Good morning and welcome to Electrolux fourth quarter 2019 result presentation. With me today I have our CFO, Therese Friberg, and our Head of Investor Relations, Sophie Arnius. Before starting, I'd like to mention that this session is recorded and will be available on our website as an on-demand version. Starting with the business overview and some clarifying comment on our new reporting structure. As you know, the Electrolux board has decided to propose that an extraordinary general meeting is held to resolve on the distribution of Electrolux Professional.
As a consequence, the intention is to list Electrolux Professional on Nasdaq Stockholm on March 23rd, 2020. As a consequence, the professional business area is listed as a discontinued operation, and the comments in this presentation will refer to the consumer business, meaning continuing operations, exclusive of Electrolux Professional, unless otherwise stated. Starting with the full-year 2019 for our continuing operation.
We are in an intense period of transformation and innovation, which was visible both positively with strong performance from new products in Europe, Latin America, and APAC-MEA, and negatively with high transition costs in North America. In 2019, we strengthened our platform for future growth by launching important new product ranges, initiating additional efficiency measures, and investing in modularized products in automated manufacturing. I'm very pleased that our two major launches under a sharpened Electrolux brand in Europe and Australia were both well-received and contributed to earnings, and that we in 2019 continued to have a favorable sales and earnings impact from product mix improvements, supported by higher marketing investments. We also saw strong performance in the food preservation business in Brazil, supported by the Curitiba factory re-engineering.
Our North American business was significantly impacted by consolidation of production to the new plant in Anderson, resulting in capacity constraints impacting sales volumes negatively, as well as high manufacturing transition costs for running several facilities in parallel. In addition, lower private label sales continued to impact North America negatively. Increased prices fully offset the significant headwinds of approximately SEK 1.5 billion from raw material costs, trade tariffs, and currency. To sum up, operating margin excluding non-recurring items declined to 3.8% from 4.8% in 2019, and sales growth was minus 1.3%. The dividend proposal of SEK 2.4 billion corresponds to a dividend per share of an unchanged 8.50. Turning to the Q4 highlights. Sales decreased by 2.8% in the quarter, mainly driven by lower volumes in North America.
While price and mix continued to contribute positively, and we saw some market growth in most regions. Our earnings came in with three of our four consumer business areas improving, partly driven by price and mix improvements. Unfortunately, that was not evident by looking at the group's operating margin of 3% as our North American Business Area was significantly impacted by consolidation of production to the new plant in Anderson. This resulted in capacity constraints impacting volumes negatively, as well as high manufacturing transition costs for running several facilities in parallel, as mentioned. The market demand in North America was also weaker in the quarter. Finally, higher marketing investments as well as costs related to the preparation of separation of Professional Products had a negative impact.
Turning to our innovation segment, we have a very significant growth in demand for air purifiers that we're addressing in our wellbeing segment, most notably with the new A9 air purifier, which is a smart, connected air purifier that we've launched in several markets in the second half of 2019. This is also an interesting base for continued business from filters throughout the product's lifetime. We've also talked a number of times about our new modularized and innovative front load laundry category, which have significantly improved profitability in the laundry category across most of our regions. Turning to Europe, we saw sales increase in the quarter driven by both higher volumes and mix improvements. We also saw slight price increases in the quarter, which contributed to the higher sales.
We saw good organic contribution to earnings in the quarter, gaining value market share in both premium laundry and built-in kitchen, partly driven by the new launch. The new Electrolux kitchen range continued to gain share and very high consumer ratings across Europe. Currency continued to impact earnings favorably. As mentioned, we saw increased marketing investments for ongoing product launches that impacted earnings negatively. Turning to the market development, we saw that a total European market increase by 1%, where Eastern Europe was up 2% and Western Europe 1%. It's worth noting that this was a tough comparison period, as Eastern Europe had a strong growth of 7% in the fourth quarter of 2018. Turning to North America, we saw a large decline in net sales due to lower volumes. As mentioned, we have the manufacturing transition in Anderson.
We also saw weak market demand, partly driven by destocking at a key U.S. customer, and we also saw the negative effect of continued lower sales of private label products. We had a slight positive price contribution, though, from earlier increases. Operating income declined significantly year-over-year. This was mainly a result of the lower volumes, but also the increased costs related to the manufacturing consolidation and some accounting adjustments from prior years that also impacted operating income. Turning to the U.S. appliance market, we saw market demand decline for core appliances down 3% year-over-year, whereas market demand for all major appliances, including microwave ovens and home comfort products, declined by 6%. This decline in market was partially related to the retailer de-stocking as well as Black Friday timing. We estimate that sell-out to consumers were somewhat better than sell-in, in the fourth quarter.
