Good morning, thank you for joining the presentation of Electrolux Q4 and full year 2017 results. With me today, I have our CFO, Anna Ohlsson-Leijon, and I would also like to take the opportunity to present to you our new head of IR, Sophie Arnius, who will be moderating during the Q&A session. Welcome, Sophie. Now let's begin the presentation. We start with a summary for the full year. During the year, we had a consistent focus on driving sustainable profitability through portfolio management and mixed development, in combination with strong cost efficiency execution to more than offset the headwinds from raw materials. I'm pleased to announce that Electrolux earnings improved 18%, and the margin reached 6.1% in 2017 versus 5.2% in 2016.
Earnings improved across all business areas, with 4 of 6 achieving EBIT margins above 6%. Total sales reached SEK 122 billion, corresponding to 0.8 points total growth. We achieved good organic growth in our businesses in EMEA, Latin America, Asia Pacific, and professional products. Sales in North America was impacted by the private label business, with good growth coming from branded products towards the end of the year. Latin America showed a strong recovery in the latter part of the year. We also closed 5 acquisitions during the year to drive growth in new markets and segments and further strengthen our product offering. We concluded the year with a solid cash flow of SEK 7 billion versus SEK 9 billion in 2016, and are entering 2018 with a strong balance sheet.
The board proposes an increase in the ordinary dividend to 8.30 Swedish krona per share. This reflects Electrolux's commitment to deliver continued shareholder value. Let's now go to the Q4 highlights. In Q4, Electrolux delivered profitable growth with 4% organic growth, driven by strong volumes, product mix, and earnings improvement in most of our business areas, particularly in EMEA, Asia Pacific, and Latin America. Contribution from acquisitions was 1.4%. Operating income increased versus last year to SEK 1,969 million, the group delivered a margin of 6.1%, with 4 business areas reaching an EBIT margin above 8%. EMEA continued to show improved earnings, reaching a margin of 8.1%. North America showed positive growth under own core brands, while volumes under private labels continued to decline.
Cost productivity and improved product mix was offset by increased raw material costs and price pressure. Our operations in Latin America delivered strong organic growth of 30% in Q4, supported by continued market recovery. Asia Pacific and Home Care and SDA showed strong performance with improvement in earnings compared to last year. Professional products also ended the year with a good performance. During the quarter, we had a one-time net positive tax effect of SEK 479 million, including positive revaluation of deferred tax assets, as well as a negative one-time effect related to the new US tax legislation. EPS for the quarter grew 52% and came in at SEK 6.7 versus SEK 4.4 in Q4 last year. Turning now to some of the market highlights during the quarter.
As we previously mentioned, we are in a phase of extensive product launches of new Frigidaire branded ranges in the North American market. During the quarter, new induction ranges at competitive prices were floored in more than 2,500 retail outlets nationwide. Since the end of the Q3 , we've seen week-over-week sales climb, and we're continuing to support the launch with marketing activities. In Europe, I'm equally pleased to mention that our 2 new AEG laundry and cooking products have been voted Product of the Year by consumers in the U.K. The Product of the Year seal is determined by more than 10,000 consumers who voted on product appeal, innovation, and satisfaction via an online study.
The outstanding scores for the AEG 9000 Series washer and the AEG SteamPro multifunction sous-vide oven proves that our strong focus on consumer experience and care and great-tasting food is paying off. Excuse me. Finally, during the quarter, we acquired the Continental brand in Latin America. This is a traditional and well-known brand with a strong market position that will enable us to capture a broader segment of the market, especially in the value and mass. Continental will be our 2nd brand in Brazil and complement the Electrolux brand in the market. Let's go to our European business area. Major appliances EMEA showed a good organic growth of 3.8% in the quarter, and combined this with positive growth from acquisitions of 2.8%. Market demand was favorable, and our volumes increased, especially in the built-in kitchen segment.
We continued to gain market share in premium brands. Product mix continued to be strong across the business area in the quarter. Operating income increased 18% versus the previous year. The EBIT margin reached a record 8.1% in the Q4 and 7.2% for the full year. This was driven by strong mix and volume contribution. Despite the negative impact on increased raw material costs. In the quarter, we had a positive currency transaction effect of about 270 million SEK, which was mainly related to the revaluation of the Egyptian pound in 2016. Let's turn page and go through the market development in Europe. The European market improved in the Q4 with total shipments up 2%. Demand was positive in most markets in Western Europe, while demand in the U.K. continued to decline.
Demand in Eastern Europe was up by 5%. We expect the European market to remain favorable in 2018 and forecast a full year growth of around 1%-2%. In North America, we saw good sales growth in our core branded business and a positive mix contribution driven by the new range of Frigidaire products. Our organic sales was down 4% in the quarter, was impacted mainly by the continued decline of volumes on the private labels and the continued competitive environment in the US, with price pressure as a result. In the quarter, however, it was encouraging to see that our strategic focus on the Frigidaire product range and the initiatives in marketing activities around the refreshed lineup is gaining traction and receiving positive reaction from both retail and consumers.
