Welcome, and thank you for joining us on this presentation and discussion of Electrolux's 4th quarter and full year results. With me today I have our CFO, Theresa Sridbury, and our Head of Idar, Sophie Arnius. I would also like to mention that this session is recorded and will be available on our website FM on demand versions. Before getting into the highlights and the detail of the full year and the quarter, I'd like to make some brief comments on this morning press release and the announcement we did yesterday regarding the reorganization of our core appliance business and the decision to spin off the Professional Products business. So we've announced 3 significant changes to accelerate profitable growth.
So first, we're separating our electric starting the process to separate the electric professional business aiming to create substantial shareholder value. And I think as you know, the first business in our starting the process to separate the electric profession. This will enable both entities to focus on their distinct opportunities to drive profitable growth. Also, we're transferring our home care and estate business area into 4 regional consumer business areas. This will allow a more unified consumer facing approach on each market allowing a unified interaction between consumers and our brands.
3rd, we're creating a global function for consumer experience we're putting together our marketing design, product line, digital solutions, and ownership experience, innovation capabilities. To leverage our group expertise in achieving outstanding consumer experiences. All of this focus on accelerating our profitable So digging into a little bit, intellectual professional spin off. So last night, as you saw, our Board of Directors decided to initiate the process to look at a possible spin off of Electrolux Professional to the Stockholm Stock Exchange. And the reason for this is, 1st of all, Professional is the only supplier that has a full and integrated offer for the hospitality industry under one brand.
You've seen that we've had very positive and profitable growth for a number of years, driven by strong innovation in the various product categories, and the combination of offering consumers a warm stop shop solution with more and more digital all combined solutions. We're operating on a global footprint in a resilient and steadily growing underlying end market. And this Electrolux Professional Business will offer an attractive financial profile with good growth and strong margin improvement potential. This will increase our agility to leverage market and M and A opportunities with access to the capital markets as a standalone company. From here on, you will hear an update from the Board of Directors in the midyear of 2019 based on the analysis that now is financing.
If that is positive, there will then be a proposal to shareholders at an extraordinary general meeting probably later in the year. And then if all of that is successful, an eventual listing of Electrolux Professional on NASDAQ in Stockholm here in the first half of twenty twenty, You may have also seen that the investor AB just issued a press release saying that they intend to remain core shareholders of both entities following and natural listing. If we're then focusing on our consumer business, we're making 2 significant changes. So first of all, we're creating a new business area structure where we're unifying our major clients business and our home care and stay business and on a regional basis to offer a more unified interaction with our consumers based on a brand by brand basis. As new business models merge with more digital interaction, we see that there's a strong need to offer a more integrated and unified interaction with our consumers, both from a sales perspective and from an ownership experience perspective.
We're also starting last year. We announced that we are accelerating our focus on driving emerging markets growth, with the combination of our Middle East and Africa business with our Asia Pacific business to increase the focus on emerging markets. We are also creating a new consumer experience function, and this is intended to accelerate our product and ownership innovation capabilities. This is about translating our experience innovation that we have focused a lot on in recent years in great tasting food, perfect care for clothes and healthy well-being in your home. Into strong brand storytelling and product design.
And of course, this is all underpinned by an acceleration in digital solutions, both in terms of the product interaction and how we drive accelerated growth in ownership solutions in the markets. This will result in accelerating our profitable growth in the consumer business, and we're reflecting that in keeping our financial targets unchanged for the consumer business, also following the eventual spin off of professional products. So this is a very significant and important, and I think exciting steps to taking to sharpen our business, focus it on the 2 main customer areas and accelerating profitable growth. Turning back to, our full year 2018, we continue to execute and perform well in 2018. By very challenging cost environments.
Our strategic focus on consumer experience innovation, together with high agility, a great comparative asset. During the year, we improved both our pricing and our product mix in combination with cost efficiency. Sales reached 124000000000 corresponding to sales growth of 1.7%. We achieved organic growth in several of our business areas, including EMEA, Latin America, Asia Pacific And Professional product. Sales in North America was however impacted by the decline in private label business.
For the full year, EBIT excluding NRI was SEK6.7 1,000,000,000. We face significantly increased cost pressure of almost SEK3 1,000,000,000. And implemented price increases to offset the headwinds we faced from raw materials, U. S. Trade tariffs and currency.
Our underlying EBIT margin was 5.4% versus 6.1% in 2017. I'm pleased that most of our business areas showed earnings resilience despite the tough environment. Operating cash flow after investments was 1,000,000,000 set for the full year, and we completed 2 strategic acquisitions in Professional Products. We're entering 2019 with a strong balance sheet that provides opportunity to create profitable organic growth as well as selective acquisitions. The board now proposes an increase of the ordinary dividend to SEK8.50 to SEK8.50 per share.
This reflects Electro's commitment to deliver shareholder value. Let's now go on to the Q4 highlights and turn the presentation to our business overview. The performance in the quarter was good and in line with our planned progress despite significant cost pressures across our business areas, especially in North America, with the implemented trade tariffs. We continue to invest in consumer innovation that further improved mix in the quarter. Net sales increased versus last year and grew to SEK34.4 billion.
Organic growth was up 2.7%, driven by price increases and mix improvement. Our business areas in EMEA, Latin America, Asia Pacific, Home Fair SDA and Professional Products continued to deliver organic growth. In North America, price increases improved while volumes declined mainly due to the private label business. Operating income was SEK2 1,000,000,000 with a healthy margin of 5.7%. This was despite a SEK900 1,000,000 increase from raw material costs, tariffs and currency.
In light of the tough comparison, I'm pleased that all business areas had positive pricemix contributions. However, This could not fully offset the high headwinds today. Turning to our innovations. I'm really pleased to share with you our journey on front load washers in Southeast Asia. This is really a great example of how we're combining global technology innovation to provide great care for garments in beautifully designed products in combination with local adaptations for local consumer needs, such as washing, boutique, or or heat jobs in Southeast Asia.
Through combining these two strengths, we have achieved over 15% cumulative annual growth for the last several years. And we're now market leaders on front of washers in Southeast Asia. This is the type of of combination of innovation and close understanding of local consumer needs that really fuels profitable growth for us going forward. And we want to accelerate that further by combining our efforts on emerging markets. Secondly, you know that we've refocused and shortened our our brand approach for AAG a couple of years ago for Frigidaire in 2018.
And now we're doing the same for our Electrolux brand. Just in time for our 100 year celebration in 2019. And we're taking the opportunity to really clarify the Electrolux brand heritage of sustainability of Swedish values of Inclusiveness and of Innovation. And we're now launching a new range of built in kitchen products in Europe and in the rest of the world as well. That really takes those values very closely into account, driving or and delivering the most intuitive and interactive kitchen experience ever.
So we're extremely excited about a significant number of large product launches coming in 2019 going forward. If we turn to our business operation in Europe, major appliances in EMEA continued to show solid sales performance with an organic growth of 3.8%. We continued to gain market share under our premium brands and in strategic categories such as laundry and built in kitchen. This resulted in accelerating product mix improvement and higher sales volume. Price was slightly positive in the quarter.
