Welcome to Electrolux' 4th Quarter 2020 Results Presentation. With me today, I have our CFO, Therese Frydberg and our Head of Investor Relations, Sophie Arnios. I'd like to start by mentioning that our session is recorded and will be available on our website as an on demand version. Let's look at our performance in 2020. The coronavirus pandemic in 2020 had a severe impact on all aspects of society, including consumers and our business.
After a weak first half with significant downturn in market demand across most regions, we've now experienced a second half and a 4th quarter with strong recoveries in most markets. We managed the situation during the year by quickly adapting to the changing market to ensure that we took right measures at the right time. We implemented comprehensive cost mitigation actions in the first half, while our strategy to focus on strategic brands and innovative Products remained strong throughout the year. Organic sales grew 3.2% to a significant degree driven by improved mix. More High margin products were sold across all business areas.
We delivered successful launches in Australia and Europe and in our other business And we're pleased to see to receive external recognition for our innovative products in the U. S. Our 3 main brands, Electrolux, AEG EMFrigidaire increased share of group sales to approximately 80% with increased value market shares in Europe for Electrolux and AG, while sales of lower margin products decreased. Online sales grew strongly globally. And aftermarket sales, which is one of the group's strategic focus He has also increased significantly to approximately 7% of group sales.
EBIT increased substantially as a consequence of proactive Price and Cost Management as price offset currency headwinds in combination with the above mentioned mix improvement. We had a very strong cash flow of nearly SEK 9,000,000,000 and consequently, the Board proposes a dividend per share of SEK 8. So looking at our performance in the 4th Demand continued to be strong in all main markets as a consequence of the continued shift in consumer spending, with consumers allocating more of their household with Home Improvement. We have strong organic sales growth of 17.5%, partially driven a high market demand across our business areas. We entered the 4th quarter with low inventory levels, which continued throughout the quarter, impacting our ability to fully meet the strong demand.
The organization has worked hard and with good progress to secure supply and to increase production, but we're still not fully able to meet the strong demand. Mix continues to develop well despite these volume constraints. We had continued good Action from Premium Brands and Innovative Premium Products. And as I mentioned before, we had very strong growth in aftermarket sales in all business areas. We achieved Higher net prices through reduced promotions and discounts in several markets, and that, of course, reflected the lower product availability.
We also actively just in Latin America earlier in the year and in Q4 to offset the very strong currency headwinds there. Operating income improved to SEK 2,500,000,000 with margin of 7.4%. All our business areas were above the 6% margin with strong organic contribution from all three levers volume price and mix. The positive price development more than offset the currency headwind, and we sequentially increased investment in marketing TIG initiatives, including strengthening our aftermarket and e commerce capabilities in the quarter. We also, towards the end of the started experiencing higher logistics costs and particularly impacting ocean freight.
With that, we had very strong on operating cash flow after investments of SEK 5,000,000,000. And also this quarter, we had very strong traction from our premium products improving the mix. And let me give you some examples on product innovations built on deep insight in consumer needs. Our first example this quarter is our Pure Q9 cordless vacuum cleaner. And this is a product that really takes care of the 2 main pain points for consumers.
1 is the Hassle of bringing out the vacuum cleaner every time you need to clean and to fix that, we designed a beautiful product that can be out in the main room for whenever a cleaning need occurs, and of course, with fantastic suction and cleaning capabilities. As an example, this has been extremely well been in the competitive Korean market with a 71% sales growth, a 2.1 points market share gain and a strong 4.6 points consumer star rating indicating that consumers are extremely satisfied with our products. Another example is Our awards for Consumer Experience Innovation in the U. S, we were top ranked in 5 categories by review.com in the U. S, which is one of the top review websites.
With the Electrolux and Frider brands, again, we had 5 category winners in the kitchen and laundry categories. I think one fantastic example is the Frigidaire air fry cooker that That contributed to very strong profitable growth and a 10% market share in the freestanding premium cooker category, where Frigidaire previously has had a low presence. So A strong contribution from Consumer Experience Innovation. Looking into our business areas performance in Q4, starting with Europe. We saw strong organic sales growth of 9%, and our innovation strategy continues to pay off with our focus on built in kitchen and laundry, delivering higher mix and improved price indexes.
We continue to gain value market share in our premium brands, AEG and Electrolux. With higher volumes, even though constraints Due to the shortage of input materials impacted, the volume is somewhat negative. Our strategic focus on aftermarket business delivered growth across all the business area. EBIT was significantly improved to SEK 1.319 SEK9 billion with a margin of SEK9.5 percent. We had strong organic contribution from all factors, volume, price and mix.