Our core brand of products grew more than 5% in the quarter, and sales of private label is now down to about 12% of total sales. The operating income in the quarter declined, mainly as a result of lower total volumes, price pressure, and higher raw material costs. For the full year, North America margin reached 6.8%. The good profitability level was a result of improved mix and the overall very strong contribution from cost efficiencies. As we've seen, raw material costs continue to increase. We have announced the implementation of price increases in North America during Q1. Before we move on, I want to focus a bit on our re-engineering and new architecture investments.
As we announced yesterday, and discussed at our CMD last year, we're now entering a new phase in North America, where we invest in future targeted growth by modernizing and consolidating our production facilities. These investments will allow us to further increase product innovation and automation in our North America footprint. As a result of the consolidation, we're now ceasing production at the St. Cloud's facility, which is always a tough decision to take. Production is expected to continue through 2019, providing a 2-year transition time for our colleagues at St. Cloud, and we're, of course, committed to supporting them. Demand for core appliances in North America continued to be positive in the last quarter of the year and showed a growth rate of 2%.
With a full-year market growth coming in at 3%, the U.S. market for appliances remains in good shape, with further potential for growth. We continue to see the favorable macro environment supporting a positive trend this year, expect North American market to grow by 2%-3% in 2018. Let's move on to Latin America. Demand for appliances in our Latin American region continued to show recovery in the quarter, with volumes in Brazil, Argentina, and Chile improving. Electrolux exposed a strong organic growth of 30%, supported by improved sales volumes, mainly in Brazil and Argentina, and we gained share across most categories. Pressure on price mix continued in the quarter, at a lower level.
Operating income increased significantly versus prior year. Margins came in at 4.3%, driven by the strong volume growth, also better cost absorption in manufacturing and overall cost efficiency. We see a raw material cost inflation increasing, will therefore continue focus on cost takeout in combination with raising prices. At the end of the previous quarter, we acquired the rights to the well-known Continental brand with a long-standing history in Brazil. Our current plan is to develop the product portfolio during this year, have the new product in market by 2019. Let's turn slide and talk about our operations in Asia Pacific. In the Asia Pacific region, our operations continued to perform well, achieved an organic sales growth of 10%, supported by overall favorable market demand trend.
Sales increased across categories with strong volume growth, particularly in Australia, New Zealand, and Southeast Asia. Our EBIT in Asia Pacific improved versus last year, and margins were 8.5% in the quarter and 7.5% for the full year 2017. The strong performance in Australia and Southeast Asia was the main contributors. Better factory absorption and cost efficiency also contributed to earnings. Let's continue to Home Care and SDA. The Home Care and SDA business continued to perform very well in Q4 and according to the profit recovery plan. Our sales, however, declined as a result of our prioritizing portfolio management and exit of less profitable products, as well as due to a negative impact from supply constraints within cordless vacuum cleaners.
Operating income improved significantly year-over-year, and the margin increased to 9.1% from 6.3% the previous year. For the full year, the business area reached a margin of 5.5%. We remain focused on executing on our plan to restore profitability through new innovations and business models. The acquired smart kitchen appliance company, Anova, had a positive impact of 8% on sales in the quarter, and the newly launched robot vacuum cleaner was well received by consumers and sold in the same pace as their production. Let's turn to our professional product. Professional products continued to deliver solid sales growth and earnings in the last quarter of the year. Organic sales grew by 3%, and volume price mix all contributed positively.
Earnings in the business also performed well, benefiting from the positive organic contribution, in spite of the increased investments and currency headwinds we saw in the quarter. Operating margin for the Q4 was 13% and close to 14% for the full year. Margins for Professional Products was negatively impacted by a dilutive effect from the acquisition of Grindmaster-Cecilware. I want to say a few words on the recent acquisition of Schneidereit, a laundry rental solution supplier within Professional Laundry that we announced last week. This acquisition will add a complementary business model to the Electrolux Professional Laundry offering in Europe and enable us to provide solutions to an even wider customer base. With that, I'd like to hand over to Anna to go through the financials and the cash flow of the Q4 .
Thank you, Jonas. Okay, let's start with the financial overview. In the quarter, organic sales growth was up 4%. This was a result of increased volumes and product mix improvements across business areas. Price pressure continued to be slightly negative for the group. The acquisitions and divestments combined had a positive impact of 1.4%, and currency translation impact was negative 4.7%. In total, reported sales were up 0.7%. Gross operating income, defined as net sales minus cost of goods sold, was slightly higher than in Q4 last year and translated into a gross margin of 20.6%, mainly driven by the organic pro- contribution.
