Good morning, and a warm welcome to this Electrolux 3rd quarter 2019 results presentation. With me today, I have Therese Fieldberry, our CFO and Sophie Arnius, our Head of Investor Relations. I would also like to mention that this session is ordered and will be available on our website as an on demand version. Turning to the third quarter highlights. As we've talked about for a number of years now, innovation and operational excellence are the key pillars for us to drive profitable growth.
In the third quarter, we further strengthened our platform for the future by launching groundbreaking products and initiating additional efficiency measures. This isn't on top of and additionally already very solid pipeline of activities. We have a strong yield on our innovation power as we also in Q3 have mix improvements across business areas as a result of major product launches and the focus on our core brands to drive product mix. This, together with price increases, resulted in organic growth. We saw volume declines in lower price points in Europe, and continued lower private label sales in the U.
S. Operating income, excluding nonrecurring items, was down year over year mainly driven by manufacturing transition costs as we started production in the new Anderson facility in the U. S. And I'll give you some more details later in the presentation on that. We also had higher marketing investments supporting our product launches and at the same time, price increases offset significant continued headwinds from raw materials, trade tariffs and currency.
In the quarter, we also had net nonrecurring items of negative SEK412 1,000,000 Kroner. And, Terias will comment on, the makeup of those items later in the presentation. Turning as usual to some of our innovation highlights. And I think it's important to make the positive mix that we're seeing come to life to show what's what's actually driving it. And here, we have 2 great examples.
The first one is our, innovative high capacity top load washing machines in Latin America. This is a fast growing market, especially with machines over 12 kilo capacity, which allows consumers to, of course, wash more in one go, which is growing quite rapidly. We are the largest player in this segment. We have nearly 1 third of the of the market. And we've increased our market share by more than 4 percentage points over the last 5 years.
And this is driven mainly by 2 things: one is that we have introduced very high capacity, 17 kilo range of appliances. And we've also introduced the new perfect dilution technology, which allows consumers to avoid, spotty washing performance and and and, residue from, from undiluted detergent. This has really allowed us to strengthen our market position, and we have really high consumer ratings star ratings of 4.7 out of 5 stars in online reviews in the first half of twenty nineteen in Brazil. So a strong case of understanding consumer needs and delivering well suited products for them. The other case is one that we've talked about a number of times, which is about steam cooking.
As we talked about Steam not only improves taste and texture, but it also has significant health benefits. So this is a segment that we've been driving very aggressively for the last 5 years or so. And since 2015, we've increased our position by, in steam ovens and increased market share by over 6 percentage points driving our sales from 140,000 units in 2015 to 530,000 in 2018 with a strong profit increase to go. And now most recently here in the in September 2019 at the EFA Fair in Berlin, we introduced a new range of steam ovens with the steamify function. And the steamify function allows users to, to cook their normal recipes and just hit the steamify button to add the appropriate amount of steam to create an even better cooking experience, really improving consumer experience and further driving growth in this very profitable segment.
Turning to Europe. We saw brand and product mix impacting sales positively as well as price increases. We gained market share in premium segments, but organic sales declined 1.8%, driven entirely by volume decrease in products at lower price points. We saw especially strong performance in built in kitchen, driven by strong Hobbs and dish care sales. We delivered solid underlying earnings, primarily driven by price and mix impacting EBIT, but also we saw the starting to see the impact of the new kitchen range that we launched in Europe during the quarter.
It's been extremely well received. It's currently rated 4.9 stars out of 5 in consumer reviews, which is truly best in class and groundbreaking and has started to contribute to our European value market share growth in the focus area of built in kitchen. To support this launch of these really fantastic products, we've, of course, increased marketing spend, but at the same time, we're continuing to improve our overall cost efficiency. In the quarter, we also saw currency impact, currency headwinds impacting earnings negatively in the business area. Turning to the appliance market in Europe.
We saw continued growth of about 1% year over year mainly driven as it has been for some time by stronger growth at Eastern Europe of 2%, while Western Europe grew 1% in the quarter. Turning to North America, we saw more or less flat organic sales, where sales volumes core appliances under our own brands increased in the quarter, while sales under private labels continued to decline. We continued to get the benefits of cost based price increases and strong mix improvements, which contributed positively to net sales. And the positive mix is driven by our new fantastic product launches, including new multi door refrigerators, as well as the air fry freestanding cooker. EBIT, excluding nonrecurring item, was down year over year, and that's, as I indicated, driven by higher manufacturing costs in Anderson that I will return to in a moment, while price increases continue to offset our higher costs for raw materials and trade tariffs.