And Increased investments in marketing and strategic initiatives to further support the profitable growth. As mentioned, higher logistics costs started to impact with an impact from while the impact from raw material was favorable and FX negative. Let's look at the European market. In the 4th quarter, overall market Man in Europe continued to be strong and the demand increased 10% year over year. In Western Europe, demand increased by 9% and in Eastern Europe by 12%.
All markets grew, mainly driven by the high levels of home improvement spending with people meaning to stay mainly at home. And consumers are using cash they usually spend for holidays and restaurants, etcetera, to upgrade appliances or renew old months earlier than usual, continuing to drive very strong demand. The second wave restrictions have had a less lower impact on demand as select Retailers are more used to selling online and with a significant increase in click and collect versus the first wave. However, kitchen retailers, while they're Delivering on the existing order book and continue with installations of previous orders, there are restrictions in in person meetings that make it ordered to take new orders at the time being. The overall market remained tight with, in general, low inventory levels throughout the quarter.
Now let's look at our business area in North America. We had very strong organic growth at 20 9.2%, with sales increasing across all product categories. There was a very strong market in the 4th quarter, up 20%, and this also compares to a weak Q4 20 'nineteen for us, where we had impacts from our manufacturing transition as well as inventory management at a key customer. The positive price Continued with significantly lower promotions, particularly during the Black Friday event. And we have also here very, very on aftermarket growth.
EBIT improved significantly to SEK 697,000,000 with a margin of 6.8%. And again, very strong contribution from all the levers of mix and price and volume. Overall, the sales of high margin Products increased significantly, as I mentioned before, specifically from control cookers as well as some laundry products. Let's look at the U. S.
Market. During the quarter, industry shipments of core appliances in the U. S. Increased by 20%. This compares to a weak Q4 in 2019, also for the industry, partially due to destocking at the large U.
S. Retailer. We saw strong market growth across all main categories. And macro indicators continue to be supportive with decreasing unemployment levels, very strong housing market and the recently announced government stimulus programs impacting consumer sentiment positively towards the end of the quarter. Market demand for all major appliances, included microwave ovens and home comfort products increased by 17%.
Let's move to Latin America. Consumer demand increased all the 3 main countries for us, Argentina, Brazil and Chile. In Brazil, the government incentives were And consumer spending shifted due to even more continued focus on home improvement. Our understanding is that we, as well as most other players, were impacted by direct material shortages during the quarter. In Argentina, product availability increased as we began to stabilize, supporting sales.
And Chile was also very strong compared to a weak Q4 in 2019, supported by Government Stimulus Packages. So organic growth was very strong at 25%, with sales growth in all markets driven both by volume and higher net prices, partially driven by significantly lower promotion activity, but also carryover effects from earlier price Arnaud, as well as price increases during the quarter. Also here, we continue to see strong growth in aftermarket sales. And And also online set continued to grow very sharply in all main markets, both together with partners and direct to consumers. EBIT improved to SEK424,000,000 with a margin of 7.7%.
Again, strong organic contribution and mainly from price, which more than offset currency headwinds and high inflation as well as the increased logistics cost. Investments in Investments Innovation and marketing increased during the quarter and further supported our profitable growth. Finally, turning to Asia Pacific, He's in Africa. Here, we saw consumer demand overall in the region decreasing slightly. This was mainly driven by Southeast Asia, which continues to be impacted by the pandemic triggered lockdowns.
And also, consumer purchasing power was negatively impacted by the lack of tourism during the quarter. Australia, which is our largest market, remains strong with Significant household consumption growth supported by government incentives. And also here then, we saw increased home improvement spending as a consequence. Organic ELC grew 9.7% with higher sales across the region except for Southeast Asia due to the weak market there. The higher volumes were partially impacted by some supply constraints.
Particularly in Australia, we saw significantly higher sales as combined with price increases, leading to Our strong growth in our high margin products, mainly in the kitchen category, where we had successful launches both in 2019 2020. And also here, aftermarket continue to grow strongly. Operating income improved to SEK 376,000,000 with a margin of 8.9%. This was mainly a result of the strong performance in Australia, lower cost of raw material and favorable currency, while we also here were impacted by higher logistics cost. Also here, we increased investment in strategic initiatives and marketing in the quarter.
This is mainly to support 2021 launches, for example, the a relaunch of AEG in Australia. With that, I hand over to Therese.
Thank you, Jonas. Looking at our I would like to comment on a few items for the Q4. We have strong organic growth of 17.5 And with mix improvements and positive price development. And volumes also increased across business areas also related to the Strong market. Gross operating income defined as net sales minus cost of goods sold improved to margin of 22.8%, which was an increase by 4.8 percentage points year over year.