Turning to Latin America, we saw solid growth in the Brazilian market, driven by strong Black Friday and Christmas sales. In Argentina, the market recovered slightly from low levels last year, while the decline in demand in Chile accelerated in the quarter due to the unstable political situation. Overall, sales grew in the quarter, with higher volumes and improved mix in Brazil, mainly related to food preservation. Price increases continued to contribute to sales growth, mainly in Brazil and Argentina, while sales declined in Chile and Northern Latin America, such as Ecuador and Peru, due to the market decline. EBIT increased as a result of higher volume and mix, as well as improved price, primarily in Brazil. Continued headwind from raw material and accelerated currency headwind impacted results. Operating income includes a positive impact related to operational taxes in Brazil.
Turning to APAC, MEA, and Africa, the market demand in Australia continued to decline, whereas demand in Southeast Asia grew, but at a slower pace than before. Middle East and Africa are assessed to be slightly up in the quarter. Our sales declined, mainly driven by lower volumes in Australia, even though we had improved mix across categories. Southeast Asia was impacted by price pressure, and we saw some weakness in the Middle East, both from a market perspective and also significantly from a product supply perspective. We had a slight EBIT improvement that was driven mainly by improved cost efficiency, primarily in procurement and in manufacturing, which was partly offset by investment in major product launches. We had a slight favorable currency impact, with positive translation effects offsetting a negative transaction effect.
Before leaving the word to Therese, I would like to say a few words about our discontinued operation Professional Products. As you know, during the year, we announced the intention to split the group into two listed companies, Electrolux for household appliances and Electrolux Professional for professional appliances. As I mentioned in the beginning of this presentation, the Electrolux board has decided to propose that an extraordinary general meeting is held on the 21st of February to resolve on the distribution of Electrolux Professional. The intended listing at Nasdaq Stockholm is scheduled for the end of March, and in the meantime, we have a number of important steps to take. Today, an information brochure has been published on our website that contains relevant information on Electrolux Professional and the process around the EGM.
On the 21st of February, as mentioned, the extraordinary general meeting will be held, and the prospectus containing additional information is planned to be published on March 10. On the 11th of March, Electrolux Professional intends to hold its first investor day. On the 23rd of March, the intended listing will take place on Nasdaq of Electrolux Professional. Therese will tell you more about the capital structure later in the presentation. Before that, let's have a look at the fourth quarter. Overall, the demand for professional food service and laundry equipment is estimated to have shown growth year-over-year, but at a slower pace than the previous quarters. Professional customers, including food service chains, have tended to prolong decision periods for new investments during last fall. We saw lower food and beverage volumes in the U.S. due to less chain rollouts.
Although we will have some new chain rollouts in the first half of 2020, we continue to meet a tough comparison from a very large rollout in beverage prior year. Also, in particular, APAC and North America has been impacted by the heavy workload in combination with changes such as moving to new offices and the work related to the separation. Our EBIT was impacted by lower volumes and higher initial product costs related to new product launches in the last quarter of the year, as well as higher initial costs for setting up new IT infrastructure and increased ongoing costs due to operating as a standalone company.
The efficiency activities announced in the third quarter of 2019 are under execution, and we are expected to compensate the increased ongoing cost related to separation with full impact in the second half of 2020. Turning to Therese and the financial overview.
Thank you, Jonas. Looking at the financial overview for our continuing operations, organically, sales declined by 2.8% in the quarter. This was driven by lower volumes, mainly relating to North America. Total sales was flat as the organic decline was compensated by a positive currency effect. The gross operating income, defined as net sales minus cost of goods sold, was flat year-over-year. Operating income declined due to higher marketing investments, higher manufacturing transition costs, and accounting adjustments in North America, and additional costs related to the professional spinoff. Now looking more closely at the drivers behind the year-over-year change. Organic sales decline had a negative impact on earnings. This is primarily relating to low volumes in North America as a result of a weak market and our manufacturing consolidation.
It is partly offset by mix improvements in Latin America and Europe, as well as somewhat higher prices, primarily in North and Latin America. Raw material and tariff impact was fairly flat in the quarter, while currency had a negative impact on EBIT, primarily on our operations in Latin America. Net cost efficiency was, as earlier indicated, negative, and the main reasons are manufacturing transition costs related to Anderson and an accounting adjustment related to previous years in North America. We also have increased marketing spend to support the major product launches, as previously mentioned. We also incurred cost in preparation of the Electrolux Professional spinoff, where approximately SEK 100 million was included in group common cost in the quarter. This was somewhat higher than earlier indicated, since the final decision to propose the spinoff to the shareholders was taken by the board in December.
If we take a deeper look at the price and mix development. The EBIT margin accretion for the group from price and mix was 0.7 percentage points in the quarter. Price increases year-over-year were at a somewhat lower level than what we realized in the third quarter as a result of continuous additional price increases during the second half of 2018. In Europe, we had favorable mix driven by growth of our high margin products in our premium brands and in built-in kitchen and premium laundry, which resulted in a gain in value market share. Prices has also increased slightly compared to last year based on the price increases in the beginning of 2019. In North America, we continued to benefit from higher prices, which is mainly an effect from price increases implemented beginning of 2019.
