Electrolux AB Q3 2007 Earnings Call Transcript

| About: AB Electrolux (ELUXF)

Electrolux AB (ELUXY.SE) Q3 2007 Earnings Call October 22, 2007 9:00 AM ET

Executives

Hans Stråberg - President and CEO

Fredrik Rystedt - CFO

Magnus Yngen - Head of Major Appliances Europe

Peter Nyquist - Head of IR

Analysts

Michael Andersson - Danske Securities

Patric Lindqvist - Hagströmer & Qviberg

David McGregor - Longbow Research

Andreas Willi - JP Morgan

Rasmus Engberg - Handelsbanken Capital Markets

James Moore - Goldman Sachs International

Olof Cederholm - UBS Warburg

James Stettler - Dresdner Kleinwort Wasserstein

Tim Adams - Citigroup

Stefan Lycke - Deutsche Bank

Anders Trapp - Enskilda Securities

Hans Stråberg - President and Chief Executive Officer

Okay, very welcome to the Electrolux release of the Analyst Meeting for the Third Quarter Results. I have here with me today our CFO, Fredrik Rystedt and Magnus Yngen, Head of Europe Major Appliances and also Peter Nyquist, Head of the Investor Relations.

Europe played a significant central role in our recent performance and Magnus is here to shed some light on our development in Europe. But, let's begin by highlighting the main themes of the Group's third quarter results. The story for the third quarter is quite good in terms of our market position. This is something that I am very happy about. Revenues were up 4% in... well, over last year for the Group as a whole. The top line growth was spread across all of our business units. And these top line gains occurred in spite of that we had a weak market condition in several of our markets.

In Europe, the third quarter saw a decline in Germany and in the U.K. These are key markets for Electrolux of course. In North America, the U.S. industry shipments dropped by about 6% for the quarter. And against this backdrop, Electrolux gained share in every business area. These gains are key to the Group's long-term success. However, we are disappointed about the margin performance in our European Appliance business. The problem was in the area of costs. As expected here, the raw material costs were much higher than last year's third quarter and they continued to place a major pressure on our margins.

The third quarter was also higher than expected in costs for new products that were launched in Europe as you have seen from our release today. And then we will talk more about this, how to close this performance gap in Europe in a few minutes. But first, Fredrik Rystedt will give some more details on overall Group performance. Fredrik?

Fredrik Rystedt - Chief Financial Officer

Thank you, Hans. I will try and do that. We... as Hans already outlined, we continue to grow at a good pace in Q3, as was mentioned before, 3.7% in incomparable currencies and actually almost all parts of the Group grew, even Major Appliances in the U.S. despite that week market. If we look at operating income, we performed in line or better than last year and of course also in line with our plans for all areas except for Europe.

In North America, operating income increased significantly in comparable currency, and that was made... the majority of it was a result of improved volume and mix, but also better cost performance and efficiency. We continue to grow to our best quarter ever in Latin America and also Asia Pacific here had a good development in the quarter. With the exception of a marginal decline in profession as you can see on the slide, the negative development came from Europe. We did well in terms of growth and mix and we are clear... but we are clearly suffering from high cost level and of course that is what Magnus and Hans will talk more about in a few minutes.

Group common cost was quite low in the quarter. We have a run rate of roughly 125 or in that order magnitude per quarter. It will vary, it will be volatile of course. In this particular quarter, we had a slightly better performance than that 125, actually because of good performance in the pension area and also to some extent in risk management. For the full year, we do... as we have said before, we expect Group common cost to be lower than in the previous year. Altogether, these factors netted out to 1% increase in operating income in normal currencies and roughly about 3.5 in comparable currencies and the operating margin ended up at 4.4%.

We turn to the next picture. Cash flow, last year Q3, we had a negative cash flow about SEK 400 million and that improved to 700 million this quarter. The biggest shift of course had to do with a positive impact from working capital. For the season or for the quarter, the performance this year in working capital was actually quite normal. I will come back to that in a second because I did elaborate on that in the Q2 report. But I will come back to that in just a few seconds.

As we have done throughout this year, we continued also to spend more in capital expenditures, and the biggest project we have this far or this year is the new washing machine facility that we have in Juarez, is the... by far the biggest isolated capital expenditure we're having, but we are also spending... well, we have spent considerable amounts of money in Poland in our new facilities there, and of course also relating to new products.

The Juarez washing machine facility is... that project is going according to plan. We expect that to be commissioned some times in Q2 of next year. Just to highlight that on the slide, you see that there is a negative in our cash flow report. You see that there is a negative impact last year of 154 million from divestment. That was actually divestment of Nordwaggon, for those of you who remember and of course we didn't have that... any such rights in this year.

Turning to the next page, you look at... we... is actually a good picture of our seasonality in cash flow. What you see from this slide is, we typically have a good cash flow in Q3 and especially Q4, starting two quarters and particularly, quarter 2 is typically very weak. Now that was not the case last year. For those of you who remember, we realized last year the buffer stock that we built up for the transition from Greenville to Juarez that we actually realized in the first half of the year. The union strike also made us take down the inventory level significantly and we were also doing very well in accounts receivables as a consequence of going into the year with much, much too high levels in 2006. Now, none of these factors are of course here this year. So, in Q3 we are basically following the normal performance.

We had little too high inventory levels in Q2 and that has been improved as you can see in our cash flow statements.

With those words, I will leave to Hans.

Hans Stråberg - President and Chief Executive Officer

And let's begin with the development in Europe. The European Appliances had a steady growth for the first half, but in the third quarter, we saw a weakening in some of the key areas in Europe. We had nonetheless solid top line growth in our European Appliance business and we continued with the biggest launch, product launch in the Company history, and in many ways we have reached our goals.

We maintained a higher average sales prices; we had a significantly stronger Electrolux brand. This helped us to increase our European Appliance sales by about 3.5% in the third quarter. However, overall then development was a disappointment from a financial point of view. We had expected a significantly better financial result than the one we had. And in these very comprehensive and coordinated launches in Europe, we chose to prioritize time to get our products out into the marketplace in all these 35 countries, and to prioritize time over costs and this led to that many of our products unfortunately had a higher cost.

We are working intensively now to get the cost out and to get our arms around those problems, but it will take some time to achieve the expected improvement and Magnus Yngen then, who is Head of the our European Appliance business will give you more on the perspective on the situation in Europe. Magnus?

Magnus Yngen - Head of Major Appliances Europe

Well, as Hans said, we had a margin gap that we are moving urgently to close, but it will take some time. The new products are getting higher average selling prices. You can see in this slide that the increases are across all product categories. Overall, our average selling price increased by about 3% and our mix increased by 4% in the third quarter. And remember also that this was in a market where the estimated price decline was 1.5% for a like-to-like product.