Operating income increased significantly, mainly a result the strong organic contribution. Let's look at the drivers behind this year over year change. As mentioned, we had a strong organic contribution Driven by the volume, price and mix in the quarter. Volumes increased, which was based on the continued good market trend. We But not fully meet the consumer demand as we entered the 4th quarter with unusually low inventories, and the supply constraints remained throughout the quarter despite High production volumes.
And I would also like to remind you that in the Q4 in 2019, we had lower volumes in North America due to the Consolidation and the destocking at the U. S. Key customer. We had positive price for across all the business But mainly North America and Latin America, which was driven by significantly lower promotional spend. We saw mix improvements with a positive brand mix mainly in Europe but also from selling higher share of more premium high margin products across most business areas.
We had a combined impact from raw materials and trade tariffs that was slightly positive. This was driven by lower steel and Plastics crossed than 1 year ago, and it was somewhat offset by negative indirect currency impact in Latin America, and tariffs also had Negative year over year impact as we sourced a larger amount of products from China to North America to meet the high market demand. Currency continued to have a Negative impact on EBIT. And net cost efficiency was negative in the quarter, and this was a result of increased brand and marketing Investments as well as transformation costs relating to strategic investments to become an even more consumer experience driven company. And this was after holding back on investment levels during the first half of the year.
We had high production high and serve our customers in the best possible way. And the third reason was production inefficiencies related to running the factories with high And overtime costs and so forth. If we then take a look at sales and EBIT bridge for the full year. For the full year, we also saw strong organic contribution from mix and price. We had positive mix across all business Arneas, but particularly Europe on the back of higher growth in the premium brands and built in kitchen and premium laundry.
We had a positive Price developments primarily in Latin America and North America with a low promotional spend level, but in Latin America also This is to offset the currency as previously mentioned. And volumes declined for the full year mainly related to the lockdowns that we saw During the first half of the year due to the pandemic, but also related to the manufacturing consolidation in North America that continued throughout the year. We had A positive combined impact from raw materials and trade tariffs, but on the other hand, we had significant currency headwinds, which I will come back to later in the presentation. We had a negative net cost efficiency for the full year as well, with product production And negative logistics costs related to the manufacturing consolidation in North America, but also related to the Pandemic with lockdowns of production during the first half and then exceptionally high demand during the second half, which became Very disruptive for production, both in the first half of the year and also then in the second half of the year. And on top of that, we also had the negative Great cost, as mentioned before.
This was partly offset by cost mitigation actions during the first half with lower innovation and Marketing spending for the full year. Let's take a deeper look at the price and mix development. The EBIT margin accretion for the group from price and mix in The quarter was 4.7 percentage points and for the full year, 3.2 percentage points. This was mainly coming from price but Also mix improvements as a result of increased sales of innovative premium products and growth in aftermarket sales. In Europe, we had a favorable mix driven by Growth in built in kitchen and laundry products under our premium brands.
And in the Q4, also aftermarket grew significantly. For the full year 2020 prices were fairly flat, while prices were increased in the 4th quarter related to a lower In North America, price developed positively as promotional discounts were reduced significantly. These were Earnings from price as we increased prices during the year to offset the currency headwind. And in the 4th quarter, we benefited from significantly lower promotional activity. We also had a positive mix for the full year in Latin America.
In Asia Pacific and Middle East and Africa, we had Higher prices, mainly in Australia, from price increases in the beginning of the year, but we have also increased prices in South Africa during the year. We had positive mix across most markets, but mainly in Australia based on strong product launches in Arneos. And now let's look at the currency effects. As highlighted in the EBIT bridge, Currency had a negative impact of SEK 400,000,000 on our earnings in the Q4 and SEK 1,600,000,000 for the full year. This was mainly driven by Weaker currencies in Latin America, but we also had a negative currency effect in Europe related to weakening ruble and In the Q4, also the British pound impacted negatively.
And then looking at operating cash flow. Operating cash flow for the 4th quarter was Very strong and amounted to SEK 5,400,000,000, resulting in a full year cash flow of SEK 8,500,000,000. This was mainly driven by the strong earnings Development in the second half, but also a favorable development of working capital and a lower level of investment. In working capital, we have some significant As we could not fully meet the high demand, inventory remains very low. We expect this to normalize.
As from 2021, we are revising the format for the business outlook and how we will report the sales and EBIT bridge going forward. Let me walk you through some of the different components for this. The purpose of the new format is to increase clarity and link it stronger to our Allocation drivers, which, as you know, are driving sustainable consumer experience innovation and increasing Inefficiencies through digitalization, automation and modularization. The organic contribution in And marketing. This includes, for example, cost for R and D, marketing, brand, infrastructure, capability building in connectivity, CRM systems And aftermarket sales, with a focus to drive sustainable consumer experience innovation.
