Electrolux Professional AB (publ) (EPROB) Earnings Call Transcript & Summary

Good morning. And welcome to this session, where we will introduce you to Electrolux Professional. My name is Jacob Broberg. I'm Head of Investor Relations. I'm sure you understand we would have preferred to meet you in person. But given the circumstance with the coronavirus and the travel restrictions, we have decided to run this as a joint webcast from Stockholm and from Italy, all in all, to provide you with the best opportunity to see all about the company and also ask questions. So thank you for joining from wherever you are. The agenda for today will cover the following things: we will start with strategy, of course; products; our largest market, Europe; industrial operations; and of course, finance. After approximately 1 hour, we will have a 5-minute break. And at the end of today, we will also have a question-and-answer session. By that, I would like to hand over to Italy and Alberto Zanata, CEO of Electrolux Professional.

Thank you, Jacob. And good morning to everybody. There are 3 things that I'd like you to remember or to bring home after these hours that we will spend together. The first one is to get to know Electrolux Professional, what we are, our track record, our performance, to understand that we are a solid company with strong base. The second is that we are in a market -- in a healthy market that has been growing and that will grow because the macro trends that are driving this market are there. And the third one is that we, Electrolux Professional, we have a plan. We have a clear and well-defined plan to capture the growth of the market and the opportunity that our positioning in this market is offering to us. It is also important to say that all these things together have value only if they are supported by a great team, a team of 3,000, 4,000 people that are today represented by myself, clearly, but also by the colleagues that will go deep in the analysis or in the explanation of the different areas. In particular, I'm talking about Philippe, who will talk about Europe, our strong foothold. Carlo will talk about the operations that we have all around the world, so gain argument more about what we are and why we believe we have strong fundament to grow. And then clearly, Torsten, talking about the future because products are always the fuel for the growth of every company. And then last but not least, clearly, Fabio, who will recap all these things together, giving a picture of where we can go, where we can be in the near future. But let me start from the first point that I mentioned as one of the things I'd like you to remember, that is, what we are. This is a picture with some numbers, but let me cherrypick some of them. We have been growing the business during the years. In 2019, that has been a challenging year, and we will talk about that later on. In any case, we deliver a solid margin, a solid profitability. But if I look back some years before the transformation year of '19, in the previous 5, 6 years, we have been growing the top line by 50% and increasing the earnings, doubling the earnings. So there is a track record, a positive track record. And it is important in the past because it should give trust of what we are able to do and we can deliver in the near future. The other important element is our presence in Europe. 2/3 of our business is in Europe. Europe is our home base. We are a European company, and we have to be strong at home to have all the credential to grow outside. And we are strong in a market like Europe, that is a market with a lot of complexity. And Philippe will argue about that and how we manage this one, turning it into advantages, into a competitive advantage. And the third one is the global presence, the global footprint to serve our customer. And this is important because we are in an industry that is globalizing, that is already global. I believe you recognize the same brand of the hotel, the same brand of the restaurant wherever you travel around the world. And we can serve this customer around the world. And more and more, these kind of customers are looking for partners, for partners that are following them during the growth. I was mentioning 2019 and that 2019 was a year of transformation for us, deep transformation. I've been in the company 30 years, so I've been living not all this history of a company that has more than 100 years of history. But I was here when in the late '90s, early 2000, the sector on that time or the division of Electrolux Group was formed, aggregating all the professional businesses that were around. It was the time when we went through reorganization, restructuring, closing brands. But it's nothing compared to the transformation we had last year. Because last year, after the decision to separate the sector, we have been creating many new organizations around the world to be independent from the group. But besides all these things that happened, the big change was in the change of mindset because the culture will remain the same. We've been in the -- not only myself but also my colleagues have been in the Electrolux Group for many years. So the culture is there and will remain the same, a great culture of a great company. But the mindset, the behavior of the people will change because we are acting in a specific environment, and we've been focused on the environment to increase flexibility, agility, speed. So a big change to this one. And this one, together with what happened and we initiated in the late '90s, early 2000 is what -- is forming what we are today, a company with a unique position in the market. Unique position because we have one brand that is covering all the need of our customers, not only for what product is concerned but also for what service is concerned. And the customers are looking for solutions that are helping them to simplify their life. And that is exactly what we do every morning when we wake up and we come to the office, to the factory or we go around selling our product, presenting them, because our mission is to make the customer of -- the life of our customer easier and more profitable and truly sustainable every day. That is what we do. That is the reason to exist for Electrolux Professional. And that is absolutely valuable because it is in line with what is happening in the market. And so this is -- let me introduce the second things that I want you to remember, that is the market. This is a healthy market. We will talk about a little bit of what is happening these days with the spread of the coronavirus. But despite that one, the fundamental things that are driving the growth of this market are there. It has been growing, and it will grow in the future because the urbanization, the growth of the middle class, the ability to spend more, but also the desire to live, to travel, to visit, to eat out of home are there, and they will continue to grow. It is a market that, I repeat, is healthy and growing, but it's also a market that is evolving. It's evolving according drivers like sustainability, digitalization, trends that are creating in some way complexity because if you think about when you go out for dinner with your friends, more and more, there are many people inside of the group that want specific things. They do not accept what is there only. So our customer have to become more flexible, and who is providing the tools to work, like us, have to be more flexible. But let me argue a little bit about the sustainability because it is also the DNA of this company, of Electrolux, of Electrolux Professional. The sustainability means not only being green. Sustainability is -- wide sense, I always use the example of a table with 3 legs, where all the legs, the 3 legs, they have to be all strong and all equal. One is surely being green, ecofriendly. But doing so, you are also asked to reduce consumption, energy consumption, water consumption, everything. And this second part is very important for the second leg, that is the financial, the economy, because in this way, you are good for the pocket of our customers. And the third one is the social responsibility, making sure that when we develop product, when we deliver services, we think about how they are used by our customers. And that is the reason why we invested so much in studying the ergonomy. And we are the first company that has the ErgoCert, that is a certification stamped on our product, making sure that our products are designed to create the best condition to be used by the operators. These are important things. And understanding of this importance is growing inside of our customers. They start to understand that the price ticket is only 15% of the total cost of running our product. And with our solution, we are addressing the remaining 85%. So what we are, where we play and what we can do to further develop this business, to grow this business. These are the cornerstone. And I will go through each and every one. But let me summarize them saying that we are both targeting the top line growth, the development of the business because in this are the area -- and you saw that when I showed you the mix of the sales. We are addressing the area where we are underrepresented in some way, where we have room to grow, space for improvement. 