Year over year, operating income increased 7% and the EBIT margin came in at 8.5%. As previously announced, operating income includes a reversal of a provision of SEK71 million related to the French competition authority in this investigation that was concluded in the quarter. Excluding the nonrecurring item, operating income was on par with last year as the top contribution from volume, price and mix, offset higher costs for raw material and currency headwinds as well as investments in innovation and marketing. Let's move to the market development on the next slide. Demand in the European market showed a positive trend in the quarter, with total industry shipments up 2%.
This was driven by strong growth in Eastern Europe of 7%, where we saw demand increase across most market market volumes in Western Europe are stable and at a relatively high level. Now let's talk about North America. Our organic growth in North America declined in the quarter. Sales volumes continued to decline primarily due to private label, but also due to higher prices. Cost based price increases improved sequentially net to market promotions contributing positively to sales.
Operating income in the quarter, however, declined significantly as a result of lower volumes and the cost headwinds from raw materials and tariffs. This is against the quarter last year with high cost savings. Committed continued cost inflation and trade tariffs we have announced further price increases started beginning of 2019. We are, as you can see on the next slide, taking active measures strengthen our competitiveness in North America. As we announced yesterday and discussed last year, We're now moving forward with our Springfield investment and are on track to complete the expansion of our Anderson facilities.
We've also decided to consolidate our cooking production to Springfield, meaning we will cease manufacturing at our plant in Memphis. This is a tough decision to make, and we're committed to supporting the Memphis team going through this transition. However, it is one of several necessary steps to safeguard our competitiveness in North America. Where we're facing tough headwinds and are seeing declining earnings trend in 2018. We expect savings from the consolidation of cooking production of close to SEK1 billion from 2020, 2022.
As a result of these measures, a restructuring charge of approximately SEK800 million will be taken which close to $300,000,000 that cash of cash impact. We expected 1st new Anderson refrigeration products to roll out in mid-twenty 19, and the face over from St. Cloud to be done at the end of 2019. During 2018, we've simplified our product offering and reduced the number of SKUs meaning unique product types by 50% compared to mid-twenty 17, eliminating unprofitable and costly products. A key focus for the coming years is now to further sharpen our Frigidaire offering to consumers.
We have already their position through well received product launches. The increased use of modular product platforms enables us to step up the pace in bringing relevant innovations. U. S. Consumers also in the coming years.
We're also continuing to expand our distribution network and are now able to reach 95% of U. S. Households directly. Now let's briefly comment on the market development in North America. Industry shipments for core appliances in the U.
S. Continued to decline in the 4th quarter, but at a lower rate of 1%. Demand for home comfort and microwaves was up 15%. The quarter ended with positive December growth, which we assess was partly driven by some customers pre buying ahead of the year with higher list prices. The weak industry shipments overall in Q4 is partly explained by the higher prices in the market, but also the shortfall in the big laundry category.
In addition, Sears, a large retailer filed for restructuring under Chapter 11 in the beginning of the quarter. However, we estimate the sellout to consumers to have been better than the industry shipments. The macro environment in the U. S. Has, in general, been favorable with consumer confidence and unemployment rates at very healthy level.
Although we have noted some inflationary pressures and somewhat of a slowdown in the housing market going into 2019. Now let's turn to the next slide and talk about Latin America. Metro economic uncertainty continued to impact demand for appliances in key markets in the region. The market in Brazil and Argentina was down consumer demand in Chile was up. Central America, Caribbean and MDM combined regional markets showed stability during the quarter.
Organic growth came in at a high level of 12%, driven by higher price, together with positive mix mainly in Brazil. Sales volumes, however, showed a decline in the quarter. Our earnings were also positively impacted by higher prices and mix in combination with strong contribution from cost measures in the quarter. This more than offset increased raw material costs and currency headwinds. I'm very happy that our operating income increased and margins improved versus last year 0.3% to 5.6%.
Q4 is, as you know, a seasonally strong quarter. We continue to see cost inflation in Latin America and increased uncertainty in Argentine China in particular. At current rates, the negative currency headwinds continue into the beginning of this year, and price remains our key tool to mitigate these headwinds. We have decided to transfer refrigeration manufacturing from our facility in Santiago, Chile to primarily our very young facility in Thailand. This will allow us to increase the use of modular product platforms, resulting in improved efficiency and a sharper local product offering.
Let's turn page and look into our Asia Pacific business. In Australia, the market was somewhat softer in the 4th quarter which mainly related to the slower property market, as we highlighted in previous quarters. We increased prices to mitigate higher costs from continued turns headwinds but these had somewhat of a negative impact on volumes. In Southeast Asia, we were able to continue our profitable growth, thanks to higher volumes, especially in laundry, which contributed which contributed to favorable mix. I'm pleased with the team's work, but we faced a high currency headwind mainly in Australia.
Contribution from pricemix did not fully offset this enhanced operating income decline year over year. Let's continue to on care and SDA. For our lung currency business, there's an ongoing market shift from corded cancer products to strong demand in cordless products. This trend continued in the fourth quarter. We saw an organic growth of 14%, which was driven by positive product mix related to strong growth in the quarter's category, fueled partly by the new innovative products to our F9 that we launched last quarter.
We also saw growth in corded vacuums in Europe where we gained market share. The divestment of the U. S. Forecare business in the previous quarter impacted sales negatively. Earnings was in line with last year, thanks to the strong mix improvement.
Even though sales volumes were lower and headwinds from cost inflation and currency impacted results negatively. Time in Home Fair SDA and we'll continue with investments in new products and support future product launches in 2019. As from Q1 twenty nineteen, we will report our home care and SDA business as part of our regional consumer business areas, as I indicated earlier. Let's turn to our Professional business. Professional Products delivered a solid quarter.
Organic sales grew by 4.7% driven by higher sales in the laundry and beverage segment as well as improved price contribution. And growth in the customer care business which is an area that we're focusing on growing. The previously acquired company Schneidereich and STM Drink System contributed to sales further with about 6% growth. Earnings increased slightly compared to the same period last year and benefited from positive pricemix. Higher costs for investments in customer care and R and D for new products well as increased raw material costs, however, had a negative impact on our operating margin.
The acquisitions to be made in 2018 fully accounted actually for the dilutive impact of margins in the quarter. Before turning over to Tres for the financial review, just wanted to highlight again that we are planning to have our Capital Markets Day on March 24, 27th in Puerto Nona Italy at our Professional Power San first. And especially in light, I guess, of the announcement we made last night, I think this would be a very interesting session that I recommend you all take part of. I would say though that seating is limited. So if you want to participate, please go ahead and register as quickly as possible.
With that, I'll hand over to Thierry, the financial review.
Thank you, Jonas. And let's go through the financial overview. As Jonas mentioned earlier, in the quarter, higher prices across all business areas in combination with improved mix, thanks to our innovative products, resulted in an organic sales growth of 2.7%. The currency translation contributed positively and in total sales were up 5.7%. Gross operating income declined somewhat year over year to 6.6 1,000,000,000 corresponding to a margin of 19%.
This, as we were not able to fully offset the high cost inflation relating to raw material tariffs, and as well as currency. Despite this, operating income was close to SEK2 billion somewhat lower compared to last year's strong quarter. All in all, our operating margin came in at 5.7%. Earnings per share in the quarter was 5.48% compared to 6.97% last year, which was impacted favorably by a one time positive effect on tax in the US. Let's go through the EBIT bridge for the quarter on the next slide.