And the cost And see, is efficiencies in variable and structural costs. And this then excludes raw materials, Trade tariffs, labor cost inflation above 2%, and it also excludes cost for consumer experience innovation and marketing as stated above.
And
Of 2% is moved into external factors. So then moving over to external factors. As a large global appliance company, we exposed to various external factors such as raw materials, currency and labor cost inflation above 2%, which we have added together into 1 In total. And price remains our main tool to mitigate these external factors. So let's look at the sales and EBIT bridge for 2020 in this new format.
As you can see, the volume, price and mix is no change compared to the bridge previously shown. And we have lower cost for investments in consumer experience, innovation and marketing year over year in in 2020. And this is related to the cost mitigation actions that were activated during the first half of the year. And the cost efficiency is negative year Which is related to the supply constraints related to the pandemic throughout the year. And we also have increased cost for the ongoing Manufacturing consolidation.
And this was partly offset by cost mitigation activities in the first half and continued productivity investments, but still remain Negative for the full year. And headwinds from external factors. Here, you see the majority is the currency headwinds, as I previously Shown. But offsetting that, we have the positive raw material impact. And then going in the negative direction is higher labor cost primarily related to Latin America.
And with that, I hand back over to Jonas.
Thank you very much, Therese. Then looking into To the market outlook for 2021, visibility remains limited due to the ongoing pandemic. However, for the first half of 21, we anticipate that the strong consumer demand from increased home improvement spending experienced during the second half of twenty twenty will remain in to an extent. In addition, retail inventories are currently low in general. We therefore expect demand for the first half of twenty twenty one to exceed normal seasonal levels across all our main markets.
Although capacity and component availability will likely remain constraining factors. Assuming that consumer Pattern start to normalize by midyear, we estimate that also market demand will start to normalize during the second half of twenty twenty one. Altogether, we expect market demand For the full year 2021 to be positive in our main markets. Looking at the specific regions, we anticipate that European The shipments will be slightly positive for the full year 2021 with growth across the key markets. We see a positive trend from the replacement market.
And government stimulus programs are expected to mitigate effects from significant second virus Iris Wave Lockdowns, which so far have halted recovery to some extent in terms of consumer confidence and unemployment. Our demand is estimated to be positive for the full year, partly driven by a very strong housing market and favorable replacement cycle. Recently announced government stimulus programs should further support the economy and consumer sentiment, leading to a favorable demand outlook. Demand in Latin America, it's expected to be positive for 2021, driven by expected high demand in main markets during the first half of the year. Uncertainty remains regarding the development of the pandemic and measures taken by the government as well as overall political and economic stability in the region.
And finally, we estimate demand in the Asia Pacific, Middle East and Africa region to be positive for 2021. This is mainly driven by Southeast Asia that is expected to rebound. How We're still below the 2019 level during due to the lower consumer purchasing power. Many countries in Southeast Asia are heavily dependent which has been negatively impacted by the pandemic. However, a strong and fast recovery in China is supportive also for growth in Southeast Asia.
For Australia, which is our other large market for this business area, we anticipate a slight decline in 2021 demand for the full year compared to the strong 2020. Turning now to the business outlook. As Therese described earlier, we are, as from now, revising the format for how we communicate the business outlook in order to link it more strongly to the key drivers for profitable growth in our value creation strategy. In 2020, our strategic initiatives to reach the operating Our objective of at least 6% and sales growth of at least 4% generated significant improvements. For 2020 We expect a continued positive organic contribution from volume, price and mix, driven by favorable market demand, higher prices compensating for our raw material headwinds.
And demand and mix are assumed to be positively impacted by increases in innovation and marketing investment, including a step in digitalization of our consumer interactions. In terms of price, we have announced price increases that are being implemented early in 2021. The tight market we experienced in the second half of twenty twenty resulted in significantly lower promotions, mainly in the Americas. When the supply and demand The situation normalizes, which given our market outlook is likely during the second half of the year, we also expect promotion levels to normalize. During the past 3 years, mix improvements from innovation, brand and aftermarket sales both have in total contributed more than SEK 3,000,000,000 to operating income, realizing a very favorable return on investment.
We also know that the strengthening of our main brands, Electrolux, AEG and Frigidaire are paying off. These brands now account for approximately 80% of group net sales compared just over 70% 3 years ago. Besides brand and marketing investments, we're also strengthening our capabilities in aftermarket and e commerce, both strategic areas for us. If we see weaker demand than what we're currently forecasting we have, of course, the opportunity to significantly slow down these investments like we did in 2020. We estimate that cost Excluding innovation and marketing investments will be positive in 2021.