Another encouraging number is for brand consideration. Market research shows that consumer consideration for the Electrolux brand increased by 6%. That mans that today we have 20 million more European consumers who are considering to buy an Electrolux product than we had 18 months ago. The problem we have is cost. Our total cost, product cost is more than 5% however, above our original target.

One area of cost has to do with the scale and complexity of this launch. It took extraordinary resources to get so many new products produced into the market. This was done under the pressure of market timing and customer commitment. In this environment, manufacturing cost increased more than normal or more than expected. We are reviewing the cost of the new products now, we are finding more efficient ways to produce them while maintaining the features that the consumers are willing to pay for.

In closing, I would just like to reemphasize Han's point on new products. They are being well received by customers and retailers; they are doing their job in the market. They are getting higher average selling prices, they are improving our mix and they are helping drive growth and market share. We are addressing the cost issue, but it will take time to close the cost gap.

Hans Stråberg - President and Chief Executive Officer

We mentioned then how well our new products are doing in Europe and this picture here show one example of our new line of built-in kitchen products that have done very well in the European market environment, and that we are also shipping to other parts of the world. Another example is our European floor-care business. And this is a new product; it's coded strictly and are called Energica. That's doing very well and behind us here we have the new line up of the Ergorapido product. That has then sold considerably more with the new product lineup than the previous one did. And floor-care did very well during the quarter in Europe. Sales EBIT and margins all increased.

If I then turn to North America, Electrolux performed strongly, continue to perform strongly in a weak market. Core price volumes were down 6%, and against this backdrop, our sales was actually up with 2% in local currency. And this reflects a solid execution of our whole Electrolux team in North America. And we continue to pick up market share in North America. There was also a favorable shift in the market itself that helped us. That's called a budget-conscious consumers avoided high ticket purchases during the quarter and they bought more mid-priced products and offerings.

The Electrolux team, our team over there did a great job in capturing a lot of that business. We are also benefiting from having less of an exposure to new home sales construction than others have in the industry. Our cost position has become highly competitive and our new manufacturing sites in Mexico are running efficiently.

Floor-care experienced a downturn in the North American market. The U.S. market declined in the third quarter for a floor-care product. Our volumes went down with the market and we absorbed some costs of some new product launches there.

In Latin America, market volumes increased by 17%. We managed to outperform the market and we had a volume growth of there about 20%. Our strongest performance came from the frost-free refrigerators and the microwaves. Operating income in Latin America grew more than sales grow... grew. Operating income was up 34% and Electrolux has been in the... well, Electrolux has been in the Latin American Major Appliance business in there for more than 10 years, and this is the highest third quarter profit that we had in that entire time. And you've also seen us improve here over the years step-by-step. Among the most successful products that we have launched in Latin America are these frost-free refrigerators, dual ovens which is an industry first and the microwaves.

Turning to our operations in Asia pacific there, as a whole, this business area did quite well. Operating profit rebounded from the weak second quarter, it beat last year's third quarter by over 60%. And our operating margin increased from 2.8% to 4%. This improvement was spread across the region. In Australia as an example, market volumes were up and we grew in line with the market. And this reflects an improvement in our competitive position in Australia. Our redesigned product line is now highly competitive with imports from other parts of Asia. Our costs are also competitive there.

Our restructuring program has been smooth and successful and the latest restructuring in washers and dryers is on schedule for completion in 2008 as scheduled. We're making progress in China as well. We saw the first growth in volumes since we began this portfolio restructuring strategy. But we are still below the breakeven level and China will continue to be a challenge for us going forward.

We also had some success in the growing markets in Southeast Asia. An example of successful products in the Southeast Asian markets have been this, market fresh refrigerators that have sold very well at profitable prices.

When we talk about professional products and that business, to summarize it, we grew both sales and operating income, but margins for this business overall declined from 7.9 to 7.3%. The pressure was all in the laundry service side of the business. Professional laundry sales have been flat and here the U.S. has been making decrease in contribution due to the weak dollar, as we export products mainly from Sweden over to North America.

The food-service side of the business has been doing well. The sales were up, volumes and pricing have been strong and we have improved our production efficiency and that has helped to offset higher cost for stainless steel. And in early 2008, we will be launching a new line of professional ovens that you can see in the background of this picture here.

We will then wrap up our comments for now with an update on our outlook for the full year 2007. We previously advised that the market demand for appliances in 2007 was expected to show continued growth in Europe, while the North American market was expected to decline as compared to 2006. Recently, market conditions in the U.S. market have weakened. We still expect raw material costs to have an adverse effect on the Group's operating income in the fourth quarter. At the same time, the Group's recent product launches in Europe, which has been well received, have incurred higher that anticipated cost.

We maintain our outlook here that operating income in 2007 is expected to be somewhat higher that in 2006 and that is excluding items affecting comparability. However, the risk for further decline in the U.S. appliance market continued and the continued raw material cost increases and price pressure in our European margins add uncertainty to the accomplishment of the 2007 outlook.

So in summary, I am disappointed by the cost development in our business in Europe. But to success through an improved average selling price, a stronger Electrolux brand and a better mix makes me convinced that our strategy is working. Innovative products, strong brand, profitable growth and low costs are the only strategic ways... is the only strategic way to reach a margin on par with the industry average, and in the longer perspective, in line with the best in the industry. And with that, we are now ready to take your questions.

Question And Answer

Unidentified Company Representative

The questions here in Stockholm, and also those who are on the telephone conference. So I will start here with a couple of questions in Stockholm. Michael please, microphone here please.

Michael Andersson - Danske Securities

Michael Andersson, Danske Bank. The problems in Europe, or other extra costs for so of the new product launches, is that spread evenly throughout the product categories; cold, wet and hot product categories.

Magnus Yngen - Head of Major Appliances Europe

It is not is spread evenly, but we have cost issues I would say with all product categories more or less, so its not just a one category issue.

Michael Andersson - Danske Securities

And in terms of market share, you're saying that you are doing well in that side. Is that still only volume or do you think also in value share?

Magnus Yngen - Head of Major Appliances Europe

No, also in value, what we had what we saw in the third quarter was a 18.8% market share total Electrolux Group. But within that market share, we are shifting our mix, so the market share of Electrolux in AEG is increasing and what we call our smart brand, taking to the lower margin brands is decreasing, so we have a positive mix within our market share.

Michael Andersson - Danske Securities

Okay, thank you.

Unidentified Company Representative

We have another question from Patric here.

Patric Lindqvist - Hagströmer & Qviberg

Yes Patric Lindqvist with another bank, HQ Bank this time. I would like to ask you on the cost side of Europe. To me, it seems as its mainly an internal problem, if I am correct. It's very... and another question is I guess a) then you should have a quite a good grasp on when you should be sort of through this. Could you share some light on that? And also what's the risk of that you basically now do like everybody else. Everybody is trying to lower cost or lower the time, whereas you are now with new products and trying to cut costs whereas everybody else are going to be with the same kind of new products and so you are just following the bunch, if you say, what I mean?