Volume price and mix had a positive impact on earnings in the quarter. The leverage from price was strong, especially from our price actions in North And Latin America, but actually all business areas reported positive price in the fourth quarter. Strong mix also contributed positively. As Jonas mentioned, sales volumes had a negative impact due to volume decline in North America mainly driven by lower private label sales, but also from lower volumes in Latin America. Headwind from raw materials and tariff for 1,000,000 in the quarter.
The currency impact intensified and was in total 1,000,000. Net cost efficiency came in as planned, but our underlying productivity was offset by higher cost inflation and higher investments in R&D Learning. Acquisitions had a slight negative effect on the group's margin relating to the divestment of the U. S. Floor care business.
A nonrecurring item of 1,000,000 related to the French antitrust proceedings had a positive impact on earnings. To sum up, despite sequentially improved organic contribution in the quarter, we were not yet able to fully offset the effects from the record high headwinds we face. This resulted in an underlying margin of 5.5 percent. For the full year, volume price and mix had a positive earnings impact of 1,500,000,000. Price was a key positive driver as we increased prices in several markets.
The mix contribution was also strong as a result of new product launches and market share gains in the focus areas. Volumes were impacted by the decline of private label volumes in North America and also by the business transition in home care and SDA. Net cost efficiency for the full year was close cost and trade tariffs resulted in a headwind of SEK2 billion and currency accounted for an additional SEK900 1,000,000 in headwind. The net result from acquisitions and divestments during the year gave a slight dilution effect on margins. Items of SEK1.3 billion in 2018, impacting major appliances in EMEA as well as North America.
Excluding NRI, our EBIT declined somewhat versus last year's strong performance. For the full year, this correspondents an EBIT margin of 5.4%. Looking into the currency effects in more detail. In the fourth quarter, we had 1,000,000 in negative transactional currency effect year over year. The negative impact was mainly in the margin market currencies such as the weaker Argentinian peso and Brazilian real versus the U.
S. Dollar. Asia Pacific continue face a currency headwind driven by the Australian dollar versus the U. S. Dollar.
And in Europe, the stronger dollar versus euro and the weaker Russian ruble impacted negatively. The translation effect was positive SEK62 million and it's relating to the year over year EBIT effect from a weaker Swedish kroner. At current rates, the negative transaction effect would continue to impact Latin America and Asia Pacific negatively in 2019. I'm very pleased to see that all our business areas contributed to the 2.7 percentage points EBIT margin accretion for the group from price and mix. EMEA had favorable mix fueled by the premium brands and market share gains.
Price was slightly positive with selective increases in targeted markets. And we have further announced price increases across the region with effects from the first quarter. In North America, price sequentially improved slightly versus the previous quarter. We continue to grow for price and have announced further price increases in North America. Effective from the beginning of 2019.
In Latin America, In Asia Pacific, the price actions we have taken in Australia since the summer is now contributing positively and mix as well, partly related to the strong growth we had in Southeast Asia within the laundry category. Home Care And Professional also benefited from price and mix across markets. We had a strong cash flow after investments of 1,000,000,000 in Q4, an improvement compared to a good level in the previous year. The increase was mainly due to positive working capital contribution. The average operating working capital in relation to rolling 12 months net sales showed an increase to 4.5% versus last year's 4%.
The sales mix shift within our business area and increased inventory level as well as acquisitions were the main negative factors that were impacted. As previously highlighted, the working capital efficiency we have achieved over the last 10 years are now expected to flatten out and remain at this healthy level. Investments are slightly higher versus last year due to the ongoing investments project in reengineering, innovation and automation. In primarily North America and Latin America. With that, I would like to hand back to you, Jonas, to review our outlook and summarize the quarter.
Let's move on to our outlook and start with our market view. The overall demand trend across most markets in 2018 is expected to continue in 2019, but the visibility is impacted by high uncertainties in the world. A tough tougher cost environment triggers further price increases in the appliance industry, putting pressure on shipments in markets such as North America and Latin America. In terms of our growth, however, the impact on price increases is positive. We anticipate market demand for appliances in Europe to be slightly positive Western Europe continues to be relatively stable, although impacted by the UK and Brexit.
Eastern Europe driven by Russia is expected to show good growth. For North America, based on current industry dynamics with higher prices in the market, we estimate U. S. Industry shipments to be flat slightly negative for the full year 2019. Latin America continues to be impacted by the current economic and political uncertainty with currency fluctuations in combination with continued market price increases.
Therefore, we expect demand from the ABC countries, Argentina, Brazil, and Chile, as a whole to be flat to slightly negative. As a result of the weaker housing market, we expect the full year market outlook for Australia to be flat. The positive demand trend in Southeast Asia, however, is expected to continue in 2019. So looking at Q1 and the full year 2019 outlook. We expect favorable organic contribution, driven by higher prices and positive mix development fueled by launches of new and innovative products.
As previously mentioned, Sears, our main private label customer in North America filed for Chapter 11, and there are still uncertainties on how this would impact our private label volumes. Price increases is our main tool to mitigate cost inflation, and we expect prices in Q1 and the full year to have a significant positive contribution, mainly from North America and Latin America. In addition to the price increases achieved last year, we have started 2019 by implementing already announced price increases This is, during the year, expected to offset the external headwinds we face from raw materials, tariffs and currency. We estimate the negative year over year impact from raw materials and tariffs to be approximately SEK1.7 billion to SEK2.1 billion in 2019 with the range driven mainly by uncertainties on tariffs. The currency headwind for 2019 is roughly SEK300 million, based on currency rates as per 22nd January.
And most of that, we impact our first quarter. We continue to have strong focus on cost productivity to drive organic growth through innovation and consumer experience we will invest more on new product launches in terms of R And D, marketing and brand compared to last year. This combined with manufacturing transition costs in North America and increased cost inflation will not be fully offset by the gross savings we aim to deliver. Hence, we expect a somewhat unfavorable impact on the net cost efficiency for both Q1 and the full year 2019. Our CapEx project our projects to strengthen our competitiveness through automation and modernization continues in 2019.
And will, as mentioned, also include the new projects in North America. We expect CapEx investments to increase to about SEK7 billion in 2019. Before handing over to Q And A, I would like to briefly summarize our execution in Q4 2018. So our journey to profitable growth continues. We have implemented higher prices across all business areas.
We're improving product mix, supporting by new products and our focus on premium brands. We're continuing to invest significantly in R&D and innovation for new product launches. And we're creating value. We're generating strong cash flow and we're raising our dividend wholesale to $8.50 from $8.30 last year. And this in combination with the exciting announcements we made last night and this morning further accelerates our profitable growth journey.
With that, I turn over to Q And A.
We are now opening up for questions. The telephone conference.
The first question is over to the line of Andre Kukhnin of Credit Suisse. Please ahead. Your line is open.