Our group target is to annually drive down the variable product cost including raw materials by 3% on like for like products. Main cost efficiency drivers in 2021 are continuous cost improvements and execution of our reengineering program, particularly the improved productivity and output from our new refrigeration factory in Anderson in New York. However, this partially be offset by increased logistics costs and transition effects as we ramp up more of our new facilities in our reengineering program towards the latter part of the year. These estimated ramp up costs are already included in the cost savings from the reengineering programs that we have communicated previously, last as updated in the Q2 2020 earnings call presentation. All in all, as we plan to accelerate innovation and marketing investments, given that Relations remain favorable.
Total net cost in 2021 is expected to increase. As a global appliance company, we are host of various external factors such as raw materials, tariffs, currency and excess labor cost inflation. For 2021, we estimate a negative headwind of SEK 1,600,000,000 to SEK 2,000,000,000 from these external factors, primarily from raw material and in particular, for steel. The other main factor included in is translation currency that's assessed to amount to approximately SEK400 at current exchange rates. We expect to offset the raw material headwind with the price increases that we already have announced.
This is not a new situation for us, and we have achieved this before. During the last two years, we have fully offset headwind from raw material and currency with price increases. We're continuing our reengineering investments and expect Total capital expenditure to be about SEK 7,000,000,000 in 2021. Our reengineering investment program is crucial to strengthen of competitiveness and drive profitable growth through increased modularization and automation in the Americas and Europe. In summary, we're well positioned to create value.
We continue to execute on our strategic transformation in the Q4. We saw strong mix improvements driven by product innovations and our and growth of our premium brand. We saw very strong aftermarket sales growth. And we're accelerating our strategic transformation initiatives. We're also pleased to report that Our U.
S. Fridge and freezer production is progressing very well. With that, we open up for questions. Operator?
And as Jonas said, we will now open up for questions. And I can see that there are many of you That wants to ask questions. So we, of course, want as many of you to be able to do that. So please limit it to one question at a time. And of course, you are welcome to dial back in and enter the queue once again.
So with that, Operator, please go ahead.
Thank Arnios. Our first question comes from the line of Andreas Cilli of JPMorgan, please go ahead. Your line is open.
Yes. Good morning, everybody. Thank you for your time. My question is relating to the 6% margin target. Haven't communicated externally when you think you could achieve this.
Is this a possibility for 2021, In your view and has the pandemic made it easier for that target to be reached given that maybe consumers value the home more and Your products more? Or could there also be a headwind that you've had basically pulled forward demand now that maybe makes it a bit more Arneas. Difficult as we look into 2022 to maintain that momentum.
Yes. I mean, obviously, we have not given a specific time line for reaching the 6%, but it is very closely tied to the reengineering program that we have driven last few years that we've updated you on, of course. If we look at 2021 specifically, yes, the strong demand, of course, is favorable. We've been very focused on taking the opportunity to further improve our mix. And to really kind of with a strong focus on innovation for consumer experiences and driving the demand towards our more premium brands and our premium high margin product is working really well.
Brands and our premium high margin product is working really well. So while the surge in demand, Of course, it's a little bit temporary as people have shifted, as we talked about, shifted their spending from travel and so on to the home. That will start to materialize at some point later in the year, but we expect that improvement in mix that we're driving to continue. And in the meantime, we're continuing the strong efforts on productivity and launching more of our newly reengineered, modularized and automated product and facility. So we do expect to make good progress during 2021, and I think we have a very solid to execute on all our strategic initiatives and to get to the 6% target within Not too distant future.
Thank you very much. Sure. Thank you.
Thank you. Our next question comes from The line of Will Turner at Goldman Sachs. Please go ahead. Your line is open.
Good morning, everyone. I I have quite a few questions, but given that we clearly asked 1, I'm going to start off with a question on working capital. And What are your expectations for working capital going into 2021 beyond? And the reason why I ask is because obviously, The industry kind of got caught out in the summer with the low inventory levels. And then also with the logistic cost Increases and logistic issues that we've had recently, perhaps your suppliers aren't that willing for you to push out for them in terms of payable terms In the near term, so how do you see working capital progressing over the next couple of years?
Yes, I think we have Yes, for us. And then, of course, as you mentioned, we have during 2020 specifically seen some quite abnormal swings, I would say, In the working capital, and we go out of the 2020 with then unsustainably low inventory levels where we are Not fully supporting our customers to the level that we want, but this will continue to be a very A high focus area, and we will manage it through in a good way, as I believe that we have done Also previously. So yes, I think it's not a very big worry for us going forward either. What
either? Okay, thanks.
Thank you.
Thank you. Our next question comes from the line of Johan Eliason of Kepler Cheuvreux. Please go ahead. Your line is open.