Also noting, worth noting is last year, we had a capital gain of about CHF 80,000,000 in the third quarter related to the divestment of our vacuum backing cleaner business. Going then into a little bit more detail of our startup in Anderson, I know a lot of you are already very familiar with our reengineering program, but wanted to spend a few minutes on Anderson in particular. And during the quarter, as we've talked about, we started the 1st phase of a production in the new facility. And by mid-twenty 20, we expect to be fully ramped up. I want to point out that this is the biggest step we've ever taken in terms of automation as we're going from less than 10% to about 35% automation level, and will significantly change our ways of working in terms of flexibility, efficiency, and innovation capabilities.
This new Anderson facility will result in significant cost efficiencies that we expect to start to see in 2020. And we also expect profit improvement from fantastic new products meeting consumer needs. The consolidation of our U. S. Coal production into 1 new facility is, of course, very complex and resource intense.
As we've indicated before, we'll have any extra costs in terms of running the 3 facilities in parallel to ensure a smoother transition, and we expect this to negatively impact EBIT by about $25,000,000 in the 4th quarter and an acceleration from the impact that we saw in the 3rd quarter. This includes both manufacturing transition costs as we already had in Q3 as well as expected lower volumes as we're running the old Anderson facility at a lower rate since we have moved, part of the employees to start up the production in the new facility. And of course, we're seeing significant advantages of having the 2 facilities next door to each other that we can flex people between the two sites and keep manufacturing going. Going forward, St. Cloud, one of the 3 facilities will be shut down here during Q4.
And in Anderson, we'll continue to shift employees to the new facility, from the old one. So, huge project, good progress, but a lot of work still to do to, to ramp that new, huge facility up. Turning down to the U. S. Appliance market, we saw, for the first time in, in five quarters growth in the 3rd quarter by 3%.
And if you but if you add all major appliances including microwaves and and the home comfort products, the demand development, was flat in the quarter. And we estimate that sellout to consumers have been a little bit lower than the sell in the 3rd quarter. Switching to Latin America. We saw solid market growth in Brazil, while Argentina actually had a slightly positive sales but Chile declined in the quarter. We saw organic sales growth of 14% Actually, sorry, I need to change urgent and I didn't grow, but it recovered from the low pace that we saw in the second quarter.
Organic growth 14% with strong growth in Brazil where we gained market shares. And we also saw price increases contributing positively. Operating income, excluding nonrecurring items, improved slightly, driven by higher volumes, but also a significant product mix improvement from our new product launches, including the high capacity washers that I knew recently mentioned. Price increases continue to contribute to operating income and offset higher raw material costs, but that could not fully compensate for the significant additional currency headwinds we saw in the quarter. We had a reversal of a provision in the quarter, which had a positive impact on earnings in the quarter.
However, last year's earnings included a more significant positive effect from provisions reversals relating to an administrative case of about SEK 170,000,000. Turning down to Asia Pacific, Middle East and Africa. We saw continued but softer market growth in Southeast Asia, while Middle East Africa was flat and Australia remained soft. We had, we reported organic growth of 1.5% with strong support from Australia, where we gained market share supported by the new product launches. And that also delivered strong product mix improvement, both in Australia through the new product launches and through our new cordless vacuum cleaners in Southeast Asia.
Underlying operating income declined in the quarter due to higher investments in marketing to support the product launches as well as continued currency headwinds primarily from the weak Aussie Dollar. We also saw some increased price pressure in Southeast Asia. Turning to Professional Products. Overall, the market demand for professional food service and laundry equipment continued to weaken across most regions year over year. Our organic sales declined 7% driven by lower beverage sales in the U.
S, and also lower volumes in Middle East and Africa where we saw a declining market in large projects, particularly. The lower volumes were partly offset by price increases and increasing aftermarket sales. Our underlying income declined, mainly driven by the lower volumes, but we also had initial higher product costs for the new product launches that ramped up in the quarter, including the skyline cooking range and the lines 1000 laundry products that we introduced in the at the Capital Markets Day. And of course, it's normal that product costs are higher in the beginning due to startup costs for production as well as lower production volumes before we are fully ramped up. We also had higher investments in marketing well as innovation in the quarter to support the very important product launches that we're driving.
The preparation of the spin off for professional products continues according to plan. And the additional efficiency activities that we announced in the quarter are more than offsetting the increase ongoing costs that are related to the separation and the stand alone running of Electrolux Professional. Kywaran was also appointed site as chairman for, of the board of Electrolux Professional. Many of you know that KAY is a current board member of elector, say the, as well as CEO of Husqvarna. And with that, I turn over to the financial overview, Andreas.
Thank you, Jonas. Organic growth was 0.8 percent in the quarter, and this was driven by continued price increases and mix improvements across most business areas. Total sales was up 6.8%, driven by a positive translation currency of 5.8%. The gross operating income defined as net sales minus cost of goods sold included the restructuring charge of approximately 1,000,000,000 in the quarter. Adjusting for this nonrecurring item, the gross margin came in at 19.5% compared to 19.1% last year.