Fredrik Rystedt - Chief Financial Officer

Try to give you a distinct answer is yes, it is mainly or basically an internal issue and as you may remember, we talked after the second quarter that we had problems in getting the new products to the market had some loans delays. So we were extremely focused on getting, it's a fairly complex and comprehensive launch. We have been extremely focused on getting the new products to the market. As we succeeded, we have built distribution, so that's not the issue right. The products are out in the distribution and they are performing okay. But, we have not been able to focus on cost out as we typically do continuously and as everybody in this industry typically does right. So the focus was to get the products to the market, build distribution and now we have to come in after when that is done, to start the cost out of this again. And yes, we have a fairly good grip on where it is and what we are doing, but what we do not have defined yet is the timing because this involves different things; process, material, tooling, redesign, lot of activities that will happen and exactly the timing of when that will kick in. I cannot tell you today, it will take several quarters of work now to get this cost back to where it should have been from the beginning.

Patric Lindqvist - Hagströmer & Qviberg

Okay. Can I ask a question to Hans on the U.S. You are being very explicit and clear about the trade down trend in the U.S. and knowing that you are going to do launch a similar kind of thing as you've done in Europe and the U.S. Do you feel more word now that you have... you will be having high priced stuff to sell when nobody wants to buy high price stuff to put it?

Hans Stråberg - President and Chief Executive Officer

So I understand the concern. But I also want to point that, when I last looked, the U.S continent was still there and the people were still there and there are still some people who are building houses. And so although the market has been down, there is still a market there. I think it is fair to say that the... in the declining market that might be tougher to thrive in that market. At the same time, we are not present there and therefore, I think there is an opportunity and with what is going on in the U.S market, I think there is an opportunity. And also I would be concerned if our partners, the retailers would say that this is not the right time, but they don't... they think it is. So I share your... what I understand your question, but I think still it is a good time.

I would like to just come back to the risk of lowering prices in Europe. I think we have seen some... we have worked hard to increase the quality of our earnings. And we have succeeded in getting that up, unfortunately, we don't get it on the bottom line. I think we have seen with the price decline that we estimate in Europe in certain segments that we have some colleagues there that are running for volume and of course, then you can increase profitability over some time. We've been trying out to establish ourselves in where we want to be with this new product line up and that's what we are holding on to

Fredrik Rystedt - Chief Financial Officer

Patric, I can maybe add two things to the U.S. question you have. And the first thing I think is if you are non-existent on a market and where that market is 35 or 37% to the total, may not have much impact right if you are not there and trying to establish. And the other thing, the attractiveness of that segment for us and for the participants is that price is not the conclusive factor for consumers, rather other things; attractiveness and brand strength and those kind of things. So we don't think this is a major concern as Hans pointed out

Hans Stråberg - President and Chief Executive Officer

And I think it is also fair to say because this an important question, I think it is fair to say that people are not trading down from an Mercedes S class to Volkswagen, people may trade from a Volvo S62 or to may be a simpler car, well, from a Mercedes S class to an E class or they may wait to buy the new Mercedes. So I think when you look at the figures in the U.S., I think its fair to make that conclusion.

Unidentified Company Representative

Okay, should we try a couple of questions from the telephone conference. So operator, could you probably try to get some questions from people on the telephone.

Operator

Yes. The first question is from Mr. David McGregor; please go ahead sir.

David McGregor - Longbow Research

Yes good afternoon. I'd like to perhaps begin by giving a clarification in your persuasion, your discussion in North American results. You point out the consumer migration towards lower price segments and you discussed that in your prepared remarks. But in the same paragraph, you talked about a positive price trend and I was wondering if you could just sort of talk a little bit about what you're trying to communicate there?

Hans Stråberg - President and Chief Executive Officer

Yes Peter, would you... you want to?

Peter Nyquist - Head of Investor Relations

I think Freddy can take that.

Fredrik Rystedt - Chief Financial Officer

No, I think, when we talk about price, its general price point performance, in the sense that the suppliers on the marketplace are not lowering prices and I think there are good reasons for that. Of course, as we have talked about throughout this year and of course also in Q3, direct material is increasing. So the cost for us and for our competition is clearly increasing. So that gives a good price performance in general in the marketplace, people are not lowering prices, its as simply as that. That doesn't mean that you cannot have a shift down in mix. People are simply buying less expensive products.

David McGregor - Longbow Research

I see what you mean. If raw materials being the issue it is; if people are not lowering prices, so are they in fact raising prices?

Fredrik Rystedt - Chief Financial Officer

That's not what we see. We see a fairly flat development in the quarter.

David McGregor - Longbow Research

Okay. The Juarez laundry plant, if you mentioned, I'm sorry I missed it. But are you in production at Juarez on laundry now or and if not, when do you expect that to be in production?

Fredrik Rystedt - Chief Financial Officer

Q2 of 2008.

David McGregor - Longbow Research

Can you share with us the capacity of that plant?

Hans Stråberg - President and Chief Executive Officer

Capacity of that plant?

David McGregor - Longbow Research

With respect to number of units produced.

Hans Stråberg - President and Chief Executive Officer

I don't recall on the top of my head here, but enough.

David McGregor - Longbow Research

Okay. And a final question, just in Europe, I'm wondering to what extent is the slow down a function of retailer de-stocking, as apposed to just a slow down in your sale through?

Magnus Yngen - Head of Major Appliances Europe

In Europe, we did not see a general de-stocking with retailers. We have a slowdown in mainly Germany and Spain, and the U.K. market is a little bit soft. But overall, the demand situation in Europe is still fairly okay. And, we do not see a significant de-stocking in retailers.

David McGregor - Longbow Research

Okay then. Thank you very much for your answers.

Unidentified Company Representative

Thank you. Can we take another question from the telephone conference?

Operator

Yes. We have a question from Mr. Andreas Willi; please go ahead sir.

Andreas Willi - JP Morgan

Good afternoon. Three questions please. The first one is just a clarification about Europe. You said you have 4% positive mix, 2% positive price, but overall your sales were up 3.5%, which would imply negative volume growth, but at the same time you say you have gained market share and outgrown the market, if you could just clarify that? The second question I have is if you could give a bit more details on the cost in Europe associated with product launches to what that we... is this really thinks that basically you went wrong in the design of the product, i.e. you have designed with the nice features the o consumers want, but didn't take in to account what the consumer is willing to pay for that, and to what degree are these costs that are just due to the complexity of the product launch itself, if you could kind of break that into those two parts. You said you had 5% too high costs, kind of what does each of those make up for? And the last question is on corporate costs, which were again quite low in the quarter. You're kind of 50 million below kind of the run rate you used to have, if could give us some guidance for the full year?

Hans Stråberg - President and Chief Executive Officer

Okay, Magnus?