Yes, good morning. Thanks very much for taking my questions. I'll go one on the quarter and the outlook on one on the strategic moves, if that's okay. Just on the quarter and outlook, the net cost efficiency guidance that you put out is somewhat surprising that you expect that to land in a negative for the full year 'nineteen. Could you maybe walk us through the moving parts there in terms of kind of year on year moves or what may
be in absolute numbers you expect
to generate in terms of savings in 2019 and what are the factors that are offsetting it?
Right. So of course, we're continuing our work to continuously improve our productivity and cost structure. And we did give some guidance at the Capital Markets Day last year on the continued progress there. And if you recall, and we were able to see that as well. We had projected a slightly lower ongoing cost productivity in 2019, and that is because of significant effort we're driving on the big investments in North And In Latin America.
That's driving a tremendous amount of effort and focus and also cost, of course, during 2018 and even more in 2019, but with massive productivity improvements starting in 2020 and into the coming year. So it's a little bit of question of facing of the benefits there where we are in fact, really accelerating our cost productivity actions, but the impact is slightly lower here in 2019. So that's the first one. Still very good contribution from continuous improvement, but a little bit less than in prior years and with a further acceleration in 2020 and beyond. Then on top of that, the manufacturing transition in particularly in Anderson in the second half of the year will result in some double cost, let's say, as we ramp down our Sankaled facility and ramp up, Anderson, with a new product.
So that will result in some recently significant additional costs that's temporary and natural, and we want to make sure that we ensure a smooth ramp up of that facility. Also, as we mentioned, we have a lot of exciting innovations coming to market here in 2019. And And we are in a very positive curve, as you have been able to see, especially here in the second half of twenty eighteen on mix. We want to, of course, continue to drive that and support both the positive mix and our continued price increases with strong with strong focus here in 2019. And then finally, there were in 2018, a few, a positive one offs that we actually highlighted also during the course of 2018.
Of course, the negative reversal of that shows up in that cost efficiency as we go into into 2019. We do have a fairly significant degree of discussion over, of course, these investments. So So we will of course make them only as we see the benefits materializing in price of mix. So we have a little bit of the ability to to toggle between the strong contribution that we foresee in price and mix and the cost investment that we make to support that.
Got it. Thank you. And if I may, just on the spin off of Professional, did you substantial dis synergies? And then maybe on the other side, what is it that this business will be able to do as a stand on stand alone basis that it hasn't been doing under Electrolux?
Right. So actually the 2 entities operate on a quite standalone basis already. And So the separation costs as well as the ongoing costs for having 2 separate entities are are expected to be relatively minor. We will come back with more indication of that of course as the project continue. So we're not ready to give you specific guidance on that yet, but we do see that this will be relatively limited.
If we look at the development of professional, I think you've seen that we've had a number of years of profitable growth and margin improvement. So indeed, professional is executing very well inside of the current structure. However, just because of the fact that these are very different end markets, different technologies, different manufacturing locations and so on. We really see limited benefits of keeping the 2 and these together. And the fact that we see significant benefits from allowing the 2 to really focus exclusively on on their individual opportunities.
And also, and very importantly, with separate access to Capital Markets and the we do want to grow both organically and through M And A and professional and given the high significantly higher valuation multiples in the professional space, we've struggled to really be able to see a strong enough return on those types of M and A acquisitions when as professional as part of the consumer business with lower multiples. But as a stand alone entity with a higher trading multiple, that M and A driven growth be able to create enough more value going forward. So those are the main reasons.
We now go to the line of Johan Eliason at Kepler Cheuvreux.
It's Johan here. Regulations to a decent set of numbers despite the headwinds. Just coming back to your net cost deficiency guidance here. We got the input that include the negative effect from 2018, positive one offs sort of now just to make it clear, this 1,000,000,000 restructuring charge you plan for Q1, is that part of this guidance or is it just the at item? Thank you.
No, the one of costs are not part of that. Of course, there will be some extra operating costs as we go forward and then develop the new products in Springfield and accelerate their construction. So that's going to that's part of the the negative cost efficiency, but the restructuring cost itself is not part of it.
Okay, good. And then on the price hikes, you're talking and work policy is also doing it similarly. And now we are starting to see a terrorist being postponed potentially and some inflation on the raw materials coming off. Do you see a risk that that price will start to be eroded again towards the end
of the year or how do you do you expect this to play out? Thanks.
Well, I mean, we've always been very clear that we think that macro things that impact all players end up at the end of the day in consumer pricing, both the upswing and on the downswing. So I don't think there's any unclarity about that. However, because it's clear, I think that despite the fact that the pricing for steel and plastics have come off their highs recently, it's still at a very elevated level and definitely higher than it was 2 years ago. So we do, of course, expect to continue to see general market pricing to adjust to input costs, but it's definitely still an elevated cost level that we're seeing.
And the impact from the Koreans now having plants soon up and running fully, don't you think that will change the competitive picture again in North America?
Well, honestly, we think that's a good thing for the market dynamics because then all players are or planning on the same playing field so to speak. And the differences in currency rates or tariffs and so on will play a smaller going forward. So this is actually something this is not new capacity. They're adding their transferring capacity from other manufacturing location. So on balance, we don't worry about that.
Okay. We now go to the line of Andrea Cilly at JP Morgan. Please go ahead.
Yeah. Good morning. Thanks for the time. The first question is a clarification on the bridge. You gave a lot of elements for the guidance for 'nineteen.
I just wanted to make sure I understand correct. You said, that you expect the price increases to offset the FX tariffs and raw materials. Is that price, just price, or is that including mix as well?
No, that's just the price.
That's true.
Yeah, so we continue to see favorable mix. And again, that's what I think is important to to look at these sort of corresponding elements of the bridge that yes, we're pricing to offset currency and raw material. And then we're investing to drive mix and volume in our net cost efficiency. So of course, these are these are corresponding and we're able to kind of pull them and push on these different aspects depending on the development as we go forward.
So the message is that if we had 1,000,000,000 underlying profits in 'eighteen that if price offsets FX Paris and roll out and mix can offset the negative net cost efficiency or the investments that's kind of how we should think about it as a starting point.
Yes, I mean, as you know, we don't give specific guidance. We're just sort of indicating the of our different drivers. So I think we're going to focus a lot on, of course, driving profitable growth in 2019 as we always do. And as we guided, our financial objectives remain to achieve a percent margin over time and that's what we're going to work towards of course to go forward.
And that is my kind of second question. If the 6% margin target in terms of it's positive that you maintain that ex professional. What's the time frame for this? Do we need to wait until the with the savings running fully by 2022 or is that a target you think you could achieve before the U. S.
Is fixed
Yes, look, we don't, as you know, we don't give a specific timeline for these things. This is 6% across the business cycle that we see that this business should operate on also, let's say, the consumer business here, Now of course, we have a major investment program ongoing right now, not just in North America, also in Latin America, and we see really good traction and progress on those investments. We will ramp up our Anderson facility with a completely new range of refrigeration products with massively improved productivity compared to the previous setup in 2 factories. So that's coming on stream here starting in the mid 2019. With some sort of duplication costs, of course, throughout the fall as we ramp down and cloud and ramp Anderson, that's unavoidable, but the benefits are really significant.