Good morning. And congratulations to a good result and above all, good execution. I have a question regarding your Business outlook and trying to understand the different buckets here to some extent. You say cost efficiency We'll be positive, and it's including the reengineering program, which I understand hasn't been changed since Q2, Well, you gave us some updates on how the EBIT impact would be on that one. I understood just looking at your growth, it would be around €1,000,000,000 positive or Also into 2021 over 2022.
And then the other part, obviously, which is negative and is the investment in consumer experience and marketing. And obviously, you cut those by SEK 601,000,000 we learned from the new Chart you showed or table showed us this year. And the net of these and some other factors Should still be negative. Is this SEK 1,100,000,000 something from the reengineering program significantly Set by something else in this cost efficiency bucket. And then on the marketing spend, will it be dramatically higher, obviously, The EUR 630,000,000 you cut by in 2020?
Right. So I think you've read it right, which It's good. And then when we look then into 2021, of course, the reengineer As you said, the reengineering program is continuing well on track. So that's a strong read on And the other piece that is partially offsetting the benefits of that is the are the very Significantly higher logistics costs that we've also discussed and some other sort of inflationary costs or cost pressures on on component sourcing that's included in that metric. But yes, we do expect that to be a strong solid positive contribution for the year from cost efficiency.
And then of course, we already as we went into 2020 before the pandemic, we indicated that we would actually increase our investments Innovation and Marketing and the front end transformation that we're driving, just simply because it pays off. It pays off in acceleration of our organic growth. And as things played out with the pandemic and constraints that we experienced, we instead have increased and reduced the spend on innovation and marketing in 2020. So now, of course, we are eager to and we started here in the 4th quarter to invest in that in the transformation and growth of the business. That's working extremely well.
And we expect to return a positive return on investment on those investments, of course, in our organic growth. So as usual, and And we've shown that, I think, many times in history, we retain a lot of flexibility here. So if for whatever reason the market development should Barry or our return on investment not being as high, we will spend less incremental money and we have full all of that. So for us, this is not a question of that we are, let's say, absolutely bound to increase our net That's something that we choose to do because we think it provides a further boost to our profitable growth. So I think that's a little bit That's also the reason why we don't want to give too precise guidance at this point because of course the market outlook is quite for 2021.
But I have to say we have a positive view on it. The demand is strong and our Investment in the transformation is really paying off strongly. We talked about the SEK 3,000,000,000 that we've added to the bottom line from mix And aftermarket sales growth and premium brand growth in the last quarters, we are very eager and keen to continue to drive that development.
Excellent. Then just on the decision on the incremental spending there, I think you previously alluded to you want to grow EBIT by 7% per annum basically. Is that sort of the focus for you to make sure how this marketing spend is Developing during the year that you are meeting this EBIT growth target.
Yes. I mean, we're not tracking it on a day to day basis with the target of 7%. But yes, But we want to drive a continuous positive earnings contribution from organic growth and at the same I'm offsetting the external headwinds that we're facing and continuing to drive that sort of positive virtual And I think the fact that we've now focused ourselves more on our own On sort of premium and focused brands, Energous AG and Frigidaire gives us much more, let's say, leverage It's in our control to drive profitable growth. As you know, over the last several years, we've had impacts, for example, from From losing some big private label business with in the U. S, that has kind of slowed down the reported net sales growth.
But But underlying, we're continuing to grow again, Electrolux AG and Frigidaire quite profitably over time. And of course, we intend to continue that.
Excellent, Mel. Thanks.
Sure. Thank you.
Thank you. Our next question comes from the line of Olof Soderholm of ABG Sundal Collier. Please go ahead. Your line is open.
Yes. Hi, everyone. It's Olof with ABT. Just if I can come back to the investments in innovation brand and aftermarket sales. Is it possible to be slightly more specific regarding the time lag between investments In these areas and the payback.
And also, if you are expecting the same pace Of EBIT support in 2020 to 2021 as you have realized over the last 3 years, I. E, around EUR 1,000,000,000 per year?
Yes. So I don't think it's right again given the uncertainties we're facing to give a specific guidance on what we expect there. But what I would say is that we expect it to be a positive net contribution. So the ROI timing varies quite substantially in these the different drivers. So one part of it is, of course, just increased brand and advertising and marketing spend, which has a very strong and fast return on investment.
The investment in innovation has a longer lead time. But there, of course, we have also increased that investment quite substantially over the last 5 years or so. So that should pay off on a continuous basis, not just the investments we're making this the ones we've made in the last several years. And that includes the transformation programs that we've announced, which again is not just about automation, it's also about It's also about new and innovative products. So yes, no, I definitely see a solid positive Arneas, on investment.