The year-over-year increase is sequentially decreasing as we increase prices additionally already during Q4 2018. Mix was impacted negatively by the aging core product range in refrigeration and cooking. In Latin America, we had good EBIT contribution, mainly from price increases coupled with mix improvements, mainly related to food preservation products. In APAC and MEA, price pressure in Southeast Asia impacted negatively, while mix in total was fairly flat. Now looking at the full-year for the consumer business. Organically, sales declined, mainly due to lower volumes in North America related to lower private label sales and consolidation of production. This was partly offset by product mix improvements from a launch-intensive year with well-received new product ranges under a sharpened Electrolux brand. Price was fully offsetting significant headwinds from raw material, tariffs, and currency of approximately SEK 1.5 billion.
Net cost efficiency was negative, with the main reasons being very much the same as for the fourth quarter. It's the manufacturing transition cost related to Anderson. It's increased marketing spend to support the major product launches, and we also incurred cost in preparation for the Professional spinoff. Approximately SEK 200 million was included in group common cost for the full-year. We had a non-recurring item of SEK 1.3 billion in 2019, primarily related to restructuring charges for re-engineering and streamlining initiatives. Excluding non-recurring item, our EBIT declined by one percentage point. For the full-year, this corresponds to an EBIT margin of 3.8%. Now looking at operating cash flow. Operating cash flow after investment for the whole group, including Electrolux Professional, was SEK 3.4 billion for the full-year, whereof the consumer business accounted for SEK 2.3 billion and the remaining came from Electrolux Professional.
For the group, cash flow came in essentially in line with last year, both in the fourth quarter and for the full-year. Compared to the previous year, the cash flow from working capital increased, and this was partly related to higher positive timing effects around year-end payments, while the higher CapEx had a negative impact. Looking at Q4 specifically, Electrolux Professional continued to have a solid cash flow despite weak earnings and higher investment level in preparation for the separation. Looking at the dividend. The dividend proposed by the board is SEK 8.5 per share, which is corresponding to payout ratio of 97%. Just to clarify, Electrolux as a continuing operation will pay the full 2019 dividend for the total group during 2020.
To end the financial overview by showing what a potential capital structure would look like for Electrolux and Electrolux Professional respectively, if the separation had taken place as per 31st of December 2019. The SEK 1.2 billion intragroup financing that has been mentioned in the information brochure between Electrolux Professional and Electrolux has, in this overview, been regarded as an external loan. As a consequence, the financial net debt of Electrolux is reduced. In addition, Electrolux Professional's equity has been deducted from Electrolux equity since it would no longer be part of the group's balance sheet. Electrolux Professional will proportionally have low lease liabilities and low net provisions for post-employment benefits, thereby low fluctuations and exposure. To reiterate, Electrolux will pay the 2019 dividend for the total group.
After the separation adjustments, both companies show a solid balance sheet for 2019 and a net debt to EBITDA ratio below one time. With that, I hand back to Jonas for the outlook.
Thank you, Therese. Starting with the market outlook. The overall demand trend across most markets in 2019 is expected to continue in 2020 with an improvement in the Americas. We anticipate market demand for appliances in North America to be relatively flat, with positive and negative demand drivers essentially offsetting each other. In Latin America, we estimate market demand to be positive, fully driven by Brazil. In Argentina, we look for a more stable situation, while in Chile, we expect an overall market reduction as a consequence of the country's recent events. Demand in Europe is expected to be slightly positive, primarily driven by Eastern Europe. Finally, the Asia-Pacific, Middle East, and Africa region is expected to be slightly positive, more or less fully driven by Southeast Asia. I wanted to give you also an update on our re-engineering and streamlining programs.
We are on track to generate approximately SEK 3.5 Billion of annual cost savings with full effect from 2024. These savings are net of expected ramp-up costs and transition costs during the years 2020- 2024. As we already communicated in mid-December 2019, the slower ramp-up of the new Anderson facility means that the bulk of the expected cost savings from this investment will be realized from 2021 instead of in 2020. Looking specifically at 2020, we expect the capacity constraints in Anderson to be gradually resolved during the first half, but we will have transition costs also impacting the third quarter. Since December, we have worked through our plans for ramping up the new facility and running the two Anderson facilities until the third quarter.
Unfortunately, this means that the net of our programs in 2020 will be flat compared to actual 2019 for the group as a whole, and with a net cost increase of SEK 300 million for North America. Given these higher costs, together with lower volumes from continued capacity constraints, we expect business area North America to report a loss also in Q1 2020. We've applied our learnings from Anderson in our Springfield program to de-risk the investment by extending the ramp-up period and changing the production sequence of the ramp-up. This will put less pressure on the ramp-up phase, and by gradually phasing out production in Memphis during 2021, we will ensure that we can continue to meet market demand. However, the cost savings from the Springfield investment are pushed one year later and will start to contribute meaningfully in 2022 with full impact in 2023.