And then as we look at doing a similar set of actions in in our cooking facilities in Springfield with a new combined product architecture for full built in ovens as well as freestanding cookers with very significantly increased productivity and reduced cost. Of course, we'll have a completely different setup in and efficient factories in North America. Starting to say that journey starting in mid year 2019 and continuing to accelerate. And of course, that would be a major contribution to our 6% target going forward. Thank you
very much. I go back into the queue for the further questions.
Okay. We now go to Lisa Cara at Morgan Stanley. Please go ahead. Your line is now open.
Hi, good morning, and thanks for taking my question. I will have to, but the second one is just a more an accounting or housekeeping question. The first one is around the objective around the price. I'm just curious to understand the dynamic you serving now with your distributors specifically in the US because I remember you were trying to increase your presence with other distributors outside years, but what we are hearing from a lot of distributors now in the U. S.
Is they are quite pressured by lower volume that they see in terms of demand and also increased cost terms of transportation and labor. And so I'm just trying to understand how do you see the balance between that massive price increase that you are expecting to pass through in 'nineteen, which seems to be much larger than what you have already passed in 'eighteen and 18 was already a very big number. How does that work in terms of your strategy with the distributors and the volume level also in terms of filling up the factories.
Right. So yes, I think you're correct in saying that there are significant inflationary in North America. And of course, that's the reason why we have to make the price increases that we're doing whether it's raw materials, transportation costs, labor costs, tariffs. That's something that's impacting us and it's impacting our competitors, more or less in similar magnitude. So and that is, of course, also the reason why we are not cautious in our market demand guidance for 2019 in North America.
So this is all part of our analysis of the market. When it comes to increasing our distribution scope. That's something that we worked very, very intensively on throughout 2018 to to increase our regional and local distribution capability. As I mentioned before, we now have the capability to reach 95% of American households through our distribution network. And that's something that is a massive improvement compared to previously.
And that, of course, supports our distribution reach ambition. And we've made major investments in that. So as we go now into 2019, we have a sharper and more focused product offering. We've refreshed the Fruta Day range and the brand. We have much better distribution capability but we also have higher costs.
So we have to raise prices but we see that we can do that and continue to drive positive mix and expandable distribution.
And just my second question, the housekeeping, you mentioned 1,000,000,000 restructuring. I think you have 1,000,000 to come in the 1st quarter in North America. Where's the is the 200,000,000 coming into LATAM for the Chile plant or?
Yes, that's the we're moving one or actually we have one product line, you could say, from our factoring in something other Chile to to Rayon in Thailand. And that would result in mainly actually some asset write offs. This is not so much a cash cash consequence. Sorry, this is existing capacity that we have in Thailand, so there's no additional investments sorry, say that again.
That would be taken in the EBIT of this division, yes, as usual.
We now go to Abej and Olaf Sederholm. Please go ahead. Your line is now open. Yes, hi. It's Solov from ABC.
Just a question on the net cost efficiency not for 2019. I'm thinking about 2020 already. You said that the cost savings from your investments will be accelerating and the fact that it will be negative this year is more the phasing of this progression. Could you talk a little bit about that development into 2020 already now?
Sure. Absolutely. So one is the question of facing, yes. And 2, it's also a question of how much we decide to invest in marketing and R&D to support our positive and profitable mix development, right? So So you have to of course see that there's a discretionary element in this and not all costs are bad.
In fact, a lot of cost are there to drive the positive mix development that we're currently seeing and that we want to accelerate further. But coming back to your question about 2020. Of course, we are currently actually in the middle of 4 major manufacturing transformation and product innovation programs. We have Anderson, which is ramping up here in middle of 'nineteen, Springfield, which will start to ramp up, but actually in the, mainly in the early 2021 time frame. And actually a significant part of the savings, the building that we're talking about here, will be achieved in 2021 with full realization in 2022.
And then also we're doing a major restructuring or actually reengineering in our large refrigeration plant in Curitiba, Brazil. That's also coming on stream end of the year this year, early next year. And we're also making significant investment in our cooking products similar to what we just announced in Springfield in our facility in San Carlos, Brazil. So of course, this is really unprecedented work we're doing on productivity and on product innovation. Which will really start to kick in heavily from the beginning of 2020.
So we have a very, very, very favorable outlook on our cost productivity starting in 2020. And beyond the coming years. But also, and I would say this is even more important that these are cutting edge innovative products that will allow us to continue the positive mix journey that we're on. So we look very favorably at the development that we're seeing going forward.
Great. Then just one question about more currency. The private label situation, Q4 was was messy. How should we think about this in North America going forward? And also if you could maybe specify a little bit what the Frigidaire brand, how that is developing in the market?
So private label development will be impacted by the outcome of chapter 11 proceedings that are currently ongoing for Sierra. So it's very, very difficult for me to speculate on how that's going to how that's going to turn out. I would say it's fair to say that that regardless of how it turns out, I would say it will be a significantly smaller business for us going forward. Also, if the current work to exit Sears from restructuring will be successful because smaller store footprint that's being proposed. But we're following that very closely.
We are the key supplier to Kenmore, and we want to continue to do that if they reemerge from reorganization. So we're ready to and willing to do that. When it comes to Frigidaire, as you know, we've worked hard to to refresh the brand with a new line of very nicely designed products that have been well received in the market And we're really able to price up for these new products and that's a big reason why we have been successful in our price increases that we realized. Of course, there is some pressure on demand because of the price increases, but But overall, it's a very well received new range of products under an attractive brand. And we expect to continue to fuel that as we go into already here in 2019, we have significant new product launches with multiple refrigeration, new built in ovens.
New dish washers. So we have a really exciting range on new fridge products coming already this year. And then of course, then we're wrapping up from from India, the new refrigeration products from Amazon. So it's a busy year. We are now
I guess, you talked about pricing. A lot of the commentary has been around North America and Latin America. I did mention the get some pricing in Europe. It's historically been a difficult part of the world or difficult region with image to get pricing. I'm guessing that everybody pervasively is feeling the impact of inflation, and that would be a reason to increase pricing and to
be optimistic about the ability to
get pricing there. But historically, you know, that has been the disruptions to that. And so I guess I'm just trying to get a sense of, you know, what might be changing in the European market competitively or structurally that would allow you to achieve pricing and given you maybe a better level of confidence this time around with those pricing issues?
Yes. So in the fourth quarter, we saw quite nice contribution from that pricing for the first time in a long, long time in Europe. And we saw that in combination with strong mix contribution, I think that's what's really encouraging about what's our ability to execute now in Europe. And our journey so far has been, as you know, we'll continue to launch great new products at higher price points and drive positive mix but the like for like pricing has been negative and then flat, but now positive. And that's of course, driven by combination of unfavorable currency in a few places that we and all our competitors are facing as well as then the higher raw material prices.
And as you mentioned, also inflationary pressures on the salary side, especially in places like Germany as well as Eastern Europe. So So the cost pressures are higher. We see that continuing and we're reacting to that through through higher list prices and we're we're raising them further here in the first quarter of 'nineteen. So I think that's just the site we're in right now that we all kind of have to get to little pricing given our customer facing.
And do these inflationary pressures just bring about a more rational competitive environment in Europe?
That's probably hard to speculate on, but I always say this, right? Significant changes in the cost environment that impact all competitors tend to get reflected in pricing over time. That's I think relatively unavoidable feature of a low margin industry like ours.