2/3 of our sales are in Europe, that is only 1/3 of the market. The remaining 2/3 of the market are equally divided between North America and the emerging areas. So we address these things. But we are also addressing the growth of the bottom line because to grow customer care, to grow and develop new products with new features that the customer wants and is willing to pay will surely make us growing also the profitability and delivering a profitable growth. As I said, I'm going a little bit through these 4 pillars even if at least some of them will be deeply discussed and analyzed and presented by the colleague later on. But if I start with the product, I like this chart because it's saying that we have innovative solution in food and beverage, in laundry. So it's not that Electrolux is delivering only the full solution. We are delivering full solution with champions inside, and these are champions -- and these are the products that we introduced just last year. And 20% of our sales are coming from products we developed just in the last 3 years, product that have been developed according to these guidelines: performance, environment, looking after the profit of our customers because this is key. This is making the customers' life easier and more profitable. And innovative solution are also instrumental and importantly key to working the second pillar of our strategic plan, that is the development in North America with the chains. It is important not -- to grow in North America not only because it's a large market but because it's the home of the chain business. And to win with this kind of customer, you need to bring something new, something that is changing their working flow. I'm using just an example. The product that is pictured in the middle that seems to be a fridge in reality is a thawing cabinet that we are delivering to Cracker Barrel in the United States, to KFC in countries around the world, in Asia and Australia. What is that? Typically to the frost food, you have to get the food from the freezer to a fridge or to a cold room and leave it there 24 hours. With this product, it takes 6 hours. What it is, it's not just a matter of changing the time. It's giving the possibility to our customers to review, reinvent their working process. They can decide what they want to defrost, what they want to cook, how much food they need to defrost just 6 hours before they need it. They can decide in the morning for what they do for lunch and the evening, while with the traditional situation or solution, they were forced to do it the day before. And we all know, especially these days, how things can change in 24 hour. But we know this solution are also important in other areas because these chains are expanding globally, so our global footprint with our presence in the emerging market is important to make sure that we can serve the chains wherever they go. And they look for this solution because the growth is mainly outside. And beverage is an important product that is just added one, added category to our portfolio. But first, it's growing more than both laundry and food. And secondly, it is a vehicle to enter many customers that they can look for us for other products. Because it will provide a solution that is really improving their workflow, then why not looking also for the rest that Electrolux can offer. We -- in the factory, we are looking to reduce the number of suppliers, to simplify our life, to work better with the best. The same apply to this customer. They are like factories when they produce food. The third area that is strictly linked to the other is the customer care. Customer care is important because growing customer care, we can significantly grow also the margin of this company. But I believe that customer care first is important because of the meaning of the word, because it means caring about customers, keeping the relation with the customers along the life of the product. Our products are lasting for years. We estimate for 5 in the U.S., up to 8, 10 in Europe. And during these years, we have to help the customer to make this product working properly, selling accessories, consumable, providing them with maintenance contract. And this is coming more and more because the nightmare of our customer is the downtime. So when the product is down, then they are not able to work, to operate or to serve food. And we can do it. Not only the product, they are interested about the system. Because to have the oven working but the dishwasher that doesn't work, it's not solving their life because they don't have clean stuff. And when you have dishwasher that are washing thousands of dishes per hour, there is no way to do it by hands. That is the reason why we believe even more than before our value proposition to be the one, the one that is providing not only the product but also the services, is going to become the winning element. It is just the beginning in some way because the digitalization of this industry is, like the others, at the beginning. But it's rapidly growing. And most probably, it will grow even faster than in the consumer business. We already have cases of customer reinstallations, where the products are all connected because the customer cannot manage a single connection with single items. In a kitchen, for instance, you can have roughly 100 appliances. The kitchen here in Pordenone for our staff canteen is roughly 100 different appliances. Can you imagine on your tablet, mobile phone or whatever 100 different apps to control the 100 different products? It can be. You need something that is putting these things together, something or somebody that is managing the ecosystem of your working environment. And this is one. This is why we believe we are the one with a strong value proposition to address the need of our customer. So these are the 4 pillars: the expansion in North America chains; in the emerging market with beverage; the customer care; the fact that we are the one, the only one providing all the possible solution to our customers. Not necessarily, all of them, they need everything, but we can do it. And more and more, the overlapping among these different families is growing. And these are the reasons, we believe, we have all the ingredients to deliver an organic, profitable growth, that we will surely be able to accelerate as we have been doing during the past years, the recent years. Acquiring company that are all fitting the strategic purpose, the strategic need, companies that have been able to give us the possibility to enter the beverage, to complete with the range of the beverage, to expand in the emerging market, to get also capabilities, knowledge about renting. That is another trend in this industry. Let me now step back or, if you will, for sure, spend a couple of words about the big things that is in the mouth of everybody. If you open the news, television, paper, whatever, the headline is about the coronavirus. So I would like to anticipate some question from you regarding the status of this operation, and particularly, considering that in some way, the spread of the coronavirus obliged us to organize the meeting in this way, I would say, in this modern way, digital way but surely different than what we were supposed and we desired to do. First thing, our people are healthy. To my knowledge up to today, we don't have cases in any of our operations. And that is the first thing. And it is important because we have been taking actions to make sure we prevent the spread of the virus inside of our operation. For instance, here in Pordenone, in Vallenoncello, where we have the largest site for food, we have been splitting the site in different areas: production, logistics, R&D, the office building. And we make sure that people from one block don't meet with the other. We are taking action to measure the temperature when people inside, in particular, the visitors; making sure that we are using masks; making sure we keep our hands clean. So whatever we can is in place to make sure that our people are coming to work in a healthy condition and they go home in the same one. We also encourage, obviously, smart working, working from home for whoever can do it and how much they can do it. Second, operations are all up and running. Supplier chain is up and running. In Italy, the 2 factories in Italy, the factory in China, all the supplier, wherever they are, they are up and running. We are producing, shipping and invoicing. Things can change, and we have plan to face different challenges, including the shutdown of part of some facilities. But for the time being and to our present knowledge, all our operations are up and running. Third, market surely suffering and particularly in the part of the hospitality industry that is related to restaurant and hotels. But there are other markets or other segments that are less impacted by the virus. Think about the hotels, the -- sorry, the hospitals. There are areas where they already are working more than before. And this means that for a company like ours that is delivering -- developing and delivering high hygienic solution, this could become an opportunity to help the world in some way. So this is the status of the coronavirus. And this is, in some way, the way to recap, to come back to the 3 things that I really want you to remember. And we will succeed with this 2 hours of presentation if you will leave with these 3 things in your mind: First, we are a strong company with good foundation, with a team that have been able to deliver in the past years and going through challenging times and will go through also these challenging days. Second, the market is a good market that has been growing and will be growing. It could be that there is a slowdown these days, but it will surely recover soon. Third, we have a clear plan to address the market trends but also to cover the space that is offered and the opportunities that are there considering our present positioning in the market. Having said so, I think it's time to get into the specific areas. And I would start with Torsten in Stockholm that will drive you through the innovation, meaning for Electrolux Professional. Torsten, they are yours.

