are the one offering. And you rightly remember that 2 years ago, presentation, when we have been talking about the tower, we call it, where there was the oven on top of a blast chiller. And in fact, the 2 products were connected and it could operate both products from one panel only. And this is doing very, very well. So we are very happy about that. I'm really looking for the reopening of the market because this could be very compact, saving space in the kitchen and high-performing solution for many customers.

[Operator]

Our next question is from Karri Rinta of Handelsbanken.

[Karri Rinta, Research Analyst]

Two, if I may. Firstly, if we look at Laundry Europe, you had 1% growth in the first quarter, and I think you also had growth in the first quarter of 2020. So the question is, is there any reason to expect that you wouldn't see growth in Laundry Europe for the whole of 2021? And then secondly, do you have any other sort of pockets where we actually might see 2021 sales higher than 2019? That's my first question.

[Alberto Zanata, President & CEO]

Okay. So Laundry overall, compared to '19, we were not clearly on the same level. So we will see an improvement of Laundry, yes. The Laundry business, we are also bringing new products to the market. So the Laundry business will increase. I don't see a reason why this trend should change. I think I mentioned also the effect on the U.S., where we were relatively -- we were weak during the second quarter with Laundry U.S. While this year, we should have a positive trend in this area. One comment, and I think it's important to make this reasoning, is that if you look at our year-end result, the portion of the business from Laundry became, in a relative term to the overall professional business, much larger than the Food & Beverage. Not 50-50, but we were very close to be 60-40, something like that. With the coming months and the coming quarters, we are expecting that there will be a recovering on Laundry. But there will be a much higher recovery on Food & Beverage because in the previous year, the decline was sharp. So I'm expecting also that already in Q2, we will have a gradual rebalance of the mix between Laundry and Food & Beverage product.

[Karri Rinta, Research Analyst]

Okay. But specifically for Laundry Europe, is there any reason to believe that, that part wouldn't be up 2021 compared to 2019?

[Alberto Zanata, President & CEO]

There are no reason to see change of the trend, let me say, but I mean it is still something that I will not comment so long along the years.

[Karri Rinta, Research Analyst]

Yes. All right. Fair enough. And then secondly, if you compare your pipeline of potential acquisition targets right now and if you compare that to the pre-COVID times, what can you say about the -- maybe about the number of potential targets? And if you have done any reprioritization between those, maybe between different geographies, between different categories and so forth.

[Alberto Zanata, President & CEO]

I would say that there are no major differences compared to the pre-COVID or post-COVID pipeline. I think I mentioned already in the past that since August, September, we restarted the discussion with all the contracts that we had, in particular in the United States because that's the area where we are clearly having a focus, but not only, because if there are opportunities to create value-adding profitable operations to our businesses, we are obviously looking at them. So no major differences and no major changes, I would say.

[Karri Rinta, Research Analyst]

And then finally, the project business that you have mentioned a few times, in which geographies should we expect that to start the first? Is it in the Asian market and then maybe followed by the U.S. and then the last one would then be Europe? Or how should we expect that part of the market to recover?

[Alberto Zanata, President & CEO]

Karri Rinta, you said it in the meaning that the Asian market is probably the first one. That is already ahead of the curve, more than U.S. where I think I mentioned that our approach is more focused on single solutions, so targeting a single solution, in particular, the chain ones. I would say Europe, in Europe, there are discussions about projects. So again, Asian first and then, hopefully, also the European market, then we move back to the project business. Asian, Middle East, sorry, forgot. So that is the area where we see the project business moving faster than in the other regions.

[Operator]

Our final question is from Fredrik Moregard of Pareto Securities.

[Fredrik Moregard, Analyst]

So just thinking about what has happened over the past year with obviously a lot of restaurants, hotels and so on having struggled, some bankruptcies and perhaps some change of ownership for a lot of those operators. Just thinking about the reopening here, do you think there's a potential for new ownerships wanting to upgrade the hotels, wanting to upgrade restaurants, perhaps redesign menus and so on, that could actually be sort of an opportunity for you? Or could you just share your thoughts on the potential development in that direction?

[Alberto Zanata, President & CEO]

Okay. There are many different trends. But yes, in the meaning that we saw already that, in particular in the chain business, there have been aggregation. So some chains buying the different brands that were struggling because of the pandemic. They've been incorporating some of these brands. I'm not talking about the big ones that are well-known all around the world, in particular the regional ones that probably have been suffering more than the others. They have been aggregating or collecting this brand. And thanks to the between bracket, economy of scales that the chain is able to create, that they are clearly ready to relaunch. In some -- even in France, we saw this, that they are investing to relaunch the brand, and some brands is changing also the menu. This is creating opportunity. The other opportunity is that, in many cases, this multi-unit operator are looking for -- I think you heard this definition more than ones, they call it the dark kitchen. So there are kitchens that in some way are producing 4 different brands. Also, in this case, they are refurbishing kitchens that were, for one, kind of food production only to make it more flexible, to produce different kind of things, to serve exactly only that they needed.Delivery will not disappear. This was a habit that all of us -- I think it was already in place in many geography, but it became more, let me say, adopted by many other people. And I don't think this will disappear at all. It will continue to be one of the way of doing business for many on the catering operators.So there will be changes, yes. There will be reopening, in many cases, that we reuse what is left in the kitchen of the restaurant. But this will create, for sure, business for maintenance, customer care and for what I was mentioning earlier in the meaning, unit sales, in the meaning that if you take over, I don't know, an Italian restaurant, but then you want to convert it into a steak house, so you clearly need also different appliances. This is just an example. Please don't take it literally, but I hope you understand.

[Fredrik Moregard, Analyst]

And just thinking about such a development, is that something that you actually started to see some trends coming through in your order book? Or is this sort of still on a philosophical level?

[Alberto Zanata, President & CEO]

Sorry, can you repeat the question?

[Fredrik Moregard, Analyst]

Sure. So is this something that you're actually starting to see coming through in your order book? Or is this sort of...

[Alberto Zanata, President & CEO]

I said that the order intake -- we call it order intake, so the orders that we are collecting, since, I would say, 2nd or 3rd week of March, started to increase compared to the previous weeks and more than compared also to last year, and it is higher than the net sales. And that is -- it is still lower than 2019, no question about that. But that is the signal that we are getting, that operators in some way are relooking at the business. They are preparing in some cases. The speed is still to be defined. I don't think it will be full speed at Q2, but it is something that we clearly see as a sign.

[Operator]

There are no further questions, so I hand back over to our speakers for any closing remarks.

[Jacob Broberg]

So thank you very much for listening in and asking questions. I think this was it for now, and I wish you a good day, and speak to you next time. Thank you, and goodbye.