Okay. The second question is just on the commercial I realize we're talking about this more at your analyst meeting, but, you mentioned that there's an opportunity to drive margin improvement with the separation.
And just,
you know, I'm looking at your business versus some of the other publicly traded peers like a Middleby or well built and you know, there's always been this it's it's been impressive in terms of the context within your, you know, consumer business, but it's lagged behind some of these other peers and that the, commercial food equipment business. And so what is the margin driving opportunity here? Where is the upside in margin?
Yeah. So I think there are a couple of different areas that we'll be able to accelerate now. So one obvious one is that our exposure to North America in professional business is much lower compared to the peers that you typically looked at are listed in North American years. And the different feature about the North American business is that is that more exposed to the change business. And once we have change business, it's usually ongoing relatively high margin business.
So We've made good progress in increasing our exposure to North America, but I think now as a stand alone business, we will be able to really accelerate that. Through M And A and through organic investments. So that's one big big opportunity we have to increase margins going forward. And the second part is a higher focus on the aftermarket business and that's something we also kicked off in earnest about a year and a half ago and that's really starting to pay off in better performance. I think that if you look forward here, and that's what's really making us excited about their professional business.
What's happening is that more and more of maintenance and repair work will be driven by connected appliances that we will be able to remote monitor. And Electrolux is Electrolux Professional is the only brand in the industry that is delivering a full suite of products, old food service, beverage and laundry products under one brand, meaning that we can offer 1 sort of surveillance system and one response system through aftermarket service, to support our customers in a much better and much more attractive way for them. This is a significant marginal expansion opportunity. So we see a really strong continuation and acceleration of our both our top line and our margin improvement in Professional going forward.
We now go to the line of James Moore at Redburn. Please go ahead.
Can I return to the unfavorable net cost efficiency? And just back to the slide, I think it was 154 that you referred to in your 2017 Capital Markets Day. On that slide, it showed your MOVC savings of 1,000,000,000 a year ex RMI and inflation over 2% for 2017, 2018, 2021. I get that it dropped to 1,000,000,000 in 2019. But on other occasions, you've talked about a couple of 1,000,000,000, 1,000,000,000 of MABC savings a year, not the Can you help me out on what the correct picture is and whether that 2,200,000,000, 2019 productivity number or MABC savings number is still valid?
For 'nineteen? Or is that now lower, perhaps because of the US investment delay? And if it is lower, can you quantify it? And on the other side, Can you say how much above the 2% threshold you're planning on inflation being in 2019?
All right. So, first of all, I think I'm impressed that you quickly dug up the slide there. That's great. I think that's a percent that's a percent slide. So I think we didn't give an exact guidance, but it's around that 2% range of MAVC excluding RMI and inflation over 2%.
So, and that's that, of course, is a number that's substantially lower than 1,000,000,000. And we're speaking to that indication. Now what is happening, of course, is that We are seeing continuation of a substantially higher inflationary pace of salaries in, particularly, of course, in Latin America as a consequence of the currency drops that we've seen there and the inflationary acceleration from that. We're seeing significant inflation also in the U. S.
And in Eastern Europe and in Germany, as I mentioned. So we have a fairly significant wage inflation going on. And then we are seeing, of course, as I mentioned, some substantial transition costs as we transition from St. Cloud to Anderson in the second half of the year. And on other costs related to the high investments that we're driving in manufacturing reengineering as well as as innovation.
I think that's important to understand that these are discretionary investments that we're making in order to continue to drive profitable growth. And of course, if that's not working, we have the ability to pull down on that ambition. So I think it's dangerous and not right to just focus on the net cost efficiency number because that is there's a corresponding sort of impact on our mix and also price realization. Underlying cost productivity work that we guided for in the Capital Markets Day remains as we indicated.
Okay. Thank you. And you mentioned earlier that your margin target is 6% for the consumer business. Just want to clarify, are you talking about the future group excluding professional? Correct.
So are you do you see all the four regions being similar?
Yes, I think that 1st of all, we kind of always had the ambition all our business areas are set to should be over that 6% hurdle. So for us, that's not really, that's not really new. And we do see the opportunity to deliver that over time. I think of course several of our sector or 2 of our business areas in Asia Pacific and in EMEA are already already above that. And we are taking these very aggressive both in North America and Latin America to ensure that we have a really competitive product offering and manufacturing footprint in both regions.
And we have strong brands and are well positioned to take advantage of that with the right manufacturing and product set up.
One last technical one, if I could quickly, do you have a saving from the reorganization and the moving of home care into the regions? And are you, do you have any guidance on how central costs could change with the professional? Spin off.
Right. So first of all, we're making the transfer of home care and SDA not primarily for cost reasons. I think this is about providing a sharper and more focus approach to consumers with and really leveraging our strength of our brands in our interaction, mainly now more and more digital online as you know, So that makes a lot of sense. We think there are efficiencies in that, but I think that is mainly focused on accelerating profitable growth. When it comes to our group common costs, they will be a little bit higher this year than they were in in 2018.
That's part of our net negative net cost efficiency. And it's driven by a number of things, including, of course, bonus programs and so on didn't pay out very well, unfortunately, in 2018. And but we expect to to do better in 'nineteen. And of course, that impacts, for example, among other things, our group common costs.
And then
for professional and the consumer business and separate entities, we don't foresee any material or any noticeable increase in our running cost in terms of group common for the 2 entities combined. That means of course that we have to be efficient as we set up the professional business and make sure that we are have a very efficient structural thing in consumer business going forward.
We are now over the line of Gustavo
a question on R&D, if
I may. You mentioned that R&D investments will continue in 2019. Is it then fair to assume that R and D to sell will grow in proportion in 2019. And the second part
of that question would be, if you could let us in
a little bit on to what then you've been sharing R&D resources with the professional segment and the consumer segment and then how you assume to take actions from find the split? Thanks.
So yes, we are increasing our investments in R&D and of course, it has to do with high intensity right now of product development, which we're super excited about. So we're happy to spend that money. And when it comes to the collaboration between consumer and professional, it has been mainly in the let's call it the R part of R&D, right, that they are more advanced research. And we in things like material science, induction technology, and we intend to continue in that collaboration. And physically, we're very closely co located in in the Port of Northern Ontario.
So where we have that research activity going on, so we'll be able to continue that without any major issues.
Great. And just to be clear, you're also referring to increased R and D to sales next year, not in absolute terms. And as second one, where would you feel comfortable say, with the R and D to sales on a longer term perspective? I noticed that you now passed your are you more pronounced American competitors in terms of R&D to sales? Do you feel that you're approaching a level where you're happy or should we see this as a multiyear trend?
I think we are at the level that is that we're quite happy with. And of course, as I mentioned, the intensity is quite high right now. With these big programs. So, I think that it's, I think, a competitive level that we're at And we do have the capability of course to adjust a little bit up and down depending on how successful we are with the new product launches and the overall environment. So this is not something that is exactly fixed every year.
We have a fair amount of discussion in sort of the pace of investment that we're driving.
Great. And lastly from me, just a quick one, relating to your guided favorable pricing in 2019, how much of this relates pricing that was implemented before year end and how much related to the pricing you now implemented during January?