Thank you, Alberto. The next couple of minutes, I would like to go a little bit deeper into our complete offer for food service, beverage and laundry. How do we address with innovative solutions the key challenges of our customers? How do we make their work life easier, more profitable and truly sustainable every day? How does digital solutions help our customers to increase productivity and to increase food safety? And I will talk also about Essentia, our global customer care offer, our branded customer care offer. And then how we bring all the 3 things together: the physical product, the digital product and the customer care into our OnE approach. How do we create value for our customers? Now I would like to start with the foodservice. We have a complete and competitive offer for all relevant segments, like travel, hotel, restaurant, hospital. I'm pretty sure many of you or all of you have been recently to a restaurant also more than once. But have you seen also the kitchen, how many different products you can see in the kitchen? We can provide all of them. When we look into innovation, we don't look only into the single product. We look into the production flow of our customers. Because here, we do see the biggest potential for improvement. It is like in our factories. You can optimize one single workstation but you can -- you have a much better impact when you look into the complete flow of the production. And Alberto mentioned already before the thawing cabinet. I want to give you another example: the cook and chill solution. It's not just an oven. It's not just a blast chiller. No, it is a system, the cook and chill system. These 2 products, they do work together. They optimize each other. They have the same user interface. They use the same programs, and they are connected. They talk to each other. And I will show you later an example on that, how we are able to reduce significant labor cost for our customers. I also would like to highlight the dishwashing area. Thanks to our acquisition of Veetsan in China, we have a very strong position in dishwashing in the emerging markets. And we saw already before the corona crisis a highly demand of big dishwashing installations because of the upgrade and the higher hygiene demands. Emerging markets are moving from hand washing away to machine washing due to these higher requirements of hygiene. We expect after coronavirus that this will even accelerate this trend. Now I would like to move to the beverage area. Thanks to the acquisition of Grindmaster-Cecilware, SPM and UNIC, we have a complete offer of products for hot, cold and frozen beverages. We have a complete range for drip coffee, American coffee, and we have also a complete range for espresso machines, from the manual one, semiautomatic to super-automatic machines. This is clearly a growing segment. And we have also recently added a complete line of soft serve machines for the soft ice, from small capacity to big capacity. All these products and all the ranges, we made already available also under the Electrolux brand to leverage on our strong Electrolux distribution network and to grow the beverage business even faster, mainly chains investing into beverage solutions because it's easy to implement for them, and they provide a very high margin and a fast payback for them. And the last area for the product part, I would like to go to the laundry part. Most of you know already a front-loader washer and a dryer because you have them at home. You use them every day. The professional machines are very similar. They do the same things. But they are much bigger, up to 120-kilogram capacity for each load. And they have to last much longer because they're up running the full day. What you might not know are the barrier washers. These are products used in elderly homes, hospitals because these products avoid cross-contamination. You load the machine. The machine is loaded from one side and unloaded with a clean garment from the other side so that you don't cross and you don't have any cross-contamination. Also here, we expect a growing demand over the next couple of months after the coronavirus because institutions, hospitals, elderly homes, they will upgrade their installations. You might ask yourself how do we handle all this complexity and all the products in the factories. All new products are developed in a modular way to reduce the complexity and to reduce the impact for the factory so that we can run the factories in a very efficient way and combine the different models according to the need of our customers. The last couple of years, we have proven to bring innovative solutions to the markets, focus on the total cost of ownership for our customers. And total cost of ownership could be 3 things. On one side, we act on 3 dimensions. It can be utilities, water, energy and chemicals. It could be labor. And it could be food waste. Alberto mentioned already before the thawing cabinet. I don't have to throw away the chicken because I thawed too much. But also, I would like to highlight here the precision brewer. Especially in the U.S., when you go to a coffee shop, you have many choices of different blends and different coffees. But the coffee expires. It is not any longer fresh. Our precision brewer has a small agitator to prevent the coffee from [ fermentation ]. It keeps the coffee fresh for longer. That means our customer don't have to waste the coffee. For them, it's pure money and to put it into the drain. No, he can sell it for longer. We also recently launched a complete new range of laundry products, dryers and washers. Here, we focus really to reduce the utility cost. Because especially for laundry, the initial cost for the investment is only around 15%. 85% of the total cost of ownership for our customers are for chemicals, energy and water. And we help our customers to reduce this iceberg and to melt this iceberg down to reduce the cost for them and to make the operation more efficient. I want to show you one case study for the multihouse laundry in Sweden. We recently renovated in a multihouse laundry 19 laundry rooms. It's a full turnkey solution. Also, the customer choose Essentia maintenance contract. He wants to have peace of mind. The total investment was around SEK 6 million. We provided our new solutions with automatic load detection and adaption. That means the water use -- the machine use only the water, the energy and the detergent accordingly to the load of our -- to the load of the customer because the customer doesn't and never load the machine fully. He loads it up to 30%, 40%, 50%, maybe 60%. And our machines are reducing, thanks to this innovative technology, the usage of energy, detergent and water. And in total, we were able to reduce the cost for the customer by around SEK 4.6 million, which is already close to the total investment. And all these machines are also connected because for the user, it's really annoying when he goes down to the laundry room and the machine is booked, and he cannot use it. So he can book it before online. Another example to reduce labor costs, I would like to bring for the new SkyLine, the oven and the blast chiller. And I know all of you who travel a lot go into hotels. And what I like a lot when I go in the morning for breakfast, to have fresh bread. But do you know when the chef has to be in the kitchen that you can eat fresh bread, he has to come at 4:30 because it has to go in the proving cabinet to prove the dough. And then around 5:45, he has to put it in the oven. We automatized this. The chef, before he leaves the kitchen in the evening, can load the blast chiller, keep the dough cool. And then according to the time when it's needed, it starts proving because the blast chiller can also go to positive temperature. And then just around 5:30, 1 hour later than normal, the chef can come and go unload the blast chiller and load the preheated -- automatic preheated oven at 5:30. This reduce labor hour of 1 hour, and this counts for the total year 365 days for around EUR 9,000 savings only in this operation. And during the day, you have many more operations like this. Let me summarize the key benefits across all categories. We are focused on long-term savings for the customer. But nothing is out -- with the long-term savings, are the performance. We have to have the right performance for the customer. We are focused on productivity because the laundry is getting smaller, the kitchen is getting smaller, and we have to be more on a smaller footprint. The customers are able to have the real-time solutions. They see what happens in their kitchen, how effective they are. And Alberto mentioned before the ErgoCert certification. All new designs of our customer are human-centric, and this is certified by an external institute. But nothing is without a great customer care offer, and we have 3 pillars. We have a full range of consumables. We have a high level of spare parts, and we can ship within 24 and 48 hours worldwide to avoid for customers downtime. But to avoid downtime, we provide also a new product, and this is Essentia. It is a maintenance contract. And with the maintenance contract, we are able to create a spinning wheel. We are constantly in contact with our customers. We have a post-service recommendation. We provide original spare parts to keep the performance for the customer life. We talk about fast, easy repairs, original accessories. And with a happy customer, the customer will also replace them with a new Electrolux product when the lifetime of the product ended. It has to be easy to sell, easy to buy and easy to service. And everything comes together with the OnE approach, where we bring the physical product, the digital product and the customer care product together. The customer can focus on his core business to create value and a great experience for his customer in the hotel or in the restaurant. And the customer is only one point of contact. But really, it's -- I think it's better when I let a customer speak. And we have an example of a hotel in Wales, where the owner was able, thanks to Electrolux, to bring his cost center laundry into a profit center laundry. [Presentation]