Magnus Yngen - Head of Major Appliances Europe

Should I take the first one perhaps. We had a 4% mix improvement roughly, we had a price decline, general price decline of just over 1.5. We had a volume increase of little over 1%. That leads to a net sales increase of 3.5 roughly in that order of magnitude and read the second question.

Fredrik Rystedt - Chief Financial Officer

On product cost, product cost mainly, we have some extra cost in the third quarter for getting the new products to the market, building distribution, building new showrooms and so and so forth. But that is a minority of the cost issue we had. The main cost issue sits in the product cost and there we had, just to give you one example, for example, we had the sound problem on one product. And to remove that sound problem, we had to put in reinforcement bars in that product and those bars cost us 7 euros and if you have to put in reinforcement bars of 7 euros into couple of million products, its a lot of money, right. And now the products are in the market, they are performable okay and now we'll start reengineering out those issues in a more cost effective way. But that will happen here and the second quarter was get the product to market, fix performance issues, make sure we build distribution and now we need to start to take out cost.

Unidentified Company Representative

And then last question was about...

Fredrik Rystedt - Chief Financial Officer

Common cost, I said that initially that our run rate is about 125 or so million a quarter and we have previously given the guidance that we should be around 500 million for the year in that order of magnitude. With the performance in Q3, we might just be a little lower or in the region of 500 million.

Andreas Willi - JP Morgan

But it... because it's... you has been able to reduce those and they can be maintained on that lower level or we have in Q2 I think some provision release. So a normal level is more like 525 or 550?

Fredrik Rystedt - Chief Financial Officer

If I start with the comparison, because I think that was your first question, compared to last year. We had lots of cost relating to a number of different things. Among others of course, the Husqvarna issue, it's been also we had last year. This year of course we don't have that and we'll also had a number of cost reducing efforts that has lowered that rate for this year. So in all fairness, our rate is lower than last year on the running rate basis. That's hence that 125 million roughly a quarter.

Andreas Willi - JP Morgan

Thank you.

Unidentified Company Representative

Thank you, Andreas. Let's take two questions here in Stockholm before we go further with telephone conference.

Rasmus Engberg - Handelsbanken Capital Markets

Hi, Rasmus Engberg, Handelsbanken. First question, Europe seems to be slowing sequentially quarter-by-quarter, what is going on and where we're heading there?

Magnus Yngen - Head of Major Appliances Europe

Slowing in what sense; volume, net sales or margin?

Rasmus Engberg - Handelsbanken Capital Markets

If you take the growth for the European industry, it's been slowing quarter-by-quarter.

Magnus Yngen - Head of Major Appliances Europe

Okay, the third quarter was a little bit lower growth rate. That slow down in the European market in the third quarter is mainly related or not mainly, it only related to the cold category. And the cold category, refrigeration is related to the weather. So we still expect the fourth quarter growth to be higher than the third quarter. So that slowdown was not really a weaker consumer demand. It was refrigeration weather-related slowdown.

Rasmus Engberg - Handelsbanken Capital Markets

And last year it was very hot if you remember, and that was I think a record year, when it comes to refrigerators.

Magnus Yngen - Head of Major Appliances Europe

All other categories maintained a 2. 2.5 plus growth rate in the third quarter, so it was a cold issue.

Rasmus Engberg - Handelsbanken Capital Markets

Okay. Just a general question, what has changed with this report? You're seeing much more conservative with regards to the outlook and the U.S. market has been weak for some time, raw material costs have been high and increasing for some time. Are you saying that the new information is the cost for launch in new product Europe, is that the main driver that you are more conservative now?

Hans Stråberg - President and Chief Executive Officer

I am a little bit surprised by your question about the U.S. market, I think when you look at what we've had since mid-year when we met last or when we told last, we had financial crisis, sub-prime, lots of stuff there. We did not, maybe you... we did not expect the U.S. market to be down as much as 5, 6% here in the third quarter. And I read the paper and I read the speech from Bernanke here last week and I read the comments from the IMF G7 meeting, there is just much more of uncertainty that has grown and that I think is the answer to the question.

Rasmus Engberg - Handelsbanken Capital Markets

Just where are you specifically seeing, is it in Europe or in the U.S. that you think that fourth quarter will be weaker than last year. Is that is what you are implicating?

Hans Stråberg - President and Chief Executive Officer

I am saying that we see an increased risk in North America that we have... people are talking about will it be... what's the chances of a recession? Well, when we met last year, it was 25%, now its... some people say 40-50, even up to there. We, I think more renowned macro economies than myself are very concerned about where its heading and that is what we want to reflect in this, and we see that. The other cause of concern is of course the development that we've had in Europe and we haven't had last year an unprecedented strong fourth quarter and they are more specifically December. We think it will be very difficult to beat that in Europe, so therefore we think it's important to be more concerned about the development this year than last year

Unidentified Company Representative

Another question here, maybe... Anders [ph] here.

Unidentified Analyst

On Europe again, could you just be a bit more specific. As you reengineered these products to take the complexity out and so forth, I mean could we even expect an increase in additional cost in the fourth quarter and the first quarter? And that's my first question. And the other is okay, the cost was clearly not right, but are you convinced that you got the pricing side right? Could you've got been even more aggressive on rising with the new product launches, is there more to be done?

Hans Stråberg - President and Chief Executive Officer

No, I think from that perspective, we have performed quite well. 4% mix improvement in the quarter is extremely good in our industry. So I think that whole side of the equation is very good, its more the cost situation... the per cost we have talked about before. Now these products all out in the market there, out in distribution, the factors surrounding full production, so now at least we know the cost is right. So during the third quarter, it became clear that we had some cost overruns, we did not see fully in the second quarter. So, I think we pretty much know what the picture is today and we have already started the actions some of those items to get back on track again. Only if there is a time lag in when we can implement those, but I don't think in that respect that we will have cost surprises in the fourth quarter. For us, out in the market production is running full steam, and we know at least now where the baseline is.

Unidentified Analyst

So, the cost level for products will be similar at least in Q4?

Hans Stråberg - President and Chief Executive Officer

Similar or normally slightly improved the cost, fourth quarter typically is a higher volume quarter than the third quarter. At the same time, those costs will not go away in the fourth quarter, that I already answered, that will take some time to get it out.

Unidentified Company Representative

Okay. Should we take a couple of questions from the telephone conference? Please operator.

Operator

We have a question from Mr. James Moore. Please go ahead sir.

James Moore - Goldman Sachs International

For Goldman Sachs. A few questions to clear up the issues on cost, as I think it's looking particularly unclear for me outside. With regards to raw material first, you signaled at the beginning of the year, a 2 billion headwind for the year. Could you just clarify how much you think is left to come in the fourth quarter and how much has come in the first 9 months to-date? And secondly, if we look ahead into '08, the current metal spot prices, can you give us a feel for, if you think it is going to be another 500 million, another couple of billion next year? That was the first issue on raw material cost.