For the full year, the gross margin was flat at 20.9%, mainly due to increases in raw material costs during the year, which was offset with a very good achievement in cost efficiencies. Operating income for the quarter was up 21.8% year-over-year, driven by the organic contribution in combination with cost efficiency across our business areas. The margin in the quarter increased by 1.1 percentage points to 6.1%. For the full year, margin increased from 5.2% to 6.1%, an increase of 0.9 percentage points. Operating cash flow in the quarter was at a high level and up year-on-year. The higher CapEx resulted in a lower operating cash flow after investments. Earnings per share showed a 50% increase from 4.43 to 6.72 SEK for the quarter.
Let's go through the sales and EBIT bridge. Volume price mix had a positive impact on operating income in the quarter. Driven by the strong growth in Latin America and the growth in EMEA, Asia Pacific, and Professional. Price was slightly negative due to continued pressure in some markets. Good contribution from mix more than offset the price pressure in the quarter. The headwind from raw materials of SEK 479 million was not fully offset by our improvement in net cost efficiency of SEK 390 million. This was related to efficiency actions in product and structural costs throughout the group, particularly strong in North America and Latin America. The net positive impact from currency was mainly related to the depreciation of the Egyptian pound in Q4 of last year.
For the full year, volume price mix had a negative impact of SEK 653 million on operating income. Price was a key negative driver due to continued pressure in several markets. Sales volumes were negatively impacted by the decline of private label volumes in North America, and the portfolio management activities across our business areas to enhance margins. The positive mix contribution did not offset these effects. I'm very pleased with our work to drive net cost efficiency, resulting in a significant improvement of SEK 3.2 billion, which more than offset the impact from higher raw material costs in the full year of approximately SEK 1.4 billion. I will come back to our activities in net cost efficiency in the next slide.
In total, we had a margin dilution of 0.5 percentage points from the organic part, and a 1.2 percentage point dilution from raw materials. These effects of 1.7 percentage points was more than offset by the 2.6 percentage points in positive contribution from net cost efficiencies. The negative currency effects came mainly from the Egyptian pound and the British pound. The net results from acquisitions and divestments gave a 1 percentage point contribution to the net sales with a flat margin contribution. Let's look at the drivers of the net cost efficiency on the next slide. As you've seen in the EBIT bridge, we achieved significant contribution from net cost efficiency this year, in total, about SEK 3.2 billion.
The reduced cost was a result of cost efficiency actions and contributions from all business areas, with a major part of the contribution for the group from activities in North America, EMEA, and Latin America. About SEK 2 billion was achieved in variable cost improvements, comprising of purchasing savings, production efficiencies of labor, and contributions from lower warranty costs as a result of better quality. We saw service call rates coming down to a record low across the business areas as a result of the focus on quality in all parts of the organization, R&D, operations, and purchasing. Efficiencies linked to structural cost amounted to a record high net, about SEK 1.1 billion in the year. This was mainly related to operational improvements within fixed factory overhead, warehousing, and a more focused approach in sales and admin areas on the back of portfolio management.
This improvement is shown net of investments in brand marketing and R&D. Our focus in 2018 will be to continue to work hard to drive efficiency related to both variable and structural cost, while the net effect will be reduced by the increased investments in innovation and marketing costs to support the targeted growth. Let's go to the cash flow. Cash flow after investments, before acquisitions, came in at SEK 2.1 billion in the quarter and was at a high level. The main contributor was the improvement in earnings, also the changes in operating assets and liabilities that had a slightly better contribution compared to the same period last year. Investments in the quarter were higher versus last year, due to the ongoing investments in re-engineering, innovation, and automation, mainly in North America.
Our net operating working capital, measured as inventories, trade receivables, and accounts payable, continued to improve despite the impact of the acquisitions. The average net operating working capital, in relation to rolling 12-month net sales, came down to 4.3%, an improvement from 4.9 last year. Before I hand back to Jonas for the outlook, I will briefly go through some additional slides. In the quarter, the group had a one-time negative effect related to the U.S. tax reform of SEK 128 million. We also had a one-time positive effect from revaluation of deferred tax assets of SEK 607 million, due to the likelihood of future utilization of tax benefits. The total net of this was a positive effect of SEK 479 million in the quarter. There is no material impact on cash flow from these effects.
All in all, this resulted in a tax rate for the group of positive 1.3% in Q4, and 17.5% for the full year. Excluding these one-time items, the effective tax rate in the quarter was 23.8% and 24.4% for the full year. For 2018, we expect a group tax rate of about 21%-23%, taking into consideration the lower corporate tax rate in the US. Let's turn to the next slide on group common cost. As of 2018, we will do some minor adjustments on the allocation of some global leverage cost items previously booked in other common group cost line, which we here refer to as GCC. These cost items amount to about SEK 200 million, as you see in the table on the slide.