The net nonrecurring item was minus 412,000,000 in the quarter, which we will come back to later in the presentation. Adjusting for this, operating income declined 9% year over year. And now looking at the drivers behind the year over year change. We continue to have a positive is where the main contributors were North And Latin America, but also Europe. We have improved mix across business areas which is a result of major product launches and focus on our core brands.
This is offsetting lower volumes which primarily driven by continued points in Europe, which is a strategic decision to target high margin categories and this is delivering in a higher mix. We continue to have high headwinds from raw material and tariffs, although on a lower level than what we saw in the second quarter. Currency had a negative impact on EBIT, primarily on our operations in Latin America, but also in Europe and in Australia. Net cost efficiency was as earlier indicated negative, but less negative than we planned for. And the main reason for being negative are the manufacturing transition costs related to the Anderson ramp up, which was covered by Jonas earlier.
And we have also had increased marketing spend to support the major product launches. However, the spend in the quarter was lower than initially planned. And primarily in Europe where we have the in store launch of the that is currently rolling out of the new products in Europe. And as you know, Europe is a very fragmented market and we don't want to execute the marketing spend before we really have the new products in store. So this is a shift between the quarters in preparation of the professional spin off.
And as you may recall, we had a positive one off item last year of SEK250 1,000,000 and this was partially
offset
development. The EBIT margin accretion from the for the group from price and mix was 1.6 percentage points in the quarter as price continued to offset the headwinds. In Q3 last year, price increases already started to kick in at a larger pace than in Q2. Hence, our price increases in the third quarter year over year is lower than in the previous quarter. In Europe, we had a favorable mix driven by growth of our high margin products in our premium brands and in built in kitchen, which resulted in a continued gain in value market share.
Price has also improved compared to last year based on the price increases implemented in the beginning of the year. In North America, we continue to benefit from higher prices, which is mainly carryover effect from last year's price increases that has been carried out this year. The year over year increase is sequentially decreasing as it was in Q3 last year where we saw the price increase is starting to kick in. And in Q2 2019, the year over year comparison was also enhanced by lower promotional spend compared to Q2 2018. When we had the 100 year celebration campaign of the Frigidaire brand.
Mix improvements continued to be strong primarily related to growth of the multi door refrigerate. In Latin America, we had good EBIT contribution from previously implemented price increases coupled with slight mix improvements. In APAC and MEA, mix remained positive, mainly driven by newly launched products in Australia, as well as cordless vacuum cleaners in Southeast Asia. Price for the business area decreased in the quarter from price pressure in Southeast Asia. Professional products continued to benefit from positive price in the quarter.
If we then take a deeper look at the nonrecurring items of -1000000 in the quarter, This comprises of 3 parts. The first part is efficiency and outsourcing initiated in Q3 across the group of negative SEK1.6 billion. The global streamlining measures initiated in the quarter was following the major strategic overview announced in the beginning of this year, with the intention to spin off professional product business area and sharpening of the consumer business through regionally focused business areas and a global consumer experience function. And as you can see in the chart, this impacts all business areas and group common cost. The expected annual saving for the consumer business is, 500,000,000 with full effect in 2024.
And this should be added to the previously announced cost savings from reengineering programs. So in total, 3,500,000,000 with full effect 2024. An important part of this initiative is the decision to outsource production of vacuum cleaners from our Just Burnie facility in Hungary. As well as significant part of the freestanding refrigerators that are currently produced there. This is to improve competitiveness in the market and is primarily impacting business area Europe, but also APAC and EMEA.
And from a P and L impact perspective, this spread across applicable functional lines in the panel. The second part is recovery of overpaid tax sales tax of 1,400,000,000 impacting business area Latin America positively. As previously communicated, we, in the 4th quarter, 2018 received a final and nonappealable court decision in Brazil that we have the right to recover overpaid tax for the years 2002 to 2014. In the quarter, Electrolux filed a claim with the Brazilian tax authority for the recovery of the overpaid tax. And this amount was in full recognized as an asset in the third quarter.
3rd part was a legal settlement in the U. S. Of 200,000,000, impacting the business area North America negatively. The P and L impact of this as administrative cases are included in other operating income and expenses. So all in all non recurring item of $412,000,000 was booked in the 3rd quarter in EBIT, while the cash flow impact from this in the quarter was limited.
And then moving over to cash flow. Our cash flow after investments, but before acquisitions, was 2,600,000,000 an increase of 1,200,000,000 versus last year. And this was mainly due to positive contribution from net operating working capital due to timing effect. As you may recall, the ERP system go live in North America had a negative impact on trade receivables in the second quarter of approximately 1,000,000,000 and the majority of this was recovered early in the third quarter. This quarter, we built less inventory than we did last year as a conscious efforts to reduce total inventory levels somewhat.
As we have announced previously, we have higher capital expenditure due to the ongoing investment projects in reengineering and this continued in third quarter. The average operating working capital in relation to rolling 12 month sales showed an increase to 4.8% versus last year's 4.2%. Even if this is an increase, this is still at a healthy level. However, as we just, as I just mentioned, we are working to reduce inventory levels somewhat from this level. With that, I hand back to Jonas.