Yes, we don't give specific guidance for that, but a relatively sizable chunk of it is the pricing that we implemented in the second half of and also into the fourth quarter of 'eighteen, but we have both in Europe and in North America, I mean, Latin America introduced further price increases here as of the first quarter. So it's a combination.
We now take the line of Bjorn Annarson Tazkabank.
I have a question on prior label and your ongoing structural changes in North America, if you could give some more color on that development. Those these actions that you are taking right now, is that part or only part of your ongoing work that you do in North America or is this also reflecting what believe will be the endgame for your private label offering? What kind of visibility do you have there?
Right. So a number of different pieces to this. Of course, as you recall, we paused the investments back in in the first quarter or April, I guess it was of 'eighteen. Given the big changes in raw material costs, the announcements of tariffs and so on, and the changing market circumstances that we saw. Of course, we didn't stop our work.
We wanted to make sure that we have the right scope and size of the investment that we're intending to make. And as we look at the changing market dynamics, demand situation and so on, we came to the conclusion that we can actually scope and size this Springfield facility using a common architecture between freestanding products and building products that allows us to meet the market demands from one architecture in one plant. And of course, that enables significant cost savings that are required given the changes that we saw is seen in the demand environment in 2018 and that of course includes the lower demand of private labels, but it's impossible to tie one exactly to the other. It's a combined analysis both from, let's say, technical side and modernization architecture side and the overall sort of demand and market and cost dynamics.
Dependent on how the endgame will be on the private label situation, the structure that you are now putting forward, Is that a structure that is able to handle, you know, efficient way the different outcomes? Absolutely. Yes. For sure. This is a,
in a true sense, a very modular factory, were different than before, we can easily sort of add a manufacturing capability as needed. So that's one of the strong benefits actually of this new factory in the whole building.
And due to the recent events on private label or late events do you believe that your volume development in North America will be more aligned with the market development than we have seen last few years.
Yes. So I think if you look at the development and then, honestly, you're going to have to kind of make your own assessment of that. But last year, private label was about 9% of our our sales in North America. And then depending now on the outcome, we don't know what the outcome would be of the Sears reorganization. That's gonna that's going to impact the outcome of that.
But what we are doing is we're making sure that we have a very short product offering and a very effective cost structure to make sure that we can grow profitably regardless of the outcome of that.
Very good. The offer on the table on the private label situation involves a reduced number of tour source year on year up until at least get throughout 'nineteen basically.
We are now over to the line of Karruvinda At Handelsbanken.
Yes, thank you, Carver and Hansburg. And just one question on North America and that your comment that price increases will mitigate import cost of tariffs. Firstly, does that apply to North America as well? And then secondly, does that take into account the possible tariff hike from 10% to 25% from March 1. And then finally, how should we then think about that?
The outlook for 2019, if we sort of start with the second half of twenty eighteen as a base, So how should we look at the first half of twenty nineteen sequentially and then second half of twenty nineteen? I don't need the exact numbers, but some directional guidance would be helpful given how weak the second half of twenty eighteen turned out to be. So on your first two questions, yes and yes. So the intent is to offset in North America, including the higher tariffs. And in fact, the price increases that we announced in the beginning of the year are reflecting the 25% rate of tariffs.
And then and then we're sort of modulating depending on the actual outcome. When you then look at the going forward of the second half into of 'eighteen into 2019. Of course, we are continuing to see some of the effects that impacted us in in the second half of 'eighteen, meaning higher tariffs, slightly weaker market demand in North America as well as the significant currency impacts in Latin America. So so that will continue to impact us here certainly in the first quarter, but then as the year goes on, we'll then get the benefits of our price increases, continued benefits from new product launches and ongoing cost efficiency work. So we see a gradual sort of improvement of that as the year moves on.
We are now over the line of Chi Chung at Citi. Please go ahead. Your line is open.
Hi. Thanks for taking my questions. I just have a couple. I might have missed this,
if this was brought up in the beginning of
the call, but, just wanted the the firstly on the, if people, what's the traction you're getting on now? Pricing increases by region, if possible. And then secondly, on the tariff headwind expectations, does this this guidance include the 25 percent list 3? Thank you.
Right. So we are getting good traction throughout Q3 and Q4 and I was on a positive curve. And then I'm very, let's say, confident in the increases that we now have announced for Q1, both in Europe, North America, Latin America. Also in Australia, we had a good trend in terms of pricing in the in Q4 of I think, so we actually have positive price as you may have seen and mix positive price in all regions and positive mix in most regions in fourth quarter. So, and the cost guidance that we gave there's a range there, as you may see in the lower end of that range, the 1,000,000,000 indicates the current level of tariffs, more or less, Of course, there are other things that are still not completely locked for the year.
And then the higher end of the range indicates the 23% rate on the list 3, Section 301 Tariffs.
We are now over the line of Jack O'Brien at Goldman Sachs. Please go ahead. Hi, Jonas. Just a quick question on the industry and more sort of structural changes that are happening. I was wondering if you could just give an update on how you're seeing the evolution of buying practices in the market.
I. E. The shift from sort of traditional retail to online and how you're seeing that developing?
Yes, so there's an ongoing shift to more and more consumers. Of course, 1st of all, and most importantly, doing their research online. And I think that's honestly the the most significant change that we've seen in recent year and continuing a very, very large proportion of consumers do most of their research online. So extremely important that we're strong there and we've invested heavily in that capability. Then if you look at sort of proportion of consumers actually transacting online that varies, they will point significantly, market to market from from, let's say, mid single digits up to, in some cases, 30%, 40% with a wide span between those.
And that span has a lot to do with the structure of the markets, if it's a very sort of dense population or not, and things like that that makes it attractive or not to have a sort of an online based distribution system. Now in terms of who the actors are that are providing those online sales services. That's actually predominantly in most markets our traditional retail workers. So from our perspective, this the way consumers transact doesn't necessarily change so much who we transact with. So I think that's important to understand.
And we're perfectly happy of course to support online sales as much as same store. That's something we're we're relatively neutral to as long as we serve our consumers in the best possible way with the great offer that helps them understand the benefits of the product and and helps us get the benefit of our innovation. That's really what we care about going forward. And we're pleased with that
I think in the past you've mentioned, there can be working capital implications of providing for online sales, but you also do you also see sort of differential margin between those regions where you maybe have 30% to 40% of sales going online by relative to those countries with lower proportions?
No, actually, actually not. In fact, there's no clear correlation between margins and specific geography and the penetration of online. The cost structure might look a little bit different. And that's, I think, important to understand. If we execute the full sort of final mind logistics, of course, that means that we have slightly higher inventory, and that's actually something we've seen throughout 2018.
And the 4th well that there will require a little bit more inventory to be able to execute that final mile distribution. But from a total margin perspective, it's relatively indifferent to whether we do the final mile execution or whether the the retail partner does that. Of course, that cost has to be covered one way or the other, regardless of who does it, but it's a slightly different sort of look to the income statement.
We are now back to the line of Andre Kukhnin at Credit Suisse. Please go ahead with your follow-up question.