Looking forward, we expect the GCC for the full year 2018 to be in the range of SEK 600 million-SEK 700 million. This to be compared to the GCC of SEK 775 million in 2017. Let's move to the next slide and cover some accounting effects from IFRS 15. As of January 1st, 2018, the new revenue recognition standard, IFRS 15, came into effect. There are no material effects to the Electrolux group results when it comes to the full year operating results or margin. However, there are some changes for 2 of the business areas, namely EMEA and Home Care and SDA, when it comes to the timing of sales between quarters and the total net sales number reported for Asia Pacific.
Regarding EMEA and Home Care and SDA, the implementation effects of the new revenue recognition standard concern timing effects related to delivery of finished products, and will have a quarterly impact on net sales, operating income, and margin. As you can see on the slide, the net effect of this is 0 for the full year. However, on the quarters in isolation, there will be an effect. As you can see for EMEA Q1, the margin goes from 6.3% reported to 5.6% restated. On page 23 in the Q4 interim report, you can see the full impact on all quarters in 2017. The reported line, net sales for Asia Pacific, is impacted by the reassessment of contracts related to some customers in our China business. Under the rules, Electrolux is assessed as an agent, compared to previously as a principal.
The margin is increasing from 7.5%, as reported full year 2017, to 8.6% restated for the same period. No effect on total operating income. On page 23 in the interim report, you see the impact on all quarters. With that, I would like to hand back to you, Jonas, to review the outlook and for conclusions.
Thank you, Anna. Let's move on to the outlook pages and review our guidance assumptions for Q1 and the full year 2018. Looking forward and into the Q1 of 2018, we expect favorable market trends in all of our regions. The overall positive demand trend across most markets in 2017 is expected to continue in 2018. In Western Europe, we expect demand to be slightly positive, despite a weak out of the U.K., while in Eastern Europe, we expect the region as a whole to show good growth. We anticipate demand in North America to be positive by 2%-3% for the full year, supported by solid macro development and good consumer sentiment. Markets in Latin America continue to show recovery, and we expect demand in that region to further improve in 2018, with a growth rate of 3%-5%.
Demand in East Asia shows an overall positive outlook. We also expect demand in the Australian market to continue to show positive growth. Reviewing our business outlook, we expect the organic contribution from volume, price, and mix to be slightly positive in the next quarter, as we focus on targeted growth and will benefit from volume and mix contributions from launches, mainly in North America and EMEA. In Q1, we're starting to implement the announced price increases in North America and Latin America. Expect an overall limited impact from this in the quarter. For the full year 2018, we expect a positive contribution from organic growth. Lately, we've seen an increase in raw material prices. Therefore forecast a negative impact on raw material cost increases to be approximately SEK 1.2 billion, with up to a SEK 200 million risk for the full year.
We continue with our cost efficiency measures to offset these headwinds, in combination with the price increases already mentioned. In Q1, we expect limited impact from the net cost efficiencies, due to investments in R&D and marketing to support ongoing launches and planned product innovations. We expect to see a slight headwind from currencies in Q1, mainly due to EMEA. At the current rates, we expect to see a net negative currency effect of SEK 55 million for the full year. Our focus in 2018 will be to enter into the next step in our journey towards targeted, profitable growth. We will step up investments, focusing on product innovation and automation to support further profitable growth. Hence, as already communicated, our CapEx outlook is expected to increase to SEK 6 billion in 2018.
In addition, the restructuring charge of approximately $75 million related to the consolidation in North America we announced yesterday, will be taken in the Q1 . With that, I'd like to pass it to Sophie Arnius to open up for Q&A.
Thank you. We will now open up for Q&A. Please keep your questions 1 at a time so that those who are waiting in the line will also have a chance to ask a question. If you wish, you can then come back to the line for follow-ups.
With that, operator, please go ahead and take the 1st question.
Thank you. Just as a reminder, to ask a question, please dial 0 1 on your telephone keypad. Our 1st question comes from Lucie Carrier of Morgan Stanley. Please go ahead. Your line is open.
Hi, good morning. Thanks for taking my question.
Hi.
The 1st I have is around, actually the performance in North America. I was wondering whether you could maybe explain to us, how much has been the impact of the launch of the Frigidaire range, on the, on the EBIT? When you are thinking into next year, I appreciate you mentioned price increase, but you were mentioning further pressure on the pricing in the Q4 . How is your level of confidence that this price increase can be passed, without also too much, impacting your volumes? Because I also note from the press release, you kind of mentioned some headwind from, lower utilization, lower volume.