I believe this is really a great story. And it is only one of many stories because we have many other things connected. We have also complete kitchen connected. And this is really to show how we bring OnE to life. Let me summarize now everything from the last couple of minutes. We have a strong, complete offer, product offer, in food, beverage and laundry. We have innovative solutions to address the key challenges to our customers. We are using digital tools and connectivity to address this. We look into the total cost of ownership for the customer to reduce this. We have a strong global customer care setup with 3 pillars: the consumables, the spare parts and Essentia as a maintenance contract. And we are growing this business, and we further invest. And everything comes together with the OnE approach, where we bring the physical, the digital and the customer care product together to create value to our -- for our customers. And now I would like to hand over to Philippe Zavattiero, responsible for sales in Europe, and he will explain you now how he's able to grow the business in Europe, thanks to these great innovations. Thank you.

Thanks, Torsten. Good morning to everybody. Europe for Electrolux Professional, one of the key assets, as Alberto said. I will divide my time in 2 key points. The first part will be articulated around 4 messages: First, Europe is not one market. Europe is a mosaic of market, creating high complexity. But Electrolux Professional has been able, in the time, to manage this complexity, to create value from this complexity and to create a really competitive advantage. The European organization is a winning organization, growing consistently since 2013, overpassing the market growth. But this organization has in front of it a bright future. The second part of my presentation will be focused on to explain to you how we are managing customer and what are the key driver for our sales success. Europe is not one market. Let's make a comparison between Europe and U.S., 365 million people, more or less the same market size. But on one side, one country; on the other side, 48 country; 1 language, 24 language. In U.S., more or less everywhere, we are eating burger, but do you believe that we eat the same thing in Sweden, in France, in Italy, in Spain? Do you believe that we are drinking the same kind of coffee in Italy, in Sweden, in U.K. when in U.S., you are drinking filter coffee and American coffee everywhere? This complexity force us sometime to create specific product to address specific market like in Sweden, like in Germany. Sometime, we are also facing more a local competitor than international competitor like in France. But the beauty is that Electrolux Professional succeed to turn around this complexity in a competitive advantage, creating a strong asset, a strong organization, 1,000 people aim at targeting every business, managing every channel. From institution, hospital, prison, hotel, from the small one to the big one, from the 2 star to the 5 star, a restaurant from the fast food to the Michelin Star. I would say to summarize that in Europe, we can say that more or less every company could become an Electrolux customer. Why? Because people need to eat, we need a kitchen or we need to close -- to wash garden or perhaps you need to drink coffee. This is our market and business. To address this complexity, we divided our organization in cluster. What is a cluster? A cluster is an aggregation of market country presented the same specificity in term of market, but also the same kind of channel management. Nordic country, East Europe, Mediterranean cluster. Inside this cluster, we are divided in 3 main team. The first team is the Electrolux team fully focused on owning the market and the customer, providing a 360 customer approach, from presales, sales, sales order processing, marketing, aftersales. With dedicated people, we address all the kind of business, project business, unit sales, food, laundry, beverage. In parallel to this organization, we have a fully dedicated organization to address chain and international key account. This is what we call a Glocal organization. Why? Because this organization is consolidated at sector level, being global, having dedicated people offering one point of contact to the key account at global level, when, at the meantime, we have people working locally with a local stakeholder, a local presence of the international key account to adapt the project and to manage locally the project. Last but not least, to complete our market penetration, we have a dedicated organization to drive what we call specialty brand to compete face-to-face to specialist competitor. The purpose of this organization is clearly to optimize our market coverage and to address some channels that we don't want to address with the Electrolux brand. This organization, this strong organization, 1,000 people, represented 66% of the full Electrolux Professional turnover, is in a healthy and solid organization. Since 2014, we grew. We overpassed the market growth. Look at what happened the last 3 years. We grew by more than 10%. Why? And how? Because we leveraged product launch, 2 kind of product launch. Product launch, what has been developing by Torsten team to reinforce and consolidate our strength in the market, in the project business like thermaline that has been launched in 2014. But also, we leveraged new product, dedicated product like the thawing cabinet explaining by Alberto, like the High Speed Panini Grill, dedicated product that has been clearly developed to accelerate the penetration to the chain business. But also, we work on synergy because we want to optimize our costs, because our growth is not only a pure growth, this is a profitable growth. Years on years, you create synergy. With decreased costs, we'll become a more efficient organization. But this organization has a bright future in front of her. Why? Because thanks to the new product, and you saw with Torsten how wide is our product portfolio and how wide is our product lines, both in food and laundry. But now we will have the opportunity also of beverage, of coffee. We will have also the opportunity to accelerate the chain business to the strong organization that we put in place in 2014 and that -- which is bringing year and years payoff and fruit. Because of customer care, we start to implement Essentia in some key countries in Europe, Switzerland, U.K., Sweden, and definitely, we are seeing that this is paying off because we much more improve our customer care value in this country. What is important also now to understand is how we are working with customers and what is our key driver to win the business. I will start with one international key account, Autogrill. Autogrill is acting on the travel business, mainly in Italy, is offering food in the petrol station, in the airport and in the train station. We start to deal with Autogrill in 2006 during the Olympic game in Torino. We did altogether the catering for the event. In 2009, Autogrill came to us with a problem. "We have a big problem, Electrolux Professional. Could you help us to manage the lunch rush in the petrol station when everybody want to stop and do it in 10 minutes, the famous Italian panino? When you know that to make and to provide a good panino, we need at least 8 minutes." We have a solution. We developed a dedicated product, the High Speed Panini Grill, aimed at dropping the time to produce the panino from 8 minutes to 24 seconds. Fantastic, we solved the problem. We become credible. We become a trusty partner. And thanks to the wide portfolio we have in Electrolux, we start to increment our market share within Autogrill, what we call increasing the share of wallet, adding dishwashing. Not only because Electrolux is an international company and because Autogrill want also to develop its business outside Italy, in France, in Benelux, in Qatar, in China, we follow the expansion of Autogrill outside Italy. Not only now, thanks to beverage and coffee, we will be able to provide also to Autogrill beverage. And we know how is important beverage, coffee machine, but there is more. Thanks to connectivity and our capability to measure the use of the product, the product, the High Speed Panini Grill being connected, tomorrow we will be able to change the business model. We will be able to ask Autogrill not to buy a product, but to buy a function and to pay for use. All in all, we multiply our turnover in Autogrill by 5, and you can imagine that this is not the end of a story. Now let's move from the fast food to the high-end restaurant. Mandarin, Mandarin Oriental, famous international Asian chain business. This is the typical Electrolux business. How are we able to get this business? Two main things. The first thing is because of our Glocal organization, when we have people at the central team talking directly with the headquarter of Mandarin in Asia, defining the specification. In the same time, we have people in the field talking with a local executive manager to adapt the kitchen, to adapt the laundry and to define altogether the right product inside our wide product range. But not only, this is because of our reputation. And I will tell you one story. One famous luxury company in France, 4 years ago, want to really enter in the hospitality business and to create a new hotel chain, Cheval Blanc. The owner of this new hotel chain called me for -- making an offer. But first, to start, he said, "What I want to create is the best-in-class hotel in the world. Are you the best-in-class offering kitchen?" I say, "Yes, look at the high product we have with Molteni, which is definitely the Rolls-Royce of the product of thermaline. We are the best-in-class. It's okay, I will prove it." He did 3 call to 3 Michelin Star chef everywhere in the world. And each of them say, "Yes, the best-in-class is Electrolux with Molteni and thermaline." Do you believe that this is the end of the story? No, not at all, because thanks to this reputation, we will continue to increase our business with Mandarin. The last we did is Milano, but we did also in Turkey, we did also in U.K., and we will continue to develop our business with them. But now, thanks to the new acquisition, we will be able also to provide to Mandarin, to extend the full packet to coffee and beverage. I don't want to finish my time without telling you that, yes, Electrolux is very well recognized as the best-in-class in providing the full system. But not only, Electrolux is also the best-in-class company for some product category, and mainly when we are discussing about sustainability. The last example is what happened with Karlstad School in Sweden. They challenge us. They want to decrease by 2 the energy consumption. And they say, "Could you help us, Electrolux?" What we did, we said, "Let's try and buy." We provide them to equip the full cool storage with refrigeration and freezer. They did their own measurement, own calculation and let's see the result. We divided by 10 the consumption for the refrigerator and by more by 3 for the freezer. We were challenged, we proved, we convinced. Let me summarize now Electrolux Professional in Europe. Europe is a complex market because it's a mosaic of market, it's a mosaic of country. But the beauty of Electrolux Professional is that we are being able to turn around this complexity, to create value and to build a very competitive advantage. Electrolux Professional Europe is a winning company. We did very well in the past. We grew in a profitable way, but we have in front of us a bright feature and the beauty of this bright feature is that to achieve our target, we don't need to make a revolution. We just need to apply and to do what we did and what we are doing. And this is -- let me finish like this, thanks to 1,000 people, 1,000 passionated people. Thanks a lot for your attention.