And I think we can point back to 2020 and see that Throughout this very, very volatile and challenging year, we actually delivered positive mix and price throughout the year. Also in the depths of the pandemic crisis in the second quarter, we delivered positive mix. So we are Being that it works very well, quarter to quarter, there will be ups and downs. So we try to stay away from being precise on those predictions, but on a full year basis and on a multiyear basis, we see that as a very positive contribution.
Excellent. Thank you very much for that. Sure.
Thank you. Our next question comes from the line of Gustav Hegias of SVP. Please go ahead. Your line is open.
Thank you, operator. Good morning, guys. Thanks for taking my question. I'll limit it to one then. And you mentioned that there is some uncertainty still in the market, of course, while being rather positive teams on the first half.
But Just in the light of your current financial situation, you have a financial net cash position now. And I recognize that you raised dividend here, but still also beyond that and the elevated CapEx this year, it should be Increasingly favorable going into the second half of the year if markets don't sort of collapse. So I guess my question is, Is there some plans for larger M and A or something that you sort of keep that financial flexibility for? Or Is there a scenario where one could see some additional shareholder returns, you think, if things sort of stabilize here? Or What's your thinking here?
Thanks.
Yes. No, I think that's well stated. I think our first priority is to continue to grow the business. As you mentioned, we're raising our CapEx spend in the year, which we think would be very good for our shareholders. Secondly, we also are looking continuously at value accretive M and in emerging markets and selectively looking at adjacent categories as well.
So we'll continue to do that. However, having said both of those things, to your point, our balance sheet is very, very strong. And together with our Board, We are, during the year, going to look through our strategic priorities and develop a solid Updated strategic plan based on this new market environment and the strong balance sheet that we have, and we'll see what comes out of that. That's ultimately, of course, in the hands of the Board, but I It's definitely clear to say that we have a stronger balance sheet than we will need. Great.
Thanks. Sure.
Thank you. Our next question comes from the line of Henrik Christiansen of Carnegie. Please go ahead.
Your line is open.
Yes, good morning. Question on inventories. You've brought down inventory levels by about SEK 3,000,000,000 year on year. I guess there's a bit of FX That number as well. But could you give any indication of how that has impacted profitability this year?
And then related to that, do you expect normalized inventory levels? What sort of effects do you see that in 2021 on profitability? Thank you.
Yes, thanks. Yes, the lower inventory levels are a negative clearly for us and not the lower inventory in themselves, but the fact that we're not able to fully meet market demand. And that results in Some shortage here and there and also not being able to fully kind of meet our consumers' request and needs. So hopefully now, we We'll continue to produce at a very high level like we have in the Q4. We do see constraints, but that's at a very high level.
It needs To be said, it's not that we're seeing constraints at a sort of low output level. It's really a max output that we're having right now. But still for a number of months and possibly quarters out from Here, we expect to continue to remain constrained. And hopefully then, towards the second half of the year, we'll be able to work our way up to normal service level. I mean, I want to talk more about our service level than our inventory level per se because the inventory level is a consequence of meeting and having the right service level to our consumers and customers.
There's no
underproduction this year that then when you overproduce To restock the inventory that, that could be possibly contributing to profitability in 2020. Yes.
I mean, temporarily, there are, of course, these effects, assuming that you can produce that at a Regular rate, so to speak, right? Then the challenge that we're facing right now is that we're running significant overtime with very high marginal costs, let's So that equation depends a little bit about if we can do it in during normal working hours or if it's an for time and express freight type situation.
Perfect. Thank you.
Sure. Thanks.
Thank you. Our next question comes from the line of Andre Kukhnin of Credit Suisse. Please go ahead. Your line is open.
Good morning. Thanks very much for taking my question. I wanted to ask about the ability to pass through those external Inflation factors through price, whether you anticipate any timing differences between the movements in the two sides And what kind of response you've had from customers so far to the price increases that you announced? And kind of how much
of that is kind of already
covered by the already announced price increases, please?
Yes, yes. So Obviously, these headwinds that we're facing are very much facing the entire industry. So I don't think we're in Any type of unfavorable situation versus our peers here. And in these types of situation, we have no always to pass on that higher cost. And we have been very proactive in doing that.
So with the price increases We've already announced and the proactive management of sales promotion and so on, we are continuously offsetting these higher headwinds. Of course, that's not something that any of us like, neither our customers nor ourselves. But I have to say there's also an understanding given that this is not just impacting us and not just our industry. This is something that Many different consumer goods industries are facing. So there is, of course, not a positive reaction, But there's understanding.
Got it. Thank you. And if I may just follow-up on this. In terms of the mix of the external factors, Could you give us a rough idea of the split that you anticipate between kind of raw materials, logistics and anything else?
Yes. What we classify as External factors are not it's not the logistics part. That's part of our net cost efficiency. And maybe that's a little bit confusing, but That's the way we track it because it's so hard to pull apart what's inflation and what other things. So the logistic cost It's part of our net cost efficiency and is pulling that down a little bit.