I'm confident that both our Anderson and Springfield investments will substantially contribute to improved competitiveness in North America. Our re-engineering activities in Latin America and in Europe, as well as our streamlining measures, are progressing very well. Turning to the business outlook. Looking ahead at Q1 and the full-year 2020, let's start with the full-year view. We expect a favorable organic contribution for the full-year 2020, primarily driven by strengthened product portfolio following the launch in terms of 2019, and we anticipate this to show primarily in mix, but also in terms of volume. The U.S. manufacturing consolidation into our new Anderson facility will negatively impact sales due to capacity constraints and the longer period with legacy products. We expect this to be gradually resolved during the first half of 2020.
In 2020, we expect positive year-over-year impact from raw materials to more than offset the negative year-over-year impacts from tariffs in the U.S., as well as indirect currency headwind. The latter relates primarily to Latin America, where the currency volatility impacts also the raw material cost, as market prices are denominated in U.S. dollars, but we often buy them in local currencies. The raw material improvements are mainly due to favorable pricing for steel, but also chemicals and plastics. The net cost efficiency for the full-year will be unfavorable, despite continuous product cost efficiencies. This is to a large extent a result of increased investments in marketing and innovation. Europe has been successful in driving mix the last years, and with the newly launched Electrolux range, we have a great platform to continue on that route and get good return on the money invested.
We want to strengthen our position in emerging markets and capture that growth opportunity. We will therefore invest in the Asia-Pacific, Middle East, and Africa region to drive mix and volume by having attractive products tailored for this region. The U.S. manufacturing consolidation will result in transition costs until the third quarter, as mentioned. Currently, we see currency headwinds of SEK 150 million for the full-year 2020 based on currency rates as of the 22nd of January. This mainly impacts our operations in Latin America, but also to some extent, Asia-Pacific. Our investment projects to strengthen our competitiveness through automation and modularization continues in 2020, and we expect CapEx investment for the full-year to be approximately SEK 7 billion.
Looking specifically at the first quarter of 2020, and given the U.S. manufacturing consolidation, lower volumes, and higher cost, this will impact earnings for the first quarter in 2020, resulting in a loss for the business area in North America. The unfavorable organic contribution we expect for Q1 is to a large extent related to our U.S. manufacturing consolidation. The main impact is on volume, but also on mix and price. In addition, we expect private label sales to continue to decline. The expected unfavorable net cost efficiency in Q1 is also partly related to the U.S. manufacturing consolidation, but also to higher marketing investments in primarily Europe. We will also face transition costs in the first half of 2020 relating to outsourcing of parts of our production in Hungary that we communicated about in September 2019.
The cost benefits of this outsourcing will start to contribute in the second half of the year. Finally, you're all aware of the situation relating to the coronavirus and the related extension of the Chinese New Year holiday. Our first priority has, of course, been to secure the health and safety of our employees in China and those who travel in the region. On the business side, we're sourcing significant volumes of finished products and components from China to all our business areas, including vacuum cleaners, small domestic appliances, and air conditioners. Given the limited visibility on what will happen after the Chinese New Year, it's difficult at this point to assess the impact of potential further supply disruptions.
If manufacturing at Chinese suppliers is further affected for an extended period, this could potentially have a material financial impact. We are now implementing contingency plans to mitigate a potential extended period of supply disruptions. With that, I'd like to summarize our fourth quarter with the fact that three out of our four business areas are improving earnings. We saw a significant impact, as previously indicated from the consolidation of our U.S. fridge and freezer production, but that's going to end up in a very efficient facility with fantastic new products once we're up and running. The board proposed that an extra general meeting is held to resolve on the distribution of Electrolux Professional, which will result in two streamlined and highly efficient companies. We continue with solid cash flow, resulting in the dividend proposal of SEK 8.50.
With that, I leave the word to Sophie for the Q&A.
Yes. Thank you, Jonas. We will now open up for questions. Operator, please go ahead.
Phone keypads now to join the queue. Once your name is announced, you can ask your question. If you find it answered before it's your turn to speak, you can dial zero two to cancel. Once again, that's zero one to ask a question or zero two if you need to cancel. Our first question comes from the line of Andre Kukhnin of Credit Suisse. Please go ahead. Your line is open.
Good morning. Thanks so much for taking my questions. Can I just start with a broader one on pricing? The comments you made clearly point to sequential stabilization and the increases in 2019 were mainly driven by early in the year or back end of 2018 increases. What do you expect for 2020 in terms of pure price effect?