We will start this second part of the day with industrial operations. So I hand over to Carlo Caroni in Italy.

Thank you, Jacob. You have previously heard about market opportunities and our strategy to make the most of this. But how can we, as global operations team, contribute to our company mission, achieving in the most sustainable way profitable growth? We have clear priorities on our road map, right product availability, superior quality to sustain our positioning in market, cost competitiveness to expand our margins, and we have a key asset to secure our ability to deliver, a team of highly qualified and motivated people. We previously saw that our company is the one in the industry able to provide multiple solutions. What does it mean for us, industrial operations? We need to be able to manage a wide product range as illustrated by Torsten, but we need also to be able to support projects, as illustrated by Philippe, new hospital, new canteen, new hotel. And we need to sustain unit sales, where speed and agility are key because in front of us, we have customers with an urgent need to replace a tool which is vital to run his business. Think about an oven for a restaurant. An oven is like the engine of the kitchen. And we need also to have the capability to gear up our capacity in case of big orders from the chains, and we learn how chains are important in our strategy to grow both sales and margins. And finally, we need to be able to manage new acquired companies. So we can say that naturally, complexity is our environment, but we make a clear distinguish between the good complexity, which brings value to the customers, and the bad complexity, which is only creating extra costs, extra inventories to our company. We are totally committed to deliver on the first through what we call operational excellence, why we want to eliminate the second and we are doing it through the standardization of the components and the modularization of new product platforms as introduced by Torsten, with a clear target to reduce cost and to reduce the working capital, in particular on the inventories. We're now focusing on the key aspect from an economic standpoint. And let's start from purchased material and built-in product, which represent the most significant portion of our cost. Steel and the mechanical components traditionally represent the biggest bulk of what we procure. But during last year or so, electronics has a tremendous development. We secure both prices and availability of steel, thanks to global negotiations, covering not only the needs of our internal plants, but also the needs of our key suppliers. And we do have a big opportunity, which is supply consolidation. Number of suppliers was incremented significantly in the last years during the acquisitions. We want to do it with a very well-balanced approach between effectiveness, meaning the capability of suppliers to deliver quality and to be on time; and efficiency, the capacity of suppliers to reduce cost and our ability to negotiate better terms in terms of delivery and payment in order to have a significant impact on working capital. Digital transformation for us is an accelerator of performances and speed. We are developing new solutions, not only on the procurement side but also in the shop floor to link our IoTs like automatic warehouses directly to the suppliers in order to have automatic material call off. But the real strength of our organization is our people and their capability to act as one team. We recently structured a Glocal organization. What does it mean? We want to have our buyers as close as possible to our suppliers, perfectly aware about market conditions, able to negotiate in the local language, but moreover, according to their local culture to serve the needs of all clients across the world. This kind of proximities was the key to navigate across the recent coronavirus crisis in China. We were able to maintain 100% of our facilities efficiently up and running. And we are doing exactly the same in Europe. Let me now introduce our industrial and logistic footprint. We count on 12 industrial sites with different scale. Three of them are most significant, representing up to 75% of our product cost, Italy, Sweden and Thailand. The kind of structure of our sites is calibrated on the specific needs and the scale of a site. So we have some plants, which are gradually small, mainly shop floor manufacturing facilities. Our facilities integrate also product care activities with the R&D, while for product development, we have 3 main sites to develop the new products, Italy for food, Sweden for laundry and the U.S.A. for what's concerned beverage. Our facilities are organized by product categories, and we can say that average, the load is one shift a day. What does it mean? It means that we have a possibility to gear up the capacity without adding CapEx. If you ask me what's the strength of the industrial setup today, I would -- I believe that -- but strength we have is a flexibility on the mix and the capability to shorten the lead time. Let me give you some numbers. For 80% of the product in laundry and food, we were able to squeeze down to 3 days the production lead time, from the order to the delivery to the logistic distribution. Logistics, which is based on 4 main hubs to distribute our product across 110 countries in the world. So our setup, for sure, is ensuring proximity to the customers but how to combine competitiveness. We have 2 main criterias. Number one, scalability, which is the capability of our plant to adapt not only capacity, but also a structure based on the demand. Number two is network, the integration between facilities resulting in strong control on their performances and also synergies on the structural cost. But let's explain better what does it mean scalability for us and let me introduce an example coming from last year. We had to support a big rollout for our customer Subway, a big chain in the U.S., where we had to deliver cold beverage units from our Rayong plant based in Thailand. We were able to do it, multiplying by 3 the capacity of the plant, of the entire plant in few weeks. And we've done it without additional CapEx, thanks to the readiness of the whole supply chain, but thanks also to the ability of internal people to reshape the layout on the new capacity required and thanks to robust standards and tools in order to ensure quality and efficiency, and last but not least, an effective manufacturing training system to integrate quickly new people. But let's come back on the meaning of network for us, which is not only sharing structure, common services among the plants, in particular, the small plants, but it is also exchanging best practices in order to have every plant, small and big, performing at the highest level. The network we have is based on the common standard and methods, which is gathered together under the umbrella of production system, which is structured as world class manufacturing. World class manufacturing, which gave a common language to a team in different plants in order to exchange best practices among the plants. And we reward not only whoever is creating a best practice, but moreover, even with more emphasis, whoever is proudly copying the best practices. We do all this not for a beauty contest, we do this in order to get tangible and measurable results. On top of continuous improvements, we have additional measures to accelerate our competitiveness. Number one, footprint optimization. An example is that this year, we are building a greenfield plant to merge laundry and beverage activities in Thailand. Number two, platform rationalizations. This year, we are cutting by half the number of platform on a significant family of products on dishwashers, and we are localizing the production in a fast-growing market. Number three, optimizing make or buy. This is a continuous activity in order to fine-tune our setup, optimizing quality, availability and clearly cost. Number four, logistic hubs rationalization. An example, this year, we are closing a hub in Central Europe, expecting advantages, not only in reducing inventories but also reducing cost. And finally, innovation and digitalization in order to boost furthermore our performances. A few words about the new plant in Thailand. It will be a state-of-the-art plant in terms of well-being for our people first and will bring us higher competitiveness in terms of synergies on structural costs and the optimization of logistics. But we will have also a new laboratory in order to develop a solution for laundry and beverage in that area. We will have a further space to develop furthermore the business in this region, which we consider highly competitive and located in a fast-growing market. Last but not least, innovation. What does it mean for us? It's not the kind of solution, but also the way to go to the solution. And this is an example coming from Italy. The purpose of this project was to announce our productivity on the refrigeration line. With the tool that you use was a tooler to visualize in 3D the different solutions, helping us to have onboard the software people, the operator from the line. And the result was amazing. We were able to cut by 40% the not value-added activities. We were able to have a vertical start-up, means speed in execution, 100% of ergonomics for the well-being of our people, and 100% of first-time quality. Let me now resume. We have a track record in terms of displaying our customer obsession and systematically having the capability to do more with less. But the beauty is that we have further opportunities in order to improve our cost and reduce the working capital through the simplification, we mentioned standardization and modularization, thanks to the effectiveness of the new purchasing organization, thanks to the implementation full-scale of the world-class manufacturing. And thanks to the extension of the best practices we have in laundry and food to the new acquired plant. Last but not least, digitalization and low-cost automation will further boost our performances. Thanks very much for your attention. And let me leave the stage to Fabio Zarpellon, our CFO. Thank you.