And in the then external Factors, it's mainly pure raw materials and the biggest part of that is steel. And we also have Our currency impact in that and most the most significant impact this year, the way currencies are currently trading is of our foreign denominated earnings, which we then gave the €400,000,000 negative guidance on in terms of EBIT impact.
Great. Thank you very much.
Sure.
Thank you. Our next question comes from the line of Cecaria of Morgan Stanley. Please go ahead. Your line is open.
Good morning, everyone, and thanks for taking my question. I I have actually a follow-up on the first question. I was wondering if you have any indication, either internal studies that you're doing What you've been observing in terms of how much of, I would say, your replacement demand has been kind of preempted In 2020 and how you think about that for 2021, 2022 and beyond, Do you have any numbers or indication on this that could help us?
We do try to make those estimates, of course. But it is very, very difficult to pull apart the different elements because on the one hand, we I think a pull forward effect to your point, where consumers are, to some extent, making renovations now that they would have done later. I would say though that there are other positive factors that I think tend to offset that and also over time offset that. And that is that people are using their appliances much more intensively As people work from home more and that is a trend, I think, we all see will continue also after the pandemic. So people will And more time using their appliances, which means that they will replace them at a higher rate also going forward.
And hopefully, and that's what we're seeing right now as they spend more time with their appliances, they also want them to be good and to deliver the experiences that looking for. And that's where our focus our innovation focus and our brand focus really pays off. So we And then the final factor, which I think is not insignificant, and that is that we have now kind of cycled through in terms of the replacement cycle, the trough to the bottom that we saw driven by the global financial crisis in the 2,008 to 20 10 time frame. So there was in the past couple of years, there's been a little bit of drag from that, and now we're entering a more favorable sort of overall replacement cycle. So I'm even though from quarter to quarter and month to month, it's difficult to predict here because of the really unpredictable effects of the pandemic.
But I think the underlying drivers are actually quite beneficial to the industry.
Thank you. And just if I may quickly Yes, a follow-up on raw mats because you've mentioned steel quite a lot, but you haven't really mentioned the potential headwind from plastics where we see pricing also kind of Going up, so I just wanted to understand in which magnitude that was also included in your guidance or not?
No, there is some plastics headwind, Actually not the biggest part of it is steel. There and Some unfavorable plastics as well, but that's a smaller part.
Thank you.
Sure. You're welcome.
Thank you. And our final question will come from the line of Bjorn Andersen of Danske Bank. Please go ahead. Your line is open.
Thank you. Yes, a lot of focus on increased spending on marketing, but I see that A little bit of a more of a positive signal as that signals confidence. But what is more negative? And I would like to get Back to the dividend decision by the Board. I'm not sure whether it's senior management or the Board, but At least the decision taken by the Board sends a quite negative signal, giving that you have a super strong Balance sheet, and you're just hiking the dividends just slightly.
So if you can Give us some indication of what you will go through when you will talk about those strategic priorities later in the year.
Yes. No, I mean, I see your point. I would probably not argue that it's a negative signal to raise the dividend by 15% or whatever it is.
The
your point though is correct that we have a very strong balance sheet and that As we go forward here and look at what the best value creating use of that balance sheet Yes, even though we are increasing our investments in CapEx and transformation of the company, even though we are looking at Some additive M and A opportunities. Your point is still right that we will look at other types of value distribution to our shareholders. Now the best way to do that is, At least in the estimation of our board, it's not by raising or lowering the annual regular dividend too sharply. It's better to have that at a good payout ratio. So we have a payout ratio in 2020 of, I think, 58%.
So that's obviously a good payout ratio. We expect to continue to keep that at a high level. And then sort of one off adjustments to the balance sheet structure will have to be done through other means.
Yes. But I've looked at you for many years, and I've seen both buybacks and redemptions, etcetera, etcetera. So All 2.
Yes, yes. No, no, that's my point.
I agree. Let's see what happens.
Let's see what happens. Thank you.
Thank you.
All right. So, thank you for all those questions And good interaction. And just wrapping up the call here, I have to repeat again that I'm extremely proud to see how We've, as an organization, navigated this very challenging year and really being able to deliver a strong focus on health and safety while growing the business profitably. To me, it confirms that we have the right strategy and importantly, the right culture in place, which allows us to act act quickly on challenges and also capitalize on opportunities quickly. Our innovation focus, together with our reengineering initiatives, These are resulting in more efficient manufacturing with great new products, and that's going to set us up for very strong long term competitiveness.
I'm confident that Lektra's remains well positioned to create value both short term and long term. Thank you so much, and look forward to seeing you soon.