Right. As I've talked about before, the pure pricing changes are to a large extent driven by fluctuations in raw materials and tariffs and currency and so on. As those headwinds start to abate, of course, we expect to see less pure price. I think we did see some additional positive pricing in parts of Latin America and in Europe in the fourth quarter. We expect to have the opportunities to selectively raise prices in those regions also into 2020. As I mentioned in the call, our main contributor is improved mix, where we're launching new innovative products at higher price points. That engine, so to speak, if you want to call it that, is working very well in 2019, and we expect that to be a significant contributor also in 2020.
Got it. Thank you. On reengineering update, the slide and the chart that you gave with a sort of small negative, which looks like about SEK 100 million-SEK 200 million negative for 2020. Is that the number that compares to the SEK +200 that you gave in the December release on the update on North America?
Yes. Year-over-year, it actually means that it's flat. If you see that we show a negative, let's call it SEK 200 in 2019 and also in 2020. I would say it's SEK 200 million worse than what we then indicated in December. That's a consequence of the fact that we've now worked through the new ramp-up scenario for Anderson and the timing of the consolidation into one facility.
Very good point on year-on-year. Just finally on Electrolux Professional, obviously Q4 performance was substantially below what we expected. You gave one explanation is that the separation costs were SEK 100. I think we had SEK 20 originally. Was there anything else in Electrolux Professional in Q4 that is worth highlighting that weighed on performance? Just on separation costs, is there still a meaningful impact in Q1 2020 given the process is still ongoing?
The SEK 100 million I mentioned was actually, or Andre mentioned, was actually in our group common cost. That number specifically was not in Professional. However, on top of that.
We saw some quite significant costs in Professional related to setting up new IT systems and general high workload related. We haven't quantified, but that was a substantial negative impact for Professional in the quarter. The other piece that I think is significant is the amount of workload just in general across the markets in Professional related to the separation. Again, new IT set up, new accounting set up, in many cases separating offices and moving into new facilities. That was a very high workload in the quarter, and I think that has to be taken into account when you look at the blip, if you will, in Q4 and in the second half in general.
We have mentioned, and we are mentioning, that this is a quite resilient business, and we continue to very strongly believe that and see this as more of a temporary effect from the separation and from the effect of very low chain rollouts in the quarter and some, let's say, hesitation in terms of the decision time frames on some big projects that we have. We expect all of those effects to be relatively temporary. Going into the first quarter of 2020, most of the separation work is done. We expect substantially less impact from now on from the separation work.
Got it. Thank you, Jonas. Appreciate it.
Sure.
Thank you. Our next question comes from the line of James Moore at Redburn. Please go ahead. Your line is open.
Morning. Thanks for taking the questions. I wondered if I could start with those topics that are quite hard to forecast from the outside. I'm specifically thinking mix and net cost efficiency, which I thank you for the favorable and unfavorable, but as an analyst, it's almost impossible to put a numeric forecast against that. I wondered if you could help us to scale these issues. I guess the question is: Will the volume price and mix positive be a materially bigger positive than the net cost efficiency negative, or will they be broadly a wash when we consider them in the round?
Right. As you know, we don't provide exact guidance on those parameters, nor on the EBIT outlook. I won't be able to answer that precisely. I think the fundamental reason, and we've talked about this, why we don't provide a quantified outlook neither for the organic contribution nor the net cost efficiency is that they are somewhat communicating vessels where, depending on how, let's say, much traction we get in the market from our marketing investments, we would then tweak them up and down to drive mix and volume. I think that's about as much guidance as we can give. We expect substantial positive contribution from mix in particular in the coming year with the great product launches that we've already done and that are in progress.
That is going to drive significant investment in marketing as well, as well as continued increases in innovation spend to further accelerate growth trajectory. I think if you look at Europe and Latin America, in particular, you see that we have quite favorable organic growth trends, and we want to continue that and fuel that with additional marketing and product investments. In APAC and EMEA, we've had a good growth trajectory. That slowed down a little bit in 2019, and we're going to invest behind accelerating that also into 2020. We see plenty of opportunities there. North America is a little bit of a different picture, of course. We're not necessarily increasing our investments in marketing or structure, but there we have the extra cost from the manufacturing transition program.
Both Anderson, but also, of course, the fact that we are significantly ramping up our efforts in the Springfield Transformation Program. That will be a meaningful negative effect from the combination of those, despite the fact that we will have continued good productivity in product cost.
Thanks. I wouldn't normally ask or expect an answer on this, but given the challenges that you're facing in North America at the moment, and given that there are a lot of internal issues that your owners can't see and you can as a manager, could you give your owners an indication as to where you see your internal budget for the North American margin landing for the full-year 2020 and how the first half and the second half are really going to look? They're obviously going to look very different, but could you try to help people understand what you think the full-year could look like?