Let's turn then to the market outlook. And we reconfirm our market view for the full year 2019. We continue to expect the market demand for appliances in Europe to be slightly positive in 2019, mainly driven by Eastern Europe, In North America, the trade tariffs have triggered price increases, and that has resulted in some uncertainty, leading us to expect the industry volumes to be slightly negative the full year. In Southeast Asia, markets are generally favorable and we keep our view to be slightly positive. In Australia, a slower property market and weaker currency are impacting demand, and we continue to expect market volumes there to be slightly negative.
The Latin American market, in specifically the Argentina, Brazil and Chile region is expected to be slightly driven mainly by Brazil. Turning to the business outlook. We expect favorable organic contribution both for the full year 2019 and for the fourth quarter. For the full year, this is mainly driven by higher prices, especially in North and in Latin America. For Q4, we expect prices to continue to contribute positively year over year, but at a somewhat lower level than what we realized in the third quarter year over year.
Mix has continued to contribute positively, throughout the 1st 9 months of the year, and we expect this to continue for the remainder of the year as well. In terms of volume, we expect lower volumes in North America as a result of the continued decline in private labels as well as the impact from the Anderson transition. We estimate the negative year over year impact from raw materials and trade tariffs to be approximately SEK1.1 billion in 2019 compared to the previous estimate of approximately 1.2to1.4. The improvement is related to that we have locked in more chemical volumes at favorable rates and have lower steel prices due to formula based pricing for the second half of twenty nineteen. The outlook is based on current trade tariff levels So that means that the part of Section 301 List 4 that was implemented in September is included at a 15% rate.
In the 1st 9 months of 2019, Price has fully offset this headwind, and we expect that to be the case also for Q4 and for 2019 as a whole. We keep our view as well, driven by three areas that we have communicated to you earlier. So first of all, the manufacturing transition costs in North America that we've discussed, We will continue with transferring production to the new Anderson facility, and we will are continuing to run 3 facilities in parallel to ensure as smooth as possible transition. This means that we also in this quarter will have extra cost accelerating to about USD 25,000,000 of net EBIT impact expected in the 4th quarter. Capturing both the higher cost as well as the related volume decline.
And as mentioned before, the new Anderson facility will result in significant cost efficiencies that we start to expect they expect to start to see in 2020. Secondly, we have higher marketing spend to support the major product launches that we have in the second half of the year. Part of the planned marketing spend, for Europe in Q3 fell into Q4, as Therese mentioned, some of the in store launches occurred in October instead of in September. And the 3rd and final area is costs related to the preparation work for the intended professional spin off. A majority of the already communicated cost of, about SEK 100,000,000 for the second half will impact the 4th quarter.
Our currency headwinds are now expected to amount to CHF 500,000,000 based on the currency rates of 15th October compared to our prior estimate of SEK 200,000,000 a quarter ago. And we continue to execute on our reengineering programs. And with the investments that we announced in Erisa, Hungary, all initiative is under the program have now been announced. We now expect our full year CapEx to be slightly below SEK7 billion. And our full business outlook for 2020 will be presented as part of our 4th quarter report.
So in summary, we continue through our price execution to fully offset the headwinds that we've seen, throughout this year. We're continuing to invest in innovation and marketing to support the new product launches and to cater for continued profitable growth. I'm very pleased that we have a strong execution of our innovation and once again, contributing positively to sales and earnings. All of our business areas showed improved mix in the third quarter. We're further strengthening our platform for the future through initiating additional efficiency measures with a solid expected return.
And as mentioned, we're in the middle of starting up our new Anderson facility, our largest facility in the group, that is highly automated and will result in significant cost savings as well as attractive new products in the coming years. With that, I hand the word to Savi and open up for questions.
From our audience from the telephone conference moderator. Please go ahead.
Thank And the first question is from the line of Andre Kukhnin from Credit Suisse. Please go ahead. Your line is now open.
Good morning. It's Andre from Credit Suisse. Thank you for taking my questions. Can I firstly ask about professional, obviously quite a sharp deterioration there and unexpected? Could you give us an idea on the demand environment?
How much of that is maybe a blip and how much of that you expect to to come back or whether that's kind of the level that we need to, or run rate that we need to model from, going forward. And then on the margin impact, is there any way you can quantify for us how much of that margin drop is the ramp up costs that go away as you ramp up, and investment costs that can normalize into 2020 as opposed to ongoing. And then I've got a quick follow-up as well.
Sure. Okay. So the organic sales impact was mainly 2 things. 1, One was, our our chain business and our exposure, we're, of course, trying to increase our exposure to the chain business through our acquisitions, for example, in the beverage area. But in the third quarter, we had a very low level of chain rollouts, and we do expect that to be I mean, that's just the nature of these big rollouts.