Thank you. Thank you, Carlo. Good morning to everybody. During the last hours, my colleagues shared with you 3 important facts. First, we are operating in an attractive global industry, and Electrolux Professional has a unique position to win in this industry. Second, Europe is our backbone, but we have a clear plan and market opportunity to profitable growth also in Asia and in Americas. Third, our industrial operation that Carlo Mario Caroni has just presented are well equipped to serve our customers on a global base, but also have a clear identified action plan to continue to improve our cost base and therefore, our margin. Now what are the message from me? My message to you is that we are a solid company with a large potential. We are a solid company because we have shown by our historical performances that we are able to deliver steady EBITA and cash flow. We have large potential because we have 2 attractive segment. Laundry, with already very high margin and possibility to further expand the size of this segment. We have food and beverage, where I see both potential of growth in terms of size and margin expansion. And to deliver on the margin expansion, we have a clear actionable plan that are planned at a combined cost improvement initiative and volume growth in the attractive, high-margin part of our business. With that, let me give you the view why we have had a solid track record. Over the last 6 years, we have been able to grow this group by 9% per annum through the combination of organic growth and acquisition. Our profitability is averaging around 13% or SEK 1.1 billion per year. We have been continuing year-over-year to improve EBITA value, but in 2019. I consider 2019 as a temporary step back in our EBITA value growth because we have had also temporary, let me say, facts on that. We face somehow decline of volumes, combined with a huge effort to bring to the market new outstanding products that my colleagues taught and presented before. But I would say that the major disruption is what Alberto mentioned, we went through the process of separation from Electrolux Group that absorbed not only energy from -- not only cost, but energy from our organization. Energy, that -- now that the process is over, we will dedicate to restart the profitable growth journey. As I said, we have 2 attractive segment. We have food and beverage that we have been growing 9% per annum, and it is delivering a 13% EBITA margin or roughly SEK 600 million per year. We have laundry that represent roughly 34% of our turnover, where we are delivering a very attractive 17% EBITA margin or SEK 600 million per year. When we move from the product perspective into the geographical perspective, I reconnect to what Philippe was presenting to us. Europe is our backbone. It represent 66% of our overall sales, and we are continuing to grow Europe. We are continuing to grow our own market, both organically and via acquisition. And I see a bright future in front of us also for Europe and the execution of our strategy, the innovation strategy, the chain strategy, the customer care strategy is paying off. We saw the example of a happy customer in U.K. There is also a happy Electrolux Professional management in the U.K. because, thanks to the focused investment in customer care in U.K., we have been growing business well above the average of the sales in U.K. and the average of the industry. So the execution of the strategy is paying off, starting from Europe, our backbone. We have been growing consistently the larger worldwide market that is the Americas, in particular, North America. We have had a 14% growth year-on-year, thanks to the combination of organic growth and the acquisition. Grindmaster was really a successful acquisition that brought not only the size of the existing company, but even accelerated the profitable growth journey. I have to mention also Asia. Asia has been growing year-on-year for several years. Somehow in 2019, we stepped back. And there is a good reason for this step back. I mentioned the larger transformation that Electrolux Professional went through during 2019 to get prepared to operate as a stand-alone company. I would say that among the different geography, Asia was the ones that was most affected. In Asia, we have to create our own legal entities. We needed to move our own offices. We needed to install Electrolux Professional IT system. So our organization, unfortunately, had to focus on these activities. And somehow, we could not dedicate as much energy to the business development. Now this is over, and now we are back on track on the condition to restart the profitable growth journey also in Asia Pac. I've been [ delving ] so far a lot around the P&L of the company. I would like to spend now a few words also on the balance sheet. During these many years, we continue to invest in our business. And we are going to invest in our business also in -- going forward. But what I would like to stress with you are 2 important things. First, we are operating this company with an asset-light measurement, with an asset-light weight. And here, you have the measurement on operating working capital. Our average operating working capital on sales is ranging around 16%. We have been growing compared to the historical starting point of 2017 because we have added the business -- the acquired businesses with additional weight in terms of operating working capital on sales. And in particular, last year, we have had an increase of the inventory due to the phase in and phase out of new products. But as Carlo mentioned, we have a clear and actionable plan to improve on already asset-light business to even a more competitive situation in terms of asset management. The second point I would like to bring to your attention in this area is that the company continue to invest over the years for the future, continue to invest in improving the operations as much as on the product development. But this investment have been strictly monitored in a disciplined way. And our historical weight of CapEx on net sales has been ranging around a couple of percentage points. Yes, we have had an increase compared to this value in 2019. We are going to have an increase also this year compared to this historical leverage. And this is linked to the investment that Carlo just mentioned to us of the new plant in Thailand, where we are going to combine the laundry and the beverage operation to be even more effective in serving the customer and driving the competitiveness of our operations. With that, let me say, we can talk now about our ability to generate real money, the cash flow. The combination of steady EBITA and disciplined management of the asset of the company is resulting in a strong cash flow generation. Also in 2019, where we have seen we have decreasing absolute term on the EBITA value, thanks to good management of our balance sheet, we have been able to generate over SEK 1.1 billion in term of flow. We have had a cash conversion on EBITA higher than 1. But this is not all. We are a company that is pretty solid also in terms of leverage ratio. We started -- we are starting our operation with a leverage ratio between net debt and EBITDA below 1. 