Yeah. As I said before, we don't give that type of specific guidance. What I can tell you is that the first quarter will be a loss, and then we will gradually improve from that perspective into Q2 and Q3, and then, of course, a substantially better performance in Q4. Of course, where 2019 was negatively impacted by the ramp-up, and hopefully Q4 we should be in a more clean state. There will be a big swing between first and second half, of course.
Thanks a lot. Thank you. Lastly, thank you very much for your phasing of the new savings and the timing of the SEK 3.5 billion. That's very helpful. I just wondered if you could help us think about, it looks like SEK 1.3 billion in 2021 and SEK 2.8 billion in 2022. Those are the two big years. How much of that's really North America versus the other actions that you've got in Brazil and Hungary, et cetera?
I would say a substantial majority of those savings are in North America for those two years. Then we see the other programs sort of kicking in towards the last couple of years.
Is there any Springfield in 2021 or is it just a small amount?
There are some savings, but there are also some additional costs. It's essentially a wash in 2021.
2021 is really the other stuff around the rest of the world and the cold facility.
Yeah. Correct.
Thank you. Thanks very much.
Thank you.
Thank you. Our next question comes from the line of Johan Eliason of Kepler Cheuvreux. Please go ahead. Your line is open.
Yes, good morning. On professional, I have a question. Obviously, we're seeing now quite volatile organic growth here on the back of these big rollouts you seem to have with some chains. How is the pipeline looking for that type of projects in the professional business?
It's looking relatively good. I would say the Q4 of 2018 and the first half of 2019 were very strong with a big rollout. Actually, it has been mentioned now that that was with Subway, a big beverage rollout with them. That is hard to come. We have a number of really interesting rollouts in other smaller customers going into the first half of 2020. I'm pretty confident in our ability to generate a steady stream of chain rollouts, but it is by nature quite lumpy given the scale of these rollouts.
Good. Then you now announce the financial target setting for the Professional business organic growth, about 4%, margin about 15%, which is all fine. You don't have return target like you have for Electrolux Group, like return on net assets, et cetera. How is the thinking about that for Professional? What's the reason why you don't have a specific return target?
First of all, the return on capital employed is extremely high in Professional. I think the issue with the return target there is that M&A significantly impacts the asset space. You see a lot of volatility in the return, including the intangible assets from M&A. That I would say is the main reason why they've chosen to focus on the working capital metric, as well as then driving profitable growth, to give a little bit less volatility to numbers driven by potential M&A.
Excellent. Looking at the net debt EBITDA target, it looks like they have a firepower of around 2 billion SEK to be at the high end of their net debt target easily. Do they have a pipeline of potential M&A deals to match that as well?
First of all, I think it's important to note that they have a significant free cash flow generation as well, right? We were over SEK 1 billion in 2019, and we've been over SEK 1 billion for a number of years. The fact that the capital expenditures per se are not so high in Professional, that means that a lot of that cash can be deployed to M&A also going forward. Beyond the strong balance sheet, they also generate a lot of free cash flow for M&A. On the pipeline, there is, I would say, a quite significant long list of M&A opportunities. The challenge, of course, here is that pretty much all of those companies are privately owned. As you know, M&A in that situation requires, of course, both sellers and buyers agreeing that it's a good idea.
It's very difficult to predict how quickly that will happen. There is a good long list, and there's plenty of firepower.
Excellent. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Andreas Willi at JPMorgan. Please go ahead. Your line is open.
Yeah, good morning, everybody. Thanks for the time. I got a bigger picture question and then follow up on the professional margin. In terms of the 6% margin target that you maintain, also ex-professional for the consumer business going forward, if I look at the last decade or more, you kind of occasionally come close to it, but it's more like a 4% average. It seems to always take a lot of effort to get towards the 6% when savings are coming through, when the markets are favorable, then we drop away again, then the next efforts comes towards get there. What is really the change that you see in the future versus the past that should allow you to basically consistently deliver around that 6% rather than occasionally reach it? The follow-up question on the professional business, you've set a 15% EBITA margin target.
It's a bit difficult for us to assess the starting point given that 2019 had all the additional costs. Some of them will stay if you have new IT systems and so on, but maybe you could give us a normalized base, a rough number for where 2019 is for Professional on the new structure in terms of having its own corporate costs, its own IT systems and so on, that we see what the improvement potential is there. Thank you.
Right. In terms of the margin target of 6%, I would take a slightly different perspective on that, which I think is a little bit more illustrative, and that is our BA setup, right? If you look at Europe, since 2013, we've been on a steady improvement pace and are now solidly over 7% operating margin. That is fundamentally driven by an improved quality of the product and the offering and the business in Europe. Similarly, if you look at Latin America, we have a steady improvement in the margin since 2016, where despite the fact that we have extremely volatile conditions in places like Argentina, Chile, and also Brazil, we've continuously improved the profitability there.