We had a big one in the first half of the year in the second half, we don't have as much activity in that part of the business. That's lumpy and not so much. I would argue not so much a question of, of, of trends or, or, business cycle or anything like that in the, in this case, it's more just that it goes up and down. Secondly, we have some delays in major projects, our business in Asia as well as Middle East and Africa is very project driven. And here, we have seen some delays decision making on significant projects for us.
And that's the other big impact. And I think that can be attributed at least partially to some of the economic turbulence and macro impacts that we're seeing. We've looked into, you know, history for those things. And when what we've seen historically is that we have seen some hesitance to invest when the economic signals are a bit weaker, but typically that ends up catching up relatively quickly. Because the underlying growth drivers, which are, out of home spending and restaurants and hotels, actually has a very strong positive underlying growth trend.
So there's a need to invest in new projects and in replacement products. So we're not fundamentally concerned about the demand outlook, but there could be a, let's say, some weakness also going forward here on the on the large projects. And of course, these combined effect, they do account for the major part of the of the earnings drop in the in the quarter. On top of that, we also then see the, as mentioned, the higher product costs and the ramp up costs of the new products you know, that that will start to abate, over the coming quarters, but that will take a little while before that's fully, washed out.
Okay, got it. Thank you. And, just on the NCCs in the quarter, trying to kind of decide for the many moving parts that are in there. So if I start with within that minus 1.76, So we've got minus 250, for reversal of 1 offs from last year, right? The 17 Brazilian and the 80 North American.
And then there are some extra costs for European launches, but not as high as expected. And Anderson, or U. S. Triple costing and some of the 100,000,000 for professional.
Right?
Yeah. Correct.
And then, so in terms of what came in to offset that, especially compared to the run rate that we already had Q3 with kind of all these items being incremental.
Yeah, so we did mention
that and how that can play out into Q4.
Yeah, so we did mention that we had a reversal of positive impact in, in, Brazil that's below our threshold for sort of giving an amount, but that was a positive effect. And then, of course, the, as mentioned, we are flipping some marketing spend from Q3 to Q4 in, in, in Europe. And then, you know, as we talked about historically as well, there is a fair amount of discretionary spend that's controlled in a quite decentralized way, around the group. And, and, therefore, it's difficult to give very precise guidance because people are accountable for their local P and L, so to speak, and they and they and they they drive their spending and investments to to generate, the the best possible return. So that goes up and down a bit.
So that gives us a little bit of a hard time to give you a very precise guidance, but that also was, let's say, a net favorable compared to what we saw in the second quarter. And then of course, we're continuing to work very, very hard on overall manufacturing and product cost efficiency.
Got it. Thank you. And just on European marketing spend, can we calibrate that at all? I mean, I was thinking about, I think, $400,000,000 to $300,000,000 for the second half. Is that anywhere near the right ballpark?
And is that mainly now sweeping switching into Q4 or?
It's not far off from the ballpark. We don't give that specific guidance, but of course, that means it's clear that for Europe, this is the big event this year, right, than in terms of marketing, above the line marketing spend. And so there are you know, country by country relatively large swings in spend month to month, depending on when we decide to hit the button to to really support, the sellout, right? So so so this always goes in 2 phases. We, we cannot sell in and get the products replaced in store.
That happens, honestly speaking, not entirely on our calendar. That's up to when the stores are ready to switch. And then when they're they've switched and we have the right supply, then we kick in the big marketing investment. So that's why it's a little bit difficult to give a very exact guidance. It's a 35 markets as we, as you know.
Next question is from the line of Andreas Willey from JP Morgan. Please go ahead. Your line is now open.
Yes. Good morning. Thanks for your time. My main question is on North American, the factory transition looking into next year. Maybe you could help us understand what the total cost this year is, was that you gave the $25,000,000 for Q4, And then if next year everything goes to plan and the U.
S. Environment is pretty similar to this year, are these savings then basically allowing you to get back up to kind of a 6% margin next year, just from mechanically removing the drag from what you had this year and putting in the benefits for next year?
Any smaller because that's sort of the initial ramp up and we and so we haven't sort of lost volume in the third quarter. And and, and we also continue to produce in the, in the old legacy factory. So the net hit in the third quarter is not as big as in the in the fourth quarter where we have more people in the new plant and still relatively low, let's say, manufacturing yield, right? We're producing products fantastic products, by the way, and, but not at the full, rate yet. And that's gonna, that's gonna take as we then introduce new variants continuously or in through Q4 into Q1 and also Q2, again, I think it's hard to overestimate how big a site and how complex transition this is.
We're talking about a 3,000,000 unit site that we're starting from scratch. So of course, that will result in cost as well as inefficiency also going into the first half of next year before we get this facility fully up and running. But you know, obviously, you know, I was there, a couple of weeks ago. Facilities looking great. We're producing but not yet at that rate that we need to cover the big fixed cost, of course, that we have of running 3 facilities in parallel, and that's going to continue for some time.