0.8 is our starting point. And this, together with a strong cash generation that we have been proven to be able to deliver and extensive credit line that we have already activated, I'm strongly convinced that we have the power, the liquidity power to support both the organic growth and the growth via M&A on our way forward. So we are really well equipped to manage the profitable growth of this group. Now before talking about our ambition for the future. I would like really to spend a few words with you about what is happening in this month and the implication of this in the financial development of the company. When we approached 2020, we knew that we had some tough comparison on the top line because we have had large rollout in the first part of 2019. We knew that we had additional cost linked to the factor that we have to create a new corporate function. We needed to run our separate IT system and infrastructure. And we got to prepare for it. We got to prepare launching a restructuring plan in September last year that we are executing, and we are executing on time. We are constantly monitor the execution of this plan. And this plan will create the condition ready from quarter 3 to compensate due to the separation. What we did not anticipate was the coronavirus. And here, as my colleagues explained before, we proactively, as management of this group, are managing the situation, taking care about the people, people comes first. With all the safety measure that Alberto explained, we are taking care about our customers with the measures that both Alberto and Carlo explained with us in order to secure business continuity and the best service level to our customer. But we are taking care also of our P&L and balance sheet, about our shareholder because we have taken proactive measure to adapt our cost structure and our CapEx to the new reality that we are facing in these days. With that, I believe now we can pause about our track record we have went through what is happening in these days. I believe it's time that we talk about our ambition for the future. Our vision is to continue to grow this company. To continue to grow this company, our ambition is to grow organically 4% per annum and accelerate this growth with accretive acquisition when opportunities comes on our way. We want to grow this company profitability, and we have -- our ambition is to be at the 15% EBITA margin. It's absolutely achievable targets. We have been delivering on the 4% growth. We have been close to the 15% EBITA margin just a couple of years ago. And we want to continue to develop the organization maintaining an asset-light organization with a low leverage balance sheet. Also, in term of capital structure, our ambition is to keep it with a ratio of net debt on EBITDA below 2.5. But the management of this organization is also ready if accretive and strategic important acquisition come on our way also to go temporary beyond this threshold in order to drive this organization and this business to a different level. Thanks to a combination of strong P&L, strong disciplined management of the balance sheet, we will create also the condition to reward our shareholder with a payer -- payout ratio that is targeting to 30% of the net income per annum. Good. In the last part of my speech, I wanted to dig into one important piece, that is how we are going to deliver the margin expansion. And let me lead you through it. As I mentioned, we are now a stand-alone company, and we are fully equipped to operate as a stand-alone organization. The business is up and running. This have meant cost that we have quantified in a area of roughly SEK 100 million. And as I mentioned earlier, we took proactively the decision to launch a restructuring plan to fully compensate this cost, and we are going to fully compensate this cost already from quarter 3, as I mentioned earlier. But this is not enough. We want to bring the margin of this company to a different level, but we want to bring it in a sustainable way. This is the reason why we identified 2 mainstream: one is the cost improvement area; and the other is volume growth, in particular, in the high-margin businesses that are the innovative product, the customer care and the chains. And to give you also the right view, I would like really to pick up a couple of example, one on the cost improvement area and the other in the volume growth in the high-margin business. I take one example that Carlo developed, that is the initiative that is bringing forward our plan to improve product cost. And specifically, I want to talk about productivity improvement. Productivity improvement is part of the DNA of this company. We have detailed plans per plant that we are monitor on a monthly base. And when deviation comes, we proactively take measure to bring the targeted cost reduction in line with plan. The second example I wanted to bring to your attention is about customer care. You remember what we mentioned before, we have seen an IP customer, we have been growing sales in U.K. more than the average of the company, more than the market. But also, we have been growing the bottom line much faster than the net sales because customer care is a high-margin business. And we have been proving that when we focus our investment in our efforts, we get faster the payback. With that, let me say it's time for my conclusion and my takeaway for you. And my takeaway for you is that, first, we are a solid company with a track record of delivery steady EBITA, cash flow. And we start with a very solid balance sheet and adequate funding to support the organic, inorganic growth of this group. Second, we are operating in an attractive industry, and Electrolux Professional has a unique position to win in this industry. Third, we have ambition but achievable financial target. But mainly, this company, this group [Audio Gap]