We're not where we want to be yet, but we're continuously moving in the right direction, and I'm very high confidence that we'll get to a place where Latin America is contributive to our 6% margin target. If you look at APAC and MEA, that's a little bit volatile as a result of currency volatility and also just parts of the region being quite volatile, but solidly profitable over time. We haven't seen significant impact on the margins there. They're contributing well. That's a big opportunity for profitable growth for us going forward.
The challenge really comes down to North America, where, as you said, we've seen a challenging development in particular in the last two years. That in turn is a consequence of a couple of major external events, such as the trade tariffs, such as the significant decline in our private label business, and now most recently, the shorter-term impact of our transformation programs. I think though what the core strategy for North America is to significantly strengthen our core product offering under the Frigidaire brand. We have a strong position in refrigeration. We're refreshing that with fantastic new products and very efficient manufacturing. We're doing the same with cooking. It will take some time, but we're significantly strengthening the core profitability and core competitiveness of our North America offering.
This is the thing that has pulled down the margin in the last two years, and I think that's also where we see a lot of improvement opportunities going forward to then reach our 6% margin target. If you take that more geographic and, let's say, time progression there, it's our strong conviction that we are on the right track to achieve that 6% margin target and profitable growth. Okay. Professional margin. We show in the brochure that the average EBITA margin for the last couple of years is 13.1%. I think that's a pretty good illustration of the core profitability of that business the way it's currently configured. We mentioned also earlier that the additional cost of running Professional as a standalone entity will be fully offset by the efficiency program that we initiated in September.
I think you can look at this 13.1% as a clean number from, let's say, also from a standalone perspective. We had a tough second half of 2019. As I mentioned, it was, of course, some delays in decision-making from some of our key customers, but also, I would say very significantly, a function of the very high workload to separate the two businesses. I think that will bounce back relatively quickly as we go forward.
The further improvement towards the 15%, that's of course, the objective that the Professional team have set for themselves, and I think they have high confidence that, particularly the new product launches that they've introduced in 2019, with a lot of extra cost, by the way, but fantastic new well-received products, as well as additional focus on aftermarket growth and some other things that are mentioned in the brochure is what gives them the confidence to set the 15% EBITA margin targets. I hope I answered all your questions.
Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Gustav Hageus of SEB. Please go ahead. Your line is open.
Thank you. Further, just one question from me regarding the destocking of that large customer in the U.S. you mentioned going into this quarter. Could you please confirm whether or not this is now completed? Perhaps also if you can address the probability.
You're coming through very muffled. I'm not sure I'm capturing fully the question. Can you see if you can? Sorry.
Yes. Can you hear me better?
That's better. Yeah. Thank you.
Yeah. I blame my AirPods. No, regarding the destocking on the large customer that you mentioned going into this quarter, whether or not that is fully completed, and also if you can assess the probability that we will see similar initiatives this year from the same customer or other large customers.
Yeah. I think it's largely completed. I think the opportunity for additional inventory reduction, I don't think is very large. Of course, having said that, there is a larger trend as more and more sales go online, that the need to have a high availability of inventory for us as manufacturers is quite high. I think we've made that adjustment over the last couple of years to a slightly higher run rate of inventories for us in North America. I think that's by and large done, but that has been an impact.
Okay. Is it your internal assessment that we're going to see a reversal of the trend with a bigger sell out than sell in in 2020 in the U.S.?
Yeah, I think so, yeah.
Great. Thank you.
Thanks.
Thank you. Our next question comes from the line of Martin Wilkie of Citi. Please go ahead. Your line is open.
Thanks. It is actually Martin Wilkie at Citi. Thanks for taking the question. The first one is just on the assumptions behind your guidance on raw materials and tariffs. I think from memory, there was a sort of an annualized effect from the list three effect in tariffs. Just if you could tell us, just to confirm that, but also what your assumptions are in what is embedded inside that guidance. Then the second question was just on CapEx. I think a couple of years ago, there was an indication that CapEx should peak around 2019. Just now that you have given the guidance for 2020, how we should think about the pattern of CapEx over the next few years. Is 2020 now the peak in CapEx and it should fade beyond that? Or just some sort of sense as to how we should think of that. Thank you.
Right. No, on the CapEx, I think we've said that it will remain at these elevated levels for the next even couple of years, right? 2020 and 2021 will be at the elevated level as part of the SEK 8 billion additional investment program that we announced, and which will then generate the SEK 3.5 billion of extra savings. That will go through 2021 by and large. Then, sorry, I forgot your first question.
Oh, on the tariffs. Yeah, sorry. We don't expect any changes other than the ones that have already been announced. However, and I think you're aware that the biggest carryover effect that we have is for the air care category, where we had tariffs implemented in, I think it was May of last year, which didn't impact so much that season for air care because most of the purchases are done before May. We'll have the full effect on the air care products tariffs this year. That's the big year-over-year negative impact. Then, of course, that's more than offset by lower steel and chemical prices in particular.
Are the steel prices, are those now locked in?