Secondly, on European costs or component costs, if we can call them that. Could you give us a feel for exactly what components it is? This is where these reasons have come in worse than affected. And you're talking the fourth quarter and the strong period last year. Last year you went from 672 million in the third quarter to 1225. It was big almost doubling. Are we going to see... how much of that seasonality will be offset by these cost issues? Can you beat a billion in the fourth quarter? Can you give us some feel because there is a huge seasonality to play as well as a component cost issue to play, so maybe if you could give some clarity on that, it would be helpful?

Hans Stråberg - President and Chief Executive Officer

Yes, you had some voluntary cost, may be Freddie.

Fredrik Rystedt - Chief Financial Officer

Yeah, I think your question was how much are we expecting to have in the fourth quarter. It's going to be roughly about SEK 0.5 billion between 450 to 500 million. It's difficult to say exactly, but in that order of magnitude. We said at the early part of the year that we are going to have slightly more than 2 billion. it's now around 2 billion as we also said in the second quarter. So those estimates remain similar.

James Moore - Goldman Sachs International

The other question was about '08 cost [ph]?

Fredrik Rystedt - Chief Financial Officer

In terms of raw materials, I think it's still premature for us to say that. I think there are movements on the raw material side of course all the time. We expect, I think it is likely, we think it's likely that we will see higher raw material cost in 2008 in comparison to 2007. I think it's is unlikely that we will see a magnitude of an increase similar to this year. So it's going to be somewhere in between. Now recognizing the fact that that's a really big span, right, it's between 0 to 2 billion, I don't... I understand that's a little bit uncertain, but it's more towards the mid to mid part of that range. But we will quantify that when we actually know more for this, at this time we don't know more than that.

James Moore - Goldman Sachs International

But an early estimate of a billion would be in the right ballpark?

Fredrik Rystedt - Chief Financial Officer

Well again, as I said, I don't know that. We cannot say, because it will vary depending on what happens in the rest of the year. So it's not going to be as much as next year, or this year. I think that's very unlikely, but it's pretty much for sure that's going to be higher than we've seen or higher than zero, but again there is still some times ago 2007, lots of negotiations left for us to do. So it's not too premature to be more specific than I am at this time.

Unidentified Company Representative

Then we have some cost issues here.

Magnus Yngen - Head of Major Appliances Europe

On the product cost issues, as I said before, there are different issues in different product categories, but a significant part of the cost issues are related to electronics and electronic modules, not all of it but a significant part of it is.

James Moore - Goldman Sachs International

So the control modules?

Magnus Yngen - Head of Major Appliances Europe

Yes.

James Moore - Goldman Sachs International

Okay. And you are not able to pass these through with an interim price rises?

Magnus Yngen - Head of Major Appliances Europe

No, as I said I think that our repricing in the marketplace is the right one and the 4% mix improvement we have also gained here in the third quarter I think demonstrates that. So I think this is more an internal cost issue than a missed opportunity on additional pricing in the market.

James Moore - Goldman Sachs International

And just one... this one my final question to repeat, it's a very direct question. Last year, you went from 700 to 1200 of EBIT between the third and fourth quarter. Given the cost issues that will repeat in the fourth, will it beat 1 billion of EBIT in Europe?

Magnus Yngen - Head of Major Appliances Europe

No, I think that is unlikely, very unlikely given the cost situation we have right now.

James Moore - Goldman Sachs International

Thank you very much.

Hans Stråberg - President and Chief Executive Officer

We had a... we had a EBIT of 9.7 in the last quarter for Europe last year and as we said there that was an unprecedented good result at the end of the year and with today's market and we have the cost issues, it is not likely that we will reach that.

James Moore - Goldman Sachs International

Okay, thank you.

Operator

Okay, shall we have a couple of questions here in Stockholm as well. Are there any more questions, again, microphone.

Unidentified Analyst

A little bit longer perspective on the U.S. and U.S. margins, at the moment it's good that the mix is kind of turning down to where Frigidaire and where you're placed. At the same time, what's your feel about the long-term margin out? Are you really able to raise margins in the U.S., your sales seem quite stuck in the middle so to speak and at the moment, the pricing is favorable but as soon as, if prices start to come down and you are very exposed to that. So, a little about the longer term outlook in the U.S.? Is it still only to move the factories there or do you feel that you are getting more of the European thinking of product development, brand and so on? Thank you.

Hans Stråberg - President and Chief Executive Officer

I think it's a very good question and first, we have been confined to about half of the market. We have about 24% market share in North America, but we only participate in half of the market. The builder there market is approximately 25% of the total market and that has come down with 25-30% since last July. We are not... the bad news is that we are not participating in the builder market. The good news is that this time that we are not participating very much in the builder market.

Now, the retail market has not comedown as much as the builder market has and we are then very strong in the market that has not come down as much. Furthermore, we have very good relationships that we have build up over the years in North America with the retailers. We have been there very good at servicing them, serving them and you have seen us talk about supplier of the year awards and things like that and in times like this, its an indication of that we are doing a good job. We have a good product line up, that sits tightly there. Margins in this half of the market is then lower than they are in the mass premium segment, which we are not participating in. We have reason to believe that we are doing a better than most of our competitors, though I don't have access to their figures, but what we can analyze and understand in this part of the market. We have been able to build our position, if we recall a couple of years ago, we had the market spilt between five brands. It was Frigidaire, Gibson, Kelvinator, White-Westinghouse, Tappan and some thing more I have forgotten about. Today 95% of our sales is actually Frigidaire, so we have been able to consolidate that, rejuvenate the brand, go from 13% up to where we are today, 24%. And we have introduced our consumer insight process over there. We have steadily improved our margins over the course of the years here and now when we are getting in more heavy into laundry, we can continue that but another lift will be to go into the mass premium segment where we then plan to do that with the Electrolux brand. Is that answering question? Thank you.

Unidentified Company Representative

Quite a more questions here in Stockholm, let's go back to the operator please.

Operator

We have a question from Mr. Olof Cederholm; please go ahead

Olof Cederholm - UBS Warburg

Hi, this is Olof Cederholm with UBS. I just have one quick question about the U.K. factory investigation that you are doing. Could you give us a sense of if you were to close that down, where you would move the production and how much it costs?

Magnus Yngen - Head of Major Appliances Europe

Okay, that evaluation of that factory was recently launched as you know. The benchmark we are doing right now is between the Spennymore factory and our factory in Swidnica in Poland. The total cost for potentially closure is not calculated yet, that is part of the evaluations that is happening right now. But the benchmark is Polish cost in our factory in Swidnica.

Olof Cederholm - UBS Warburg

Okay thanks.

Unidentified Company Representative

Next question please.

Operator

We have another question from Mr. James Stettler; please go ahead sir.