Right. Obviously we don't break out, let's say, the EBIT impact of individual brands. I will say, of course, we, as we mentioned, we saw actually net sales growth from Frigidaire in the quarter. We also saw a positive mix impact from Frigidaire. We did continue to see negative net price pressure, but actually at a substantially lower rate than we had seen in the prior 3 quarters of the year. We start to see a little bit of a bend in the curve there. Of course, the main challenges that we saw in the quarter were the continued decline in private label sales, as well as the acceleration of raw material cost increases.
Of course, this raw material cost trend is continuing, and I think that is something that for sure impacts everybody in the market. We have announced the price increases and are working through those as we speak to at least partially compensate for those increased raw material costs. I would say, all in all, we're confident in our ability to do that. It's always tricky and tough to raise prices in the market, but it's something that we're determined to continue and follow through on. I'm not sure if I'm answering all of your questions here, but if there's anything else you want me to clarify?
No, I think.
Okay
... probably, the best or the most I'm gonna have.
Right. Right.
Just if I can have a follow-up on the performance in LatAm and the trend. Of course, you have a very strong rebound in the quarter. The comp was quite easy. How solid do you see the recovery in terms of demand here, considering that there's still quite a lot of political uncertainty, notably in Brazil?
Right. We're, you know, in the outlook, we obviously, we mentioned 3%-5% growth in our, basically our main market, Argentina, Brazil, Chile, for the coming year. Yes, there are political uncertainties, and those always pose a risk in these markets. However, we see the underlying factors such as inflation, interest rates, currencies, playing as strong, let's say, underlying drivers of consumer demand. Unless there are really significant political, let's say, turbulences, we do expect underlying demand growth to continue at a measured pace. On top of that, of course, we're working extremely hard to sharpen our approach in the market, right?
We've been talking about becoming more cost efficient and making sure we have products that are better tailored to the volume end of the market as the industry has mixed down, demand has mixed down. We also, of course, announced the acquisition of the Continental brand in Brazil, even though that will not have a significant impact in 2018. It is, of course, tailored to that new market situation in Brazil and in Latin America. I feel confident about the underlying demand development and the actions that we're taking to address the market.
Thank you very much.
Thank you. Our next question comes from Jack O'Brien of Goldman Sachs. Please go ahead. Your line is open.
Hey, good morning, everyone. My question's on EMEA. Hoping you could just give some details on what you're seeing in terms of trading there. I think I remember at the Q3s, you flagged that Germany and UK, the volumes there have been somewhat weak. Have those trends continued, and what can you say into 2018 on that front?
I would say, Q4 in general and broadly was stronger than the Q3 in terms of growth, both in West and Eastern Europe. We saw also a little bit of a moderation of the negative trend in the UK, and Germany was okay in the quarter. I think as everybody sees a fairly stable and positive demand outlook, driven by the strong consumer confidence and economic data coming out in most markets in Europe, of course, with the notable exception of the UK. Yeah, we're seeing good take up in the Q4 , and we're optimistic that that will continue into 2018.
Given your good growth in the region and some competitive struggles, where would you say your market share is for the region?
Yeah, we're growing, in the quarter. I think on, it's actually quite difficult to accurately estimate the total market share in Europe, but we're growing. We're above 16% value share. Most importantly, and that's what we're really driving, is we're taking share in our premium brands, Electrolux and AEG, and we're taking a lot of share in our focus categories, which is built-in kitchen products and premium laundry products.
Thanks, Jonas.
Sure.
Thank you. Our next question comes from David MacGregor of Longbow Research. Please go ahead, your line is open.
Yes, good morning. Can you hear me okay?
Hi, David. Yeah.
Okay. Just a couple questions. I guess with the recent trade actions in the United States and the size of the tariffs that were leveled, is it your expectation that sales events and some of the sort of aggressive discounting behavior that you've experienced and you've talked about in the past will begin to alleviate?
Yeah, it's difficult to to forecast, of course, but I would say that well, first of all, as you know, but I want to make sure everybody keeps in mind, we're relatively a small player in laundry in North America. The specific actions that announce that we can have a go or so, have an impact, but a limited impact on us. Of course, we are exempt from the duties announced.
Yes, if I could interrupt for a moment, though.
Yeah.
The expectation would be that given the magnitude of the tariffs, that it may bring about a change in behavior in kitchen categories as well as, you know, those people who are impacted are gonna need a higher level of profitability in those categories to offset, you know, the pressure on their laundry offering.
Yeah, of course. I mean, that would be speculation both on, let's say, on your part and my part, right?
Yeah.
Look, I would say this, as we said before, we are seeing a lot of headwinds from raw materials. Everybody's doing that. Of course, these tariffs will have a cost impact on some of the players in the market, there's no doubt about that. Of course, over time, we, as market participants, need to compensate for that. One of the ways to compensate for it is through raising list prices and more moderate sales incentives or sales promotions. Yeah, I think that's a reasonable guess, I would say, but it is speculation from certainly from anybody's point in side at this point.