So we should only expect from the second half next year, you to be back to basically normal and fully benefiting from it.
That's fair to say. Well, and then just gradually get benefits as we ramp up, but also, we have sort of the cost throughout the first half of the year, yes.
And just a couple of housekeeping questions on the financials in terms of corporate costs if you could help us maybe a bit with the full year expectation there given some of the spin off costs in Q4. And also the Brazilian tax gain, why is that mechanically going into the EBIT rather than into the tax line for Electrolux?
Yes. If we start with the, with the tax line, this is related to a sales tax in Brazil and not a a, let's say, country tax. So that's why it's going into the EBIT line. Also, of course, it means that we have been overpaying the sales tax over a number of years. Has also hit the EBIT line previously in this years.
And then if we talk about the corporate costs So it should be on a, let's say, normalized level compared to previous years apart from the professional spin off costs that then we have we said that we had additional costs already in the second quarter and then that we will continue to then have the 100,000,000 on top of the normal run rate for the second half of the
Next question is from James Moore from Redburn.
Yes, good morning, everyone, Jonas Terre, Sophie. Thanks for taking the questions. I think they're really all about the same sort of topics, but I'd like to come from a different angle if could. I think you raised the total savings plan from 1,000,000,000 to 1,000,000,000 in the quarter. And you gave a very helpful annual phasing of that a couple of years ago when it was 1,000,000,000.
I wondered if you have revised that, and could give us a new pictures to how much of that land specifically in 2020 and how much already landed, if anything, in 2019? That's my first question.
Right. So of this, you won't see much in in 'nineteen. And then, the other point of this is that, of course, part of these savings are related to professional, which will then be a separate company just to be clear on that? And in Professional, it's more a question of offsetting the additional running costs that they will have, as a separate company following, of course, the the approval required from the board and the shareholders. And then Then we have a, a a relatively long run rate to get these effects in 'nineteen because of course initially then if we as we have a separation of the professional business prop, most likely, there are some extra costs related to running these 2 companies separate.
So some of the initial cost savings are more offsetting that, and then we get full traction later on in the period. To get to 1,000,000,000. And just to clarify, the 1,000,000,000 net savings will eventually hit the consumer business, but just to explain the kind of the how we run into this because there are, of course, additional running costs, both in the remainco and in professional of separating the 2 company that will first have to offset.
Okay. And just to be clear, how much of the 3.5 is roughly professional and how much
of that
which is that net
is is
consumer However, the actions that we're taking first need to offset both the risk and running costs in professional, which is a net 0, actually, at the end of the day, And then also in consumer, which then, will, will 1st offset initial call it, stranded costs from professional and then kick on to provide, net savings in a total of 3.5 And we gave the we gave the view in March in the Capital Markets Day of around $800,000,000 or so in 'twenty versus 'nineteen. And at this point, we don't see a reason to change that given the points that I just raised.
That's very helpful. And within that, whatever the number is, for the US, which I guess is roughly half, maybe more. And if you can help us on that, that would be great. But can you help us modeling of the timing of whatever that FY19 North America savings number is in terms of the savings across the fourth quarter. So I understand that we'll have some spillover of the cost.
Yeah. And maybe it's another 50,000,000, I don't know, in the first half or maybe it ramps down 15 then 10 then 00 on the on the cost side. But what on the gross savings side is the rough cadence of the North American savings in full year 2018 across the quarters the air.
Yeah. So so so, yeah, you see the 5th side of that as the as the volumes ramp up, you get more of them at the cost savings. Right? So so you see substantially less of it in the first quarter and then a little bit more in Q2 and then more or less full run rates from Q3 and Q4.
And lastly, if I could, on the net cost efficiency, the 1.76 as discussed, nice and low, I sense that there was some belief it could be 5, 6, 700 in the 3rd quarter, so quite meaningfully less than you might have thought. But is that the sort of magnitude of what we now need to expect for the fourth quarter with you've made. I'm just trying to turn it into some math for modeling purposes and scale what you're trying to say for the fourth quarter.
Yeah. So so we we we mentioned a few points, right, that the the the inefficiencies from Anderson are are increasing a bit, and then we have a little bit higher load of, separation costs from professional in Q4. Other than that, it's basically on the same run rate. We also talked about this sort of spillover of marketing spend from Q3 into Q4. But those are the big sort of incremental drivers.
Next question is from Johan Eliason from Kepler Cheuvreux.
Yes, good morning. This is Johan here. Just the question, so I understand this reason for guiding on this $25,000,000 extra cost in the 4th quarter because listening to say you already had some in the 3rd quarter. I think you mentioned it was the Dell year on year on the clean EBIT in North America. Is that correct?
So it was sort of $13,000,000 or 10,000,000 to 50,000,000 in the third quarter?