James Stettler - Dresdner Kleinwort Wasserstein

Thank you, good afternoon. Two questions please. With all these headwinds in Q4, I don't quite understand how you can maintain your guidance for operating cost to be up somewhat, could you maybe clarify where you expect to see the partners [ph] in Q4? And secondly, just talking about non-recurring items, can you give us any guidance as to where you think that number will end up for the full year? Thank you.

Fredrik Rystedt - Chief Financial Officer

I did not get your... did you understand the first question?

Unidentified Company Representative

How can we keep our guidance with the performance in the third quarter, especially in Europe, I think was the first question, James, with all the headwinds... with all the headwinds we are having actually. And the second one was about restructuring the guidance where we are going to be this year?

Fredrik Rystedt - Chief Financial Officer

I can try and comment. I think it's clear from the numbers you have seen that we have actually outperformed last year by in every quarter so far this year. So I think although we see or remain with our outlook of course, as Hans pointed out, we are uncertain as to the U.S. development and our current performance in Europe. Having looked at that performance and the accomplishment so far this year, our conclusion is that we remain with our outlook. So that's our judgment at this point of time.

The second question relating to the restructuring or items affecting comparability, we've said its going to lower than 1 billion. Of course what is remaining this year is largely of course, we don't communicate, we've communicated now the factory in the U.K. spending more, the amount remains to be of course calculated as Magnus just alluded to but it will... the guidance remain the same, it will be lower than 1 billion.

Unidentified Company Representative

You have to say James [ph].

James Stettler - Dresdner Kleinwort Wasserstein

Yeah, I mean just because Europe should be significantly lower you are saying versus the 1.2 billion, the U.S. obvious is not getting much easier, so just my question there was given that you are looking for slightly below 500 million in corporate costs, where else you see the big improvement coming through? Or maybe I am just too conservative on the U.S. market for Q4?

Hans Stråberg - President and Chief Executive Officer

I am not sure about the question... he is James? I am not sure about the question James because as I said, if you look at our year-to-date figures in terms of operating income, we are considerably ahead of last year as you've seen. We are 2830 in comparison to 2580 last year, so we are considerably ahead and in order for us not to meet that forecast, of course quarter 4 needs to considerably lower than last year. Our best estimate at this point is that we will out perform last year in accordance with that outlook, we have put forward to you. Now whether we will do that or not, again, that's our best estimate but time will tell of course.

James Stettler - Dresdner Kleinwort Wasserstein

Okay, thank you.

Unidentified Company Representative

Thank you, James. Next question from operator.

Operator

We have another question from Tim Adams. Please go ahead sir.

Tim Adams - Citigroup

Yes. I just want to ask on the U.S. We sort of noticed that your over the last three quarters the degree to which you have been outperforming the market in a volume sense appears to have diminished somewhat. Reference, Q1market was down 10, you were up 6. In Q2, the market was down 2, you were up 5. This quarter you were up, well just up a little bit in the States and the market is down about 6. Is there anything sort of behind that trend? I mean is it a function of your retail space allocation, how the things are panning out with the retailer. Does it have something to do with the anniversary effect of the Whirlpool Maytag merger? Do you think... I mean, what comment would you make on that?

Hans Stråberg - President and Chief Executive Officer

I think it's a very interesting observation and I think it's quite natural that... I think, if there is a blip on the radar screen, I don't think it would go unnoticed forever. I think, of course the rest of the participants in that market will of course look at different ways to address the gap. And the way you look at it is that the market has come down and some of our competitors maybe have started to perform a little bit better, but time will tell.

Tim Adams - Citigroup

I mean are you still confident you think... then you can do better than the market from hereon end?

Hans Stråberg - President and Chief Executive Officer

Well, we have done so so far and of course that's our intention to continue to do that. Will we be able to do that? Well, the difficult part here is of course that they... our competitors not always do what we tell them. They may be more successful and have learnt the lesson going forward. But of course, we will try and do that, but I can't promise you of course.

Tim Adams - Citigroup

Okay, thanks.

Operator

Thank you very much. Next question here in Stockholm, do you have any more? Patric?

Unidentified Analyst

A short one on the Latin America. That is obviously going very well. If you look at the level you are making in 2005, it was roughly a breakeven business. And you are making 100 million a quarter now. Obviously, volume is a part of it, say the more, and we know that the Brazilian market is very volatile over time. Can you just... do you have the sense for how much of that improvement is your own ability to make money? And don't say, 100%. And how much is volume?

Hans Stråberg - President and Chief Executive Officer

I think it is... it used to be a combination of it... where we were in the sub-critical some years ago. But the important thing is that we have a bet on the right horses in the retailers in that market. We have a very good crew there that have even before we introduced the consumer inside process within the Group, they were running that type of process so, they... it's commercially very advanced management team over there that are going for the right products and are building margin over there. So, I think it is a combination so far. The matching order is to build the margin and of course not at the expense of losing market share. I think they are doing a great job.

We have had the good growth in the marketplace too of course, but we have grown more than our competitors and I think we've done a good job there. We don't have a compressor manufacturing there that we can benefit from and we're paying 20% more for compressors in Brazil than we do for the same compressors in the U.S. So, there that is we would be doing even better margin if we had... if the tariffs were down a bit in Brazil. Nevertheless, they have been very good at bringing the right products and mix to the market.

Unidentified Analyst

So, is that more than 50% from your own improvement or...?

Hans Stråberg - President and Chief Executive Officer

I would say, I mean, it's more than 50% to the team. I would say, it's some 60-70% because you've seen our competitor grow there as well and because the underlying market is doing quite well.

Fredrik Rystedt - Chief Financial Officer

May be not the most important point but it was not breakeven in 2005, it was actually breakeven in 2001 and from 2002, '03, '04, '05 we have improved every year actually, so it's not that dramatic from '05. It's going in the right direction all the time, so.

Hans Stråberg - President and Chief Executive Officer

And I think that together with a number of other business areas is where we are now executing on this and that's the way we've looked upon Europe as well, because we have been able to achieve a difficult part of the launch here, when we launched so much into a short period of time. All our efforts and so much have gone into getting it right in the marketplace and unfortunately, we're not happy about it, we are disappointed about it. We stumbled some on our target costing. But, not as an excuse, but as an explanation that we... actually we are not able to also do that at the same time. It's disappointing, but it's an internal issue and we will drive that now within Europe.

Unidentified Company Representative

Do we have any more questions here in Stockholm, or we will go to the telephone conference.

Operator

We have a question from Mr. Stefan Lycke; please go ahead sir.

Stefan Lycke - Deutsche Bank

Hi guys, Stefan Lycke. I am just sorry to be coming back to the cost issue, but still Magnus mentioned something about cost having been more than 5% above budget, did I understand that correctly?

Magnus Yngen - Head of Major Appliances Europe

Well, our target cost on these new products, yes.