If I could just a quick follow-up. You've got a substantial launch underway here in North America.
Mm-hmm.
Can you just talk about how launch costs will play out to your P&L in 2018 versus the impact they had in 2017?
Yeah. I would say the run rate that we saw in Q4 is a reasonable run rate for the coming couple of quarters. We're not seeing any significant increase from where we are right now.
Okay. Thank you.
Sure.
Thank you. Our next question comes from Johan Eriksson of Kepler Cheuvreux. Please go ahead, your line is open.
Yeah, hi, this was Johan Eriksson. Just a question on this announcement last night. It's part of this SEK 8 billion investment plan that you've presented at the Capital Markets Day.
Mm-hmm
-for North America, Latin America, and Europe.
Mm-hmm.
You take a charge of $75 million for closing one of the plants there. Can you give us any sort of indication of what the associated charges will be over this time period, or is this it?
Yeah, I mean, as you know, we never say explicitly, what future actions are in terms of our manufacturing footprint. I would say this, and that is that overwhelmingly, these initiatives, that we have indicated are initiatives in our existing footprint. This is not. You know, most of the actions that we're talking about are not related to manufacturing consolidations. It's about investing in new innovations, product architectures, automation in our existing footprint going forward.
Yeah. If I may, just a short one. You didn't specify your net cost efficiency for 2018, I guess it's the same message that it's supposed to offset the raw material, i.e., around SEK 1.2 billion. Is that correct?
That's it, yeah. That's the fair assumption. We're not gonna give an exact guidance for 18, but that's the intent to offset the raw material headwinds. Yeah.
Okay, thank you.
Mm-hmm.
Thank you. Our next question comes from Andreas Willi of JP Morgan. Please go ahead, your line is open.
Yeah, thanks for your time. I had a follow-up question on the restructuring topic we just had. In the past, at times, you said kind of the time of the large charges for premium programs and so on are over, and also we moved away to, from comparable profit to only have 1 EBIT. Is that SEK 600 million that now you have in Q1, is that, in that sense, a true one-off, and we should continue to assume that going forward, you will not have these bigger restructuring charges?
Yeah.
The 2nd question on professional, was you have an FX impact there, you have some M&A impact on the margin. FX probably is not gonna get any better anytime soon, maybe you could give us a little bit of help on forecasting what the profitability there is, and maybe when some of these headwinds go away, whether we return to the margin we've enjoyed recently?
Right.
Thank you.
Yeah. On the restructuring charge, yes, indeed, that is a truly a one-time event. We're not talking. As I mentioned to the prior question, we're not talking about another sort of manufacturing footprint program. That is not what these investments entail. It's about improvement in existing footprints. Yes, you should treat that as a one-time event. When it comes to our professional business, we saw really, the big impact in the quarter on the currency side is that we export washing machines and kitchen products from Europe to North America. Of course, with the weakening of the U.S. dollar, that resulted in a headwind.
We're working to offset that through price and cost efficiencies going forward. That indeed remains for the foreseeable future as a headwind. When it comes to the impact from M&A, Grindmaster-Cecilware has a slightly lower EBIT margin or has had historically, a slightly lower EBIT margin than our professional business. Of course, we have the ongoing impact of PPA on the margin there. That will continue to be a sort of a slightly dilutive effect also into the coming years, even though we do expect to continue to improve the margin as we get more synergies realized in Grindmaster.
Excluding Grindmaster, we continue to see margin improvement throughout the year and end of the year, well over 14% EBIT margin, excluding M&A effects.
Thank you very much.
Sure.
Thank you. Our next question comes from James Moore of Redburn. Please go ahead. Your line is open.
Oh, yes. Good morning, everyone.
Yeah.
Thanks for taking my questions. I wonder if we could start with Latin America. Obviously, excellent growth and margin trajectory. I wonder if you could perhaps expand a little on how you see that growth and margin moving for the full years of 2018 and 2019, and whether you feel more positive now that you see these signs coming through? When will the Continental brand start to make a difference to revenues?
Mm.
Is that an 2018 or a 2019 event?
Yeah.
Maybe go 1 at a time. Okay.
Yeah, sure. Honestly speaking, we're not necessarily neither more nor less optimistic about Latin America. This is pretty much along the lines of what we had forecasted, kind of a double-digit market growth in the H2 of the year, following a very weak prior year period. It's of course, strengthening our conviction that we are on the track of higher consumer confidence, lower interest rates. Again, as you're well aware, a lot of the particularly Brazilian markets is based on installment sales, so interest rates are exceptionally important for consumer buying behaviors there, and that's continuing to develop in a good direction. We are seeing raw material headwinds. That is the 1 tough piece in terms of managing the PNL, let's say.