Yes, we don't give that specific detail on it. Typically what we try to do is is because it gets too messy if we give all the little numbers up and down and try to stay to the, to the things that are more significant. And we think the 25,000,000 for 4, of course, is a relatively noticeable number. So that's why we're we're highlighting it. And then, you know, so that's that's kind of how we try to to, to might make your lives as easy as possible.
When we have something that's meaningful, we'll try to let you know, and when it's less meaningful, we say, okay, it's part of the ups and downs in, in any given quarter.
Okay. And do you have any update on the timing of the professional
spin off
AGM and financial targets etcetera and the final spin off. And
We're progressing very well on the project, and in doing sort of first all the operational separation, as mentioned, we have now a board that's starting to execute their responsibilities. So we're making very good progress And, we will, we will, we are targeting to continue on our plan to do it in the early part of, of 2020.
And do you still sort of expect the new company to sort of be spun off debt free or how's the view there?
Yes, we I don't think we've given any guidance on the debt level other than to say that we will make sure it has strong balance sheet to continue to drive, organic as well as inorganic growth. We see that as a big opportunity for the group.
Okay. Thank you very much.
Next question is from Gus Sandstrom from SEB. Please go ahead. Your line is now open.
Thank you, operator. Good morning, guys. If I might switch to US and the competitive environment, we've seen a little bit of ramp up amongst some of your Korean competitors in terms of production volumes this year. Doesn't seem to have started to sort of hit the competitive environment that much. But I guess the we'll find out during Black Friday, if not earlier, but what your indication there, is there, still a quite solid market backdrop in the U.
S? Or do we start to see some type of higher priced competition feeding in?
Well, so there's of course many different parts to that. Analysis. And one of the things that I've tried to be as clear as possible on is that that we the overall pricing environment is to a very large extent driven by the sort of the macro cost environment, whether that's raw materials or or tariffs or logistics inflation or whatever. Right? So as that goes up and down with a lag, the market pricing tends to to adjust to that, not a 100% correlation, but but in, at least in the same direction.
So to the extent that you see, that you expect lower raw material, then of course, you also have to expect over time slightly lower marketing prices, again, market prices, again, with some lags Now the on specifically on the competitive situation, of course, I can't comment on what I think specific competitors will do What I would say though is that we are, in general, quite, happy with with competitors playing to the according to the same rules as we are, meaning that local production with all the benefits and challenges that that entails. So we don't necessarily see that as a negative. These competitors are already significant players on the market. You have to remember that. It's not like they're coming new.
But they're right now in an imported model historically have been an imported model and now more and more, over time, we'll go to a locally produced model.
Great. And on the black side, specifically, do you believe that we'll see sort of intensify competition, is that the house view or more similar to what we saw last year or versus simpletera
stable development is the indication we're getting.
And on the external headwinds. I think one of your peers in U. S. Was out a couple of days ago arguing for flattish impact from raw mat including tariffs next year, which costs on confusion. Looking at just the steel price and so forth, it seems like you would have some tailwind going into 2020?
Is that a fair assumption? Thanks.
Well, I mean, first of all, of course, we we have already captured some of the tailwind this year, right? Why we've guided down on the headwind compared to what we saw a year ago. And so that will, of course, then assuming that market prices stay where they are rolling to in into next year. So, and then, yes, it's true that current, market prices are, at a, at a, at an attractive levels. And both when it comes to steel and chemicals, and we will try to capture as much as possible of that.
However, currently announced tariffs will be a significant headwind for for the coming year if they remain in place, and they can go in different directions as we know. And I think very importantly, the Benefits of steel prices in dollars is lower in local currencies because, of course, of the strength of the U. S. Dollar. And that is that effect is actually to a significant extent captured at least when we give raw material guidance, that's part of it.
Because even though the just to be clear on that, even though the market prices are denominated in dollars. We often buy them in local currencies. And then we see that negative down on our raw material prices. So that makes it a little bit more complex, and I understand why it's a bit hard to, to track, but but that those 2 factors offset then the favorable sort of market dollar price development.
Thank you. Those were all my questions
Next question is from David MacGregor from Longbow Research. Please go ahead. Your line is open.
I could just pick up on that last question, for going to another question, but, you've had such great execution on price mix across all your segments this quarter. Very good price, very good execution around new product introductions as well. And so I fully appreciate that historically when raw material prices have come off, there's been a lot of competitive pressure in the market on major appliance prices. But I'm just wondering to what extent, given some of these developments on on mix and the consumer preference mixing higher and you having such a stronger sort of mix of products in the market, whether you feel this time around, finished product prices might be a little more resilient. You talk about the lag.
I guess the question is, is the lag a little more extended this time? Because of these other developments?