Stefan Lycke - Deutsche Bank

Target cost on these new products, okay. So could you say something more about that because I mean I guess we are not talking about the total cost obviously, that's a given. But on those 20% product that you have replaced or what's... could you give that... I don't understand that remark really.

Magnus Yngen - Head of Major Appliances Europe

Okay on the 20% we have replaced to represent almost 40% of our net sales, some of these cost issues on components are also used on other products so some of this cost overruns have also affected other products. And if you look at the volumes we are selling, in the third quarter we sold almost 5 million units in Europe, 4.7 million units. So of course, if we have two-three euros a piece in cost overruns, it adds up to significant numbers. So a lot of the new product development has been driven to support the new product launches, some of those modules and components are also being used on other products and when we have cost overruns, it impact mainly the new range, but also some of our existing products.

Stefan Lycke - Deutsche Bank

Alright, and you said that it was 40% of net sales?

Magnus Yngen - Head of Major Appliances Europe

The new products in the month of September accounted for 36%, exactly what our net sales in month, yes, for this the magnitude of the launch.

Stefan Lycke - Deutsche Bank

Perfect, thanks.

Unidentified Company Representative

Thank you, Stefan. Next question please.

Operator

Next question is from Mr. Andreas Willi; please go ahead sir.

Andreas Willi - JP Morgan

Yeah, it's Andreas from JP Morgan again. Sorry to come back to the product launch in Europe again, but at the Q2 results you said that the product launch this year in terms of the number of new product launched is not really that different from past years, so I still don't quite understand to what degree that something specific or should... isn't there some thing that always happens that you introduce new products, you are going to have some product launch calls and that is nothing we should say is kind of just specific to this year?

Magnus Yngen - Head of Major Appliances Europe

No, I think that specific thing to this year is that we have... is less than 20% of our total SKUs in Europe that will represent almost 40% of our net sales. So it has a significant impact. Also previously, we have been continuously launching, phasing in and phasing out products during a running year, what we did this time was to do a brand launch for the Electrolux brand across Europe in all countries. The complexity then is that you need to keep your supply chain going for existing range at the same time as you build up inventory to launch the new range, as you have to take a complete assortment of products to your trade partners. So the complexity and that kind of run move total brand launch, I think was bigger than we expected. And we have never done this magnitude of one major brand launch in Europe before. So the total numbers of SKUs is about 2500 products across Europe and a coordinated brand launch then country-by-country. Proven to be a fairly complicated operation, part of that is suffered from during the second quarter. Third quarter, we all over the launch humps and we have gained basically all the distribution we aimed for, but we have now this cost issue that we need to deal with.

Andreas Willi - JP Morgan

I understand that. Obviously, it was more difficult this year because you did it on a unified way for Europe. But looking into 2008, you will probably launch a similar amount of new products again next year with a similar risk that you have specific costs associated to that?

Magnus Yngen - Head of Major Appliances Europe

No, we do not we do not have this magnitude of launch next year, in '08. This magnitude of new launch is not going to happen every year. So the next year is going to be lower launch intensity, typically however, we would expect to see the benefit from '07 launch in '08 when the supply chain is up and running inventory is fresh and we can work on performance, cost performance on those products.

Hans Stråberg - President and Chief Executive Officer

I think it is fair to take yourself back a little bit, we are changing Electrolux from a company that sold what we produced to becoming a consumer-focused, consumer-centric outside in company. We have had to reengineer large parts of our processes, not the least are product management flow and our product development. We had to move a lot of factories because we were behind in when it came to the basic costs. Our aim, our ambition has been to strengthen our Electrolux brand name. We've gone from 15% to about 50% of our sales under the Electrolux brand. We have in Europe prepared a lot of this and we have now introduced major launch for the Electrolux brand. This doesn't mean that we will do this every year. We have to set this into the marketplace in order to have something to build from.

The good thing is that we have actually gotten our average selling price up. We've strengthened the Electrolux brand. We have improved the mix. We have taken market share. We're selling better. In that sense, we have achieved a difficult part that we were not long ago discussing if this was possible to achieve. Unfortunately, we stumbled on some product cost issues, about 3 euros a piece of what we're selling, maybe more on certain products. That is an internal issue that we're not happy about. We will get that right. It will take us a couple of quarters because it's not done over night. We have had an unprecedented material cost increase that we had to take out at the same time.

Last year we had 20% of our volumes in Europe moving between different factories and we changed just about every SKU because of the restrictions on hazardous substances while we introduced this product. We have in South America; we have then since 2002 improved every year and Asia Pacific, we used to be bleeding left and right. There now we are profitable in growing, quite good situation except for still free standing refrigerators in China. Floor-care products are since two years profitable in China and commercial kitchen is profitable. I think the strategy is working. We are all concerned about the cost issue that we have not had the bandwidth to take out, but that's what we intend to do now.

Unidentified Company Representative

Okay. Do you have any more questions?

Operator

We have a question from Mr. Anders Trapp; please go ahead sir.

Anders Trapp - Enskilda Securities

Yes hi. I have a couple of questions. My first house-keeping questions, what do you expect in terms of tax rate for the full year and then may be more important for next year? I gather there are some tax law changes around Europe that some companies are happy to talk about or would you see in terms of tax development? Also your CapEx number expectation for this year and next year would be interesting. If you could sort of explain it?

Fredrik Rystedt - Chief Financial Officer

Hi Anders, I would first start by saying that the Q3 estimate 26.8% is actually what we estimate for the full year. So that should be the full year number. For next year, I think we are at a... I think a very attractive tax rate. We have been able to take that down to a level which we now think is very attractive, so I will not be able to promise you improvements next year and that sounds, I think we are very, very pleased with our level. Now if you look at the CapEx level, I think your question was related to 2008 and it's too premature for us to actually comment. We will do that later on when we meet next time.

Anders Trapp - Enskilda Securities

Alright about the... you mentioned in your report material about the weakening or the weakness of the U.K. and German markets. I wonder two things there; first of all, is that also on the reflecting cold and i.e. the new bad weather, and secondly, did it get worse during the quarter?

Magnus Yngen - Head of Major Appliances Europe

The expectation in Germany was that for this year was that we would have a slow down in the first quarter after the VAT increases early in the year and then that Germany would recover during the year. This was not only our own, but also retail partners expectation. Germany was down 3% in the third quarter and that is lower than what we expected. U.K. is down small amount, I think the number for third quarter was 0.2%, so it's not dramatic. But of course with the size of market in Europe downturn is of course significant. But the main I think deviation from our earlier assumption is that Germany was down more than what we expected. Other markets continue basically at expectations or better.

Unidentified Company Representative

I think also your question were you saw a weakness throughout the quarter as well in Germany specific in U.K.?

Magnus Yngen - Head of Major Appliances Europe

Yes, slightly lower than we expected.

Unidentified Company Representative

That over time.

Anders Trapp - Enskilda Securities

That over time, if you look at the quarter and such?