We do need price increases and continued cost efficiencies from that. That's something we're focusing hard on. That will, I would say, slow down the momentum in the Q1 or so of this coming year, just because we need to get that pricing through. But I don't think we're talking, you know, big enough price increases that it will fundamentally affect demand. Of course, you know, as we've already discussed, political and other sort of turbulence in the region are always hard to predict. That could always have an impact on the forecast that we're talking about.
Continental.
Yeah.
When do you see that coming through?
We will launch the 1st products in the H2 of this year. The real impact will come in 2019 and beyond.
Thanks. Just on EMEA, I mean, you had some confidence on.
Yeah
... back in November. Can you give any updates on how the AEG launch is going and how the Electrolux launch is looking?
Yeah, we're extremely pleased with the development. You know, as indicated, we are, you know, obviously, we're growing ahead of the market, and that is including continuing to shrink in the mass end of the market, right? We're taking quite a bit of share in both Electrolux and AEG, our premium brands here in the quarter, and that is on the back of very, very well-received products. If we look at... I mentioned just 1 example in the call about the Product of the Year awards, but if we track things like consumer ratings of our products on our and retailer websites, we're seeing significant improvement in that, right?
We're extremely pleased with how we're focused on, as I have said before, really solving problems that consumers want to solve when they cook or when they do laundry in a better way. That's resulting in higher demand, higher satisfaction, and higher profits. It's really working the way we intended.
On list price rises, you mentioned them. If you are able to put a number on that would be great. If not, could you sort of say whether it's similar to the U.S.? I imagine it might be not as big as that.
No, no. I think in Europe, we're talking more about continuing in, mainly in the U.K., to compensate.
Yeah
... for the continued weakness of the British pound and minor adjustments here and there. It's not a broad-based price increase there.
Just last of all, you've got price, raw materials, launch costs, a lot moving on in North America.
Right.
I sort of sensed back in November, it was the area where it might be a transition year, 2018. Should we basically think about a sort of flattish margin this year with all the factors together?
Well, it is a transition year, in the sense that, of course, all the big investments that we've announced here are not going to impact positively the coming 2 years. Having said that, of course, we just went through a significant launch of Frigidaire products. We're continuing to see a negative trend on private labels. Yes, I mean, I think it's fair to say that 18 and to some extent 19 will be transition years where we don't expect significant growth in North America.
Thank you very much, Jonas.
Sure. You're welcome.
Thank you. Our next question comes from Andre Kukhnin of Credit Suisse. Please go ahead. Your line is open.
Good morning. Thanks for taking my questions. Firstly, apologies, I got cut off about halfway through, and caught the very end of the answer on raw materials. My take was that you're saying that this will be fully offset by savings. Could you just confirm that?
Yeah.
kind of repeat what you said?
Maybe just to be a bit more specific, we said in at our Capital Markets Day that we would have sort of net cost efficiency, net of raw material cost increases of flat to slightly positive. We've changed that now to flat, right. On the margin, we see a little bit less of an opportunity to have a positive total net cost contribution for this year because of the higher raw material cost. Commercially, we are also then even more convinced and determined to get price for it, right. The overall guidance, I would say for the year, is not necessarily changing, but the mix of contribution changes a bit between raw material and price.
Got it. Thank you. In terms of the scope for over-delivery on savings, or maybe looking at it the other way, if the SEK 200 million risk that you stated on the raw material side materializes, what is the scope for you to offset that as well during the years we go?
Yeah. Look, we have a plan to increase our investments in marketing and R&D for the year, as we've discussed. There is, of course, flexibility in terms of how we face that. We do indeed have some flexibility in that. On the other hand, of course, that's not our preference. Our preference is to continue to support the organic growth. It will be as we go through the year, it will be kind of an assessment of our progress on doing that. To the extent that we can drive and further fuel organic growth, that would be our preference, honestly.
Got it. Thank you. Just a couple of quick follow-ups on North America. Could you quantify the launch costs in Q4, or at least give us a ballpark figure? Is this launch kind of a 6-month process, or will it be more along the lines of the AEG full kind of rebuild over 12 months?
Right. No, well, we don't break out the individual numbers, but of course, you can see, as Anna went through there, the structural cost savings in the quarter were much lower than they had been in prior quarters. Of course, a chunk of that is the fact that we have higher launch costs, not just in the U.S., but in the U.S. as well. Then, as we go forward, this is not a launch, let's say, to the magnitude in terms of marketing investment and so on, that we saw with AEG. This is to be viewed more as a refresh. Of course, we intend to support the product in the market, but it's not a from a marketing perspective, not a huge launch.