Well, so, so the way we and, and, and I it's absolutely a fair comment. I would say that the, though, the way we report pricing and mix and talk about it, makes that that effect more captured in mix because when we introduced a new product at a higher price point, we report that as a mix when And what we when we talk about price, that's only on product that's been in the market for a year or more and what that exact same product is sold at the what price. So we're kind of separating price as like for like product in market net price development and mixes sort of everything else in terms of new products or or selling more of our, let's say, premium branded products or selling more of our higher margin products that, that all gets captured in mix. So that's why I agree with your point, which is that we're really delivering strong mix and we expect to continue to do that. That's the whole point of of investing more in innovation, investing more in new and attractive product platforms and investing more in marketing.
So yeah, I agree with your point, but it will show up in mix rather than price.
Great. Just a couple of quick questions for me. You mentioned the, in pro, the beverage business was a function of maybe just contract cadence and you had a stronger first half, a little bit of slower second half. I just wanted to ask you if you're still confident that the beverage category, which has been a very strong category over the last year or 2, still maintains its underlying growth characteristics or whether you feel as though maybe the beverage category is slowing within Pro?
We're super excited about beverage. I mean, we now made the 3 decisions, as I'm sure you know, so we bought the U. S. Company Grand Master Sesilwear. We bought the Italian company SBM, which produces cold and slush type beverage machines.
And then we acquired a unique French manufacturer, high end manufacturer of espresso machines, including automatic fully automatic espresso machines. So we now have a full range of beverage products, that market is continuing to grow, and we expect that to continue. Of course, it's lumpy because a fair amount of these products are are sold as chain products, which is actually, frankly, part of the reason why we're interested in them. So that will be remain lumpy. And and, be driven by our big change then decisions on rolling out new concepts.
But we're really excited about the category and we're really happy to have now a strong offer in the
Okay. In North America, I know you've been developing your builder business. I'm just wondering if you could talk about what you're expecting in terms of fourth quarter growth or 2020 growth your North American builder business?
Yes. I mean, I think overall, the housing construction is remaining robust in North America. So we think now that's a solid and robust business for us that we've really grown over the last several years.
Can you continue to take share in that business?
Absolutely, absolutely, but it's not that we're we're no longer, let's say, underrepresented in, in, in construction, which used to be the case, but, we now have a solid chunk of the business there.
Last question for me is just if you saw much pre buy in Brexit pre buy in the UK?
Quite honestly, it's a little bit tricky to track that now. Yeah, I mean, I think people are making including us and our retailers are are trying to make sure to have high inventory availability, but we didn't see, the market, the UK market grew in the quarter, which probably is an indication of some pre buy. It didn't grow by much, but, but of course, the track record was last several been that it's been declining. So, yeah, I think you can see that there are some some pre buys there.
And the final question for today is from all of Cedar Home from ABG Sundal Collier. Please go ahead. Your line is now open. And all of Sederholm from ABG. Please go ahead.
Yes, sorry, the mute mute button. Hi, everyone. It's Olga from ABG. Just quickly, Brazil performance or Latin America performance, sometimes you have sort of every other quarter performance there, strong performance is followed by a weaker one. Is there a different is it different this time with sort of a more sustainable outlook for Brazil?
I mean, that's a dangerous question, of course, because it's a very volatile macro environment, and we don't honestly expect that to, to change. And I think you've seen recently, what's going on in Chile, Ecuador, Peru, Colombia, Bolivia. It's yeah, it's a volatile market. So, and that's just the reality. The big contributor for us, of course, is Brazil.
And whether or not we have solid performance in a quarter is to a very largely send driven by Brazil. And there, I am cautious optimistic that we are seeing more stability. If you look at things like inflation rate, interest rates, and, and housing construction, those all have, you know, are ticking along at a quite nice pace. So absent any sort of significant political disruption, I'm cautiously optimistic about Brazil while I'm actually quite concerned about the other parts of of Latin America.
Great. And also looking at North America in 2020, how big is the private label situation for you right now? Will you be able to talk about North America in 2020 without having to mentioned the fact that private label had an effect on your business?
Yeah, it's becoming a smaller and smaller issue, of course, I'm not saying that it will be completely gone, but it's dramatically smaller as an effect.
Yes. And then lastly, on the cost improvement of $800,000,000 from the from the investment program in Anderson then in 2020. That's not off the 2019 cost base, right? Because you're taking quite a lot of extra cost in 2019. That I guess at least won't be matched by extra cost in 2020 on this.
So how should we think about sort of an overall delta year over year 2020 compared to 2019?
Actually, these these costs are intended to include also the ramp up costs and the delta year over year, they are.
That was our last question. Jonas, I hand over to you to wrap up this presentation.
Very much. Thanks for good questions and for participating. We are, excited about our continued journey and really pleased about the fact that we continue to deliver on the strengthening of innovation as well as efficiency measures in the quarter. And, of course, with a lot of transition work that, that does impact our performance in while we're ramping up, for example, Anderson, but I'm really confident that we're on the right track to drive profitable growth also going forward. And with that, I thank you very much and look forward to our fourth quarter presentation.
Thank you.