Yes.
They are locked in, yeah.
They are locked in.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from the line of Eric Paulsson at Pareto. Please go ahead. Your line is open.
Yes. Hello there. It's Erik at Pareto.
Hi.
Given what we're seeing in China right now in the supply chain situation and the potential impact of that, could you please provide us with an update how your situation looks like that in terms of sourcing in China?
Right. Some finished goods categories are, let's say, fully sourced in China for the industry as a whole. Take categories like portable air conditioners and air treatment units, microwave ovens, small domestic appliance, vacuum cleaners. Those categories are to a very large extent, manufactured in China. Of course, the supply disruptions already by the exemption of the Chinese New Year for one week is noticeable. Although I think that can of course be recovered. The concern that we have is if we see a long period of factory closures and supply chain closures in China. We're also sourcing a fair amount of components in China. There, of course, we typically have more of a dual sourcing approach. Of course, also here it depends on the length and magnitude of supply disruptions for components, what the impact is.
We don't really have any more information than you do in terms of what the impact of the spread of the virus is and so on. We felt it was important, of course, to give an update on the situation and to clarify the fact that we are sourcing significant volumes, both of components and of finished goods in China.
In terms of geography there, I guess it's more towards the coastal regions, or is it quite well spread? Also, is it possible to quantify this in any way, how much you're sourcing, et cetera?
The Hubei Province, which is the one that's the most impacted, we don't have significant supply. We have some suppliers, we don't have any major impacts from that Province. Beyond that, the supply base is basically spread across the eastern seaboard of China, south to north, with a relatively even distribution. I guess a focus around Guangzhou and Shanghai primarily. In terms of quantification, we don't give detailed data on that for specific countries for competitive reasons. Again, as I mentioned, for some of those product categories, it's very large. For our components, it varies a bit between category, but pretty much all our regions and all our product categories have component supply from China as well.
Understood. Thank you very much.
Sure.
Thank you. Our next question comes from the line of Olof Cederholm of ABG Sundal Collier. Please go ahead. Your line is open.
Hi, it's Olof with ABG.
Hi.
Just one on the air care specifically. You mentioned in your broader comments that lower raw material cost means that it's difficult to raise pricing. In this specific category, I guess the tariffs are so big that you will have to raise prices, and with the cost base being similar for everyone else. Are you being able to offset the tariff with prices in air care?
Yeah, we already raised prices back in 2019 for that effect. There's no further action, let's say, to be taken there.
Okay. Within the price mix overall comment, there is a positive pricing there.
On a-
From there.
Yeah. On a year-on-year basis for that category. Correct. Yeah.
Q1 will obviously be very weak with North America being tough. What's your confidence level now that Q1 will actually be the trough or that we'll see a gradual improvement in Q2? Are there buffers built into this, your current view, or?
Yeah. The confidence level on that is high. That's mainly because, as I think we talked about before, we're ramping back up our legacy facility temporarily to make sure that we have enough product supply to the market. That will not be fully there in Q1. That's why we have to see a more severe impact in Q1 than in Q2, which and running at a decent pace for our legacy products as we then continue to ramp up the new facility. We will have significant additional cost also in Q2. We won't have full availability like we want to. The fact that we're selling products that are in phase out will have a negative impact as well. From a supply perspective, we have substantially more units in the market in Q2 and on.
Perfect. Lastly, do you see now after a bit of supply disruption in the U.S., do you have customer effects as well, or are customers now lowering listings and things like that for you? Or do they understand the situation?
No, I think they understand the situation. Of course, this is not that unusual. Of course, our priority here is to make sure we supply our customers and our end consumers to the best of our ability, and that's why we are ramping up the legacy facility here. Some effects are unavoidable, and I think the main effect, and we talked about this before as well, is that, in quite a number of cases, we don't just lose the sale of the fridge, we also lose sales of adjacent products that typically would have been bought from the same brand, so to speak. We're working through those issues, and as our supply of fridges goes up, then we will be able to get that attachment rate back up again. We're looking forward to that.
Perfect. Thank you.
Thank you. We'll now hand back to the speakers for the closing comments.
Okay. Thank you very much for those questions. Of course, it's been a mixed picture in the fourth quarter, but I think it's important to mention that three out of our four business areas are showing improved profitability, especially Europe is on a very positive trend. Latin America is continuing on its good trend development. Unfortunately, we have the impacts of the consolidation of our operations in Anderson, but that is temporary. We're working through the issues. The new products are fantastic, very well appreciated. We expect to work through that as we go through the year. I think also very significantly, the separation of Electrolux and Electrolux Professional will give clarity and focus and strength to the two businesses.
We're really excited about the future for both parts of the business, and we're showing that confidence in the continuation of a strong dividend yield of 8.50% proposed by the board for 2020. With that, I thank you very much and look forward to seeing you all soon again. Thank you.