Thank you. The final 1, on the central cost line, it did go up in Q4, which was very well flagged in advance. Just thinking about that for 2018, should we take the 2017 run rate?
I'm sorry, I missed the beginning of that question. Yeah.
Just thinking about the central cost line.
Central.
Yeah.
There's some... Adjusting for the reallocations there's a minor increase related to investments in digital and connectivity. Anna, do you want...
Yeah.
Yeah.
I think that's right. It's, yeah, comparable, it's a slight increase, but it's, mainly innovation and IT.
Okay.
Got it. Thank you very much to both of you.
Thank you.
Thank you. We have a follow-up from Johan from Kepler Cheuvreux. Please go ahead. Your line is open.
Yes, hello again. I was just wondering about if you have any updates on the potential charge for the trade dispute you have with the Department of Commerce. I think that was another $70 million.
Right.
Then, on the positive revaluation effects on tax, was that mainly related to Brazil, or where did that come from? Thank you.
Anna?
The tax effect that we had was mainly related to the U.S.
Both positive and negative, yeah.
Mm-hmm.
Oh, okay.
On the antidumping administrative review, we don't have any news, and we continue to see that is, we're contesting that, and we expect to, over time, be able to reverse that.
Okay. Thank you.
Mm-hmm.
Thank you. Our next question comes from Karri Rinta of SEB. Please go ahead. Your line is open.
Yes, thank you. Just a quick question on SG&A. If I look at the full year numbers on SG&A, they were down roughly SEK 600 million from 2016. Just wanted to get a sense of how much of that was structural savings and how much of that was maybe related to some phasing and timing. I guess the question is that should we expect the SG&A costs to go down more in 2018, or is there any reversal to be expected from maybe the Frigidaire refresh? Thank you.
Right. I think the way to look at it is that the savings that we made in 2017 and Anna has talked a lot about this as well at the Capital Market Day, it's really a couple of different parts, right? 1 is that we do work on ongoing structural cost efficiency, that will continue. The other part is that we took a lot of benefits from the portfolio management approach that we've taken, where we refocus our investments, our spending, and that allowed us to pull down the cost structure. That is sort of a one-time in the sense that we don't expect the same positive effect next year, it won't reverse out either.
The 3rd part is the more, call it, discretionary investments in marketing expenditures and aftermarket sales and things like that. There, indeed, we do expect to increase our investments in 2018. Anna, do you wanna add in on that?
No, I think that's correct. Of course, on the structural side, we continue with the continuous improvement programs also on the sales and admin costs. We will have some more spending on the brand and marketing, as we said.
Mm-hmm.
That story holds.
It will not decline as much, but it remains to be seen whether it will be up and down.
Yeah.
year-on-year basis?
Yeah, we don't expect a decline in SG&A, no.
Okay, thanks.
Sure.
We have time for 1 more question.
Thank you, and that's from Jack O'Brien of Goldman Sachs. Please go ahead, your line is open.
Hi, thanks. I don't think we've yet talked about private label in the U.S. obviously, sort of 12% of sales now and still having quite a bit big impact on the region. Just wondering how we should think about how that plays out in 2018. I think your agreement with Sears potentially comes to a close, but interested in your thoughts there. Then perhaps just briefly on M&A, which I don't think we've discussed either. Should we just expect sort of more bolt-ons this year as per 2017?
No, okay, on private labels, as we indicated, we're down now to 12% of our total North America sales. We have no reason to believe that the trend will change materially for the coming year. That, and that's part of our plans and our actions. Of course, that is likely to continue to be a drag in, into 2018. If we then talk about M&A, yes, indeed, our M&A pipeline looks quite similar to what we executed in 2017. Yes, that's, you can expect more of that.
Okay, thanks.
Sure.
Thank you. That concludes the Q&A. I would like to hand back to Jonas to summarize Q4 and the full year.
Thank you, Sophia. As we've discussed, I'm very pleased with the Q4 , that we managed to grow our business in a profitable way with an organic growth of 4% and an EBIT margin increase from 5% to 6.1%. With that, we took another important step on our journey towards profitable growth. We've been focusing on further improving profitability in EMEA, Asia Pacific and Professional, executing on portfolio management, driving mix and cost efficiencies. North America delivered a quarter with good growth in its core brand of business, although offset by the continued decline in private labels. In Latin America, markets showed strong recovery, and Electrolux achieved an organic growth of 30% with significantly improved margins. Increased costs for raw materials have partially been mitigated by good cost efficiencies in the quarter.
All in all, I'm very pleased with the performance in 2017. Our focus on profitable growth and earnings improvement resulted in a good year, reaching above our 6% margin target with a strong balance sheet and solid cash flow. The dividend is proposed to increase to SEK 8.30 from SEK 7.50. With that, I would like to thank you all for listening to this presentation. Thank you.