Great. Thanks so much for taking the follow-up questions. I just wanted to get a better idea on the magnitude of pricing we can get in 2019. And, I think we've mapped out the price increases, as you announced, and during the 2018 quarter by quarter, but, in Q4, and beginning of this year, is it just in North America price increase that you're planning or is there anything else that you announced at the end of the quarter or planning for Q1?
Yes, so we announced higher prices in, also in Europe for Q1 and also in, most of our Latin American countries, mainly Brazil and Argentina. So that will contribute. And in fact, I think we gave quite quite significant to your guidance on or outlook on our pricing saying that we are going to offset the raw material and tariff elements that we're guiding there.
Right. Yes. No, indeed. I think just looking at the momentum you achieved in Q4, it looks like you're raising further at it looks like it's got a scope to overachieve that, but yes, certainly note the guidance. And just on the on that mix of the one point 2.1.
If List 3 is the 400,000,000 swing factor within that, and given the other tariffs that were announced kind of being arguably less severe. It kind of implies that even within the 1.7 your raw materials expectation is well over 1,000,000,000. Would that be right, sort of inference to make?
So starting with your first question, of course, I think it's important that when you look at the organic, it's, of course, the combination of volume, price and mix. Right. So pricing was a very strong contributor in Q4, but also mix, right? And we can we intend to continue to drive favorable mix. And again, as I said before, when you look at the different buckets here, the unfavorable net cost efficiency has the mirror of continued favorable mix in addition then to the price offsetting the raw material and the tariffs.
So then as you look at the raw material guidance that we gave, the biggest individual factor in the range is is the 10% or 25% on the list 3 tariffs, but there are also other, let's say, cost drivers that are open mainly plastics for the second half of twenty nineteen that we have to take into account. Now the tariff versus raw material discussion is for us to give you that level of the detailed guidance because of course a lot of the tariff effects are indirect by components that are impacted by market prices that in turn are are impacted by tariffs or not. So to try and break that apart becomes an artificial exercise that unfortunately I can't help you with.
Got it. Thank you. And on the restructuring that you announced today, in terms of the phasing of that 1,000,000,000 of savings. I'm thinking about it as a sort of CHF 200,000,000 and CHF 800,000,000 bucket of savings proportionate to the charges for Chile and U. S.
And 1st, smaller bucket coming in over 2019 come second half through to 2020 and then the other one coming in through to in 2021 2 to 2022, would that be broadly the right way to think about it or is there anything to calibrate?
No, I mean, I think broadly okay as an estimate. I think for sure the transitions that we're doing in Chile will have a faster impact because we're not building any new capacity. This is capacity that already exists and we're just sort of phasing that over And in North America indeed, the big chunk of the savings come from from the beginning of 2021 when we will have phased out the Memphis factory as well as them launching the new products coming out of Springfield, but that then is an ongoing sort of launch that will happen throughout the course of 2021 with new products coming in. So the full effect only kicks in from 2022, but a good chunk of it is from 'twenty one.
Got it. And then just one final one, on small appliances, a much broader question. You've obviously had the experience of breaking it out into stand alone entity. And now we're bringing it back to regions could you maybe share with us what was the exercise behind it and what resulted yielded to decided to go back to take it back into regions. I guess you have got pretty clear listed peers to that business as well.
And one could have extended maybe logic of what you just announced a professional to a small domestic at some point maybe in the future. So taking back regions just quite interested to find out what drove down.
Right. So this is now 9, 10 years ago that we started to report home care and SDA separately. And actually, at that time, we didn't really do any physical change to the operation. It was more actually to more appropriately to reflect how the reporting structure was set up to have a proper segment reporting for the business. So that was not operational chain.
It was actually just that reflecting what we were actually how we're actually running the business. Now what has happened then during this time period are a couple of things. So first of all, the importance of having a unified brand approach to consumers, especially online and also increasingly in sort of the aftersales face of the ownership phase of the interaction, it's really important that we have 1 phase 1 interaction historically, when this was predominantly a interaction with retailers, then it was actually okay to have to organizational entities sort of interacting with our retailers, even if there might have been some inefficiencies with that, there were also some benefits. Now as we get much more online sort of interaction with consumers is important that we have that in one organization internally for us to make sure that we serve our consumers in the best possible way. And then, of course, it's about gathering our forces to really drive after profitable growth and innovation and aftermarket sales growth.
And we think we can do that better with a unified approach First of all, then in the front end, by integrating home care and SDA, which I think is, will be really good for our markets and help for consumers interact in a better way. But I think very importantly, and this is something we wanted to highlight. We're also pulling together all our our innovation forces in the group from product line and R&D, design, marketing, digitalization, and ownership experience solutions into 1 combined group under a Chief Experience Officer. This allows us to really accelerate innovation of consumer experiences. And there, major appliances and smaller appliances fit very well together.
Whether we're talking about a a kitchen where we have made the large installed appliances as well as small kitchen appliances offering combined sort of approach to how consumers cooking get the most out of their cooking experience as well as then on the the home care and comfort side where we talk about floor care and air care being a combined well-being offer. And historically, we've had the floor care team in one organization and the air care team and a different one and that's just not sufficient as we want to be driving innovation in the overall home well-being area. So this just helps us organize ourselves in a way that accelerates innovation in a meaningful way to consumers and also in a very efficient way. So these are actually very significant and important announcements for us in order to serve consumers in a better and faster way.
Very clear. Thank you. And very last one, just on mix in Q4, running some calculations here, what you're saying, it sounds like it's kind of quite way above 100 bps in Q4. Would that be an outright ballpark?
We don't break out price and mix because honestly, it's sort of two sides of the same coin, but of course, in overall, we did give you the 2.7% number price and mix combined in the quarter. So we're, of course, quite pleased with that performance, and we'll intend to accelerate that further.
Got it. Thanks, Hans.
We have one final question and that is open line on Eric Paulson at Pareto Securities. Please go ahead.
In terms of the separation of and in terms of the intended value created from this separation. Would you say that this would rather come from organic initiatives or would or would the product come from M And A initiatives in your way?
Yes, I think it's hard to kind of break the 2 apart, but I for sure see a combination of an acceleration of the organic profitable growth that we've seen now over a number of years with even more focus and attention by the professional management team and as a separate entity, I think that's a significant Johnny. And then I'm really excited about the M and A opportunities with the better valuation of professional on its own, given the ammunition to accelerate on M And A. This is still a very unconsolidated industry and in the big scheme of things. And especially as we want to focus more on North America and also in emerging markets, we think that that access to capital is a really strong opportunity for professionals going forward. Really appreciate all the interest and the questions.
Just in summary, we're really excited about the changes that we've announced today, we think the separation of professional and consumer will allow both entities to focus on distinct opportunities to accelerate profitable growth, again, both organically and through M And A. We're excited about good performance in the fourth quarter, offsetting really record headwinds in the quarter in a very good way through through price and innovative products driving mix. And of course, we're excited about the big investments that we're we're continuing to drive to accelerate cost and productivity as well as innovative and fantastic products driving our brands further. So, we're looking forward to 2019 with a lot of confidence and and we can assure you that we will work very hard to deliver value going forward. Thank you so much and look forward to seeing you going forward.
This now concludes today's session. Thank you very much for attending and you can now disconnect.