Magnus Yngen - Head of Major Appliances Europe

No, I wouldn't say that.

Anders Trapp - Enskilda Securities

And the weakness was not only the refrigerator in India, refrigerator in Germany was more bold?

Magnus Yngen - Head of Major Appliances Europe

Mainly, it was actually... even in Germany, mainly related to refrigerations, mainly.

Anders Trapp - Enskilda Securities

Alright, let's that's good then. Two more questions please if I may; the launch of an Electrolux brand in the U.S., could you say anything about that, about when it's up and coming and also if there are any parallels to be drawn from the development we've seen in Europe now with the launch in Europe? Are you facing the same kind of risk, executional risk in upcoming U.S. launch?

Magnus Yngen - Head of Major Appliances Europe

Well, we will launch within the first half of the next year and of course, we are learning from what we have just done in Europe. But the orders of magnitude when it comes to the product complexity and the number of countries and differences are 10 times as much at least in Europe. So the complexity is less, but of course we're working very hard to get it right in the U.S. That's going to be a very exciting launch and we are looking forward to able to share that with you little bit later.

Anders Trapp - Enskilda Securities

Alright, very good. One final question, about the sort of the fix for the cost over Hans on the new products, what does that really mean, does that mean you need to replace some of the components of the consoles? That will mean that you can renegotiate the price or does it mean that can be more efficient in the assembly, sort of what kind of main ways to fix it do you see?

Hans Stråberg - President and Chief Executive Officer

I think all of those you mentioned and some of them are for to our purchasing, something our reengineering, something is process and material changes. So our action planning involves all the four different measures.

Anders Trapp - Enskilda Securities

Alright, very good. Thank you.

Unidentified Company Representative

Thank you. Do we have any further questions?

Operator

We have a question from Mr. Tim Adams. Please go ahead sir.

Tim Adams - Citigroup

Hans, can you just update us on where anticipate the delta in terms of the cost saving measures that you've got going through to be in 2008. I think you've said in the past by 2006 you'd achieved SEK 1 billion of the sort of 3 billion you hope to get by 2010. I think you said sort of a further 600-700 million for '07. How much do you think you might get in '08?

Hans Stråberg - President and Chief Executive Officer

Well, again the '08 questions we will actually come back to. Generally speaking, I think all 2008 questions we will come back to and of course it also it has to do with current ongoing evaluations etcetera. If you look at this year, '07 we estimated 6 to 700 million. That remains our estimate and we are fairly confident to be actually able to deliver that.

Tim Adams - Citigroup

Right. But I mean, I'll kind of perhaps phrase the question in another way, and that's to say, I mean, if you took no more actions today, would there still be a significant amount of cost savings coming or do we have to see further actions?

Hans Stråberg - President and Chief Executive Officer

Yes, I think its fair to say you have to see further actions Tim, because what you have seen so far is slightly or around 6 billion of incurred cost. Now, our estimate for the full program as you know, is about 8 billion and of course our estimate for the total savings is about 3 billion. So, yes, you would have to see more activities to be able to reach that three.

Tim Adams - Citigroup

Okay.

Unidentified Company Representative

I think also the question was from the product we have now published or how much do we have left from that, like the Australian project and also Webster in savings?

Fredrik Rystedt - Chief Financial Officer

I don't have the exact number, but there will be additional savings in 2008 in comparison to what we have in 2007 and of course further activities if the current... currently announced...

Tim Adams - Citigroup

Yeah, so going ahead that will add more to it, is what you are saying?

Fredrik Rystedt - Chief Financial Officer

Yes.

Tim Adams - Citigroup

Yes, okay. Thanks very much.

Unidentified Company Representative

Thank you, Tim.

Fredrik Rystedt - Chief Financial Officer

Thank you.

Unidentified Company Representative

Any more questions or...

Operator

We have a question from Mr. James Moore. Please go ahead sir.

James Moore - Goldman Sachs International

Just a quick follow-up gentlemen and to follow-up from Tim's question there. On the savings, is that... you finished all the savings at Nuremburg and Torsvik, and Fredericia in Denmark. Or they are the ones that you imply have further savings to come through next year?

Hans Stråberg - President and Chief Executive Officer

Nuremburg, there will be some more for this year, is also going to be some more. So no, the answer to Tim's question there James was that there is more to come from those that already have been executed on and of course also the transition from as you know, Webster City to Juarez that we have announced and currently executing on, will also bring lots of additional savings. So there will be more from those already in place and being executed. And in addition to that, the response to Tim was that we have further actions that we are of course contemplating reaching... to get to those 8 billion.

James Moore - Goldman Sachs International

And just on those that have been currently announced, I thought 350, 400 million of savings next year. Is that in the right kind of ballpark?

Fredrik Rystedt - Chief Financial Officer

Well, as I said, we will comment 2008 as we go forward, but I don't think its entirely wrong, but we will come back to 2008 at the next quarter report.

James Moore - Goldman Sachs International

And in terms of your interest cost in the quarter, just a housekeeping element, was there any mark-to-market within that 115?

Fredrik Rystedt - Chief Financial Officer

The interest cost.

James Moore - Goldman Sachs International

Yes.

Fredrik Rystedt - Chief Financial Officer

Yes.

James Moore - Goldman Sachs International

Was there a mark-to-market in the 115, or was that a clean underlying interest charge?

Fredrik Rystedt - Chief Financial Officer

That's a fairly clean underlying interest charge, yes. There is no mark-to-market generally speaking in that; it's more or less a clean cost.

James Moore - Goldman Sachs International

And so that's the sort of run rate with the better cash going into the fourth quarter next year.

Hans Stråberg - President and Chief Executive Officer

Yes, it should be. Actually, in the quarter we have a small one or negative item. I think it's 20 million or so. But roughly, that is the run rate that we are having in the finance net.

James Moore - Goldman Sachs International

So if you've got a 20 million, is your underlying 95, because that will quite a...

Hans Stråberg - President and Chief Executive Officer

No, as I said, the total is roughly where we are at this point of time, but we will also have... it will always have the trading benefits from our trading operation, from time-to-time we do pay interest on tax liabilities etcetera. So the run rate is approximately where you see it at this point.

James Moore - Goldman Sachs International

I just want to... when you mentioned the 20, was that 135 is the underlying or...

Hans Stråberg - President and Chief Executive Officer

We had a one-off of roughly about 20 million and a positive gain. I wasn't able to complete it and a positive gain of roughly that amount of 16, so the net impact was four. So in that sense we were 4 million higher than our sort of clean rate in the quarter, but the twill of course depend on the interest rate movements.

James Moore - Goldman Sachs International

Okay, thank you very much.

Unidentified Company Representative

Thank you. Okay, I think we can conclude here. Hans?

Hans Stråberg - President and Chief Executive Officer

Yes. And I think I'd like to thank you for spending this extended time with us and we will talk next... I think in February. Thank you very much.

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