Thank you, Fabio, and thanks to all of you to staying connected with us during these hours. I hope I achieved the objective that I had at the beginning of the day when I said I will try -- we will try as a team to make sure that you have a clear understanding of which are our strength, which is our position in the market, a clear understanding about the market in itself and how it's evolving and how this evolution is also creating opportunity for us to further growth. And the third element about the plan that we have, the plan that we have to capture this opportunity and to convert them in growth -- in profitable growth. We have been also listening at customers or customer case have been presented because the customer voice at the end is the one that can prove if we are right or wrong. And having said so, thanks again for your attention. And now I believe that with Jacob, we are opening for questions.

Thank you, Alberto. As Alberto said, we will now open up for questions. [Operator Instructions] And I think we start with asking telephones -- asking questions via the telephone. So please go ahead, operator.

[Operator Instructions] Our first question is from Erik Paulsson from Pareto Securities.

Yes. I have 2 questions. The first one is on inventory levels now compared to your historic figures in the current coronavirus outbreak. You said that you want to come down in terms of inventory levels, but isn't it so that it could actually be good now to be high on inventories given the current supply chain situation and what we could see in the future? So could you just elaborate a bit on that here going forward? And the second question is just on the medium-term in terms of the financial targets. How long is medium terms in your view?

Okay. I think I can take these 2 question. The first one, you're perfectly right, and we are currently acting more than increasing the warehouse, moving the warehouse or the stock that we have in the central warehouse, in the central hub here in Italy, in the local warehouses around the world to be closer to the customers, close to the needs of this customer because we believe that the projectile will probably slow down. For sure, replacement and repair businesses will remain high. We are also, in this moment, producing full speed in our factories, as Carlo said it. So we are up and running and be prepared to take every opportunity that could come in these days. The second question is what we mean with midterm. I think in the midterm, we are not defining the years. This is an industry where the cycles are in the range of 4, 5 years, but we didn't define the years as such.

[Operator Instructions]

If there are no questions from the operator, I can take some of the ones that we have received online. A couple of questions related to sales split, where they ask about sales split by end customers, hotels, restaurants, hospitals, et cetera. If we can provide that. That's the first question. The second one is also how much of our sales today that is related to aftermarket sales. And can you then split the aftermarket sales between consumables, spare parts, service, et cetera? That's -- are the 2 first questions online.

Okay. So let's say the first one about the customer typologies or customer segments that we call them, so hotels, restaurants, so on. We don't provide the exact split either for this one and the customer care, that is the second question. But what I can tell you is that we did the analysis about the customer typology, and particularly these days, considering the spread of the coronavirus, because we believe that customers such as hotels, restaurants, bars, pubs, or QSR, quick service restaurant, will be more impacted by the spread of the coronavirus and whatever is happening in economy than other segment, like what we call institutional segment, hospitals, health care, elderly homes and other things. And looking at our current split of the sales, we believe that half of the market will be more -- half of our business will be more impacted than the other half. So it's basically 50-50 with different mix between laundry and food. If I look at the customer care question, as I said, we don't provide a split about that. But the thing that I can say is that looking at even other industry and the potential that we have, we see a lot of room for improvement to grow this business. In particular, you were mentioning accessories and consumer. Well, I have to say that in this area, we just started. We just moved from being reactive, so selling the parts that the customers are asking us to repair the product, to be proactive in offering solution that are making the product working better.

Okay. Thank you. I have a couple of more questions online. Is there a difference between foodservice and laundry when it comes to customer care? That's the first question. The second question is more related to -- not to end customers, but can we say something about how much of our sales is direct sales or sales through distributors?

Okay. So first question about the difference between customer care between food and laundry. I would say, not significant, not material difference, but there are some differences related to the fact, for instance, that in our case, in many more countries, we provide direct service for laundry, while we don't do it for food. And the other difference, I would say, between these 2 businesses, that the life of the laundry product is typically longer than the life of the food product and, as a consequence, requiring more intervention. The second question was about -- sorry, can you remind me again?

Yes. The split between our own direct sales and sales via distribution [ rights ].

Yes, yes. Also these days, not providing the exact number, but I can tell you that the percentage of direct sales, so countries where we sell directly to customer, is relatively small compared to the total. And the difference is mainly related to the geographical setup. Example, Philippe was presenting Europe, clearly, in European country, Finland, Switzerland, where we sell directly to the end users. We have country like Italy where we sell through partner that they are exclusively working for Electrolux. And then clearly, any other country, France is one, where we sell through dealers. So it's a very, very mixed situation that is related to the environment, to the market structure and to how we operate in these markets.

Next question is related to R&D. We have approximately 4.4% of R&D through net sales. And the question is, isn't that low given the fact that we have such a broad portfolio compared to our competitors? That's the first question. The second question is related to the growth of dark kitchens. Is that for takeaway, whether that is negative or positive for us?

Okay. In this case, I would take the first one and while I would ask Torsten to further elaborate on the second. So for what concern the R&D, the percentage, if I compare to peers in the industry, is relatively high, is because we are investing a lot in innovation. But we have also to say that, yes, partly specifically related to the product, but we have an organization where many functions such, for instance, electronics is crossing all the categories. So we can leverage a lot of synergies among the categories in some of these functions. So electronics, that now is becoming probably -- without probably, the largest investment we are doing in product development together with the digitalization of the product is cross categories. So I would say that it is an important investment, but it's giving us the possibility to keep up to speed with innovative champions in the different categories. For what the dark kitchen is concerned, I think Torsten Urban can clearly elaborate a little bit more with some good example about that.

Thanks, Alberto. Yes, the dark kitchen, there's a lot of talk around, and there is actually a lot of media than -- because it's quite new trend we see here. And I would say, it really as a new customer typology and a new channel, and we are ready also to serve this channel because we handle with big -- we handle big projects, and we are able to design really here the dark kitchens, and we are constantly in contact with these customers. We did quotations on this, and we also take some business on that. So for us, it's really a new sales channel, a new customer typology. And we will able to serve them and to find for them the best solution because we have the right -- we are equipped for that, and we have the right knowledge to do it.

Thank you. I think we have a couple of questions from the phone, so please go ahead, operator.

So our next question is from Björn Enarson from Danske Bank.

Björn Enarson, Danske Bank. A few questions, please. Looking at the U.S. operations, and I would assume that laundry is the big profit pool there. Is the food -- or the kitchen operation, is that loss-making in the U.S. right now? And secondly, if you can talk a little bit about how big of your total turnover that is clearly project-related.

Okay. So U.S., we don't provide the profitability by regions, so we don't provide this split. But I can surely tell you that laundry is an established business where we have a good market share. We are working with a great partner that have been working with us for more than 60 years, growing the business and getting a leadership position in the market. So surely, it's a great business for us where we are leveraging our legacy and our position. The same apply in some way with beverage that, in particular, last year was significantly growing, thanks also to the big rollouts. Food is growing well and developing, but it's still relatively small compared to the other businesses. The other one...

On that note, on food in the U.S., you had an ambition to grow that segment for quite many years. Is this basically the setup that you've been part of the consumer business or part of Electrolux group that have held back growth in that region, M&A-driven growth? Or is it very competitive? Or why isn't the food market -- or why hasn't the food exposure increased more rapidly in the past?

I think I can answer with a personal experience there because I was there in 2004 when we started from greenfield the U.S. operation, and I spent my 5 years in the U.S. exactly to try to start up the business in the U.S. U.S. is a challenging market where the main competitor are sitting there. So they are local, they are established and they work with customer for years. We have been growing because starting from 0, where we are, is a good position, and we have good wins with good customer, as I was also mentioning during the part of my presentation. But I think you also noticed that we always said that we are looking for acquisition to further accelerate this growth because critical mass is important in the United States. And we believe that to get a better position in the United States, we need to have also these accelerators to help us in the growth. So that's the reason we did the Grindmaster that was adding the beverage side, that is helping the development also of the food. And I think now food and beverage together is a pretty sizable business in the United States. If I move to the second part of your question that was related to the project business versus the unit sales business. Also again, we don't provide a split of how much of our business is project business and how much is unit sales business. But again, it's significantly different region by region, in the meaning that in regions like the APAC, so Asia Pacific, Middle East and Africa, where the new operations are growing, I would say that majority of the business is project for us. In regions like North America where we have clearly a different position, we are more focused on single items. So it's more the unit sales side. And Europe, I think, with the presence that we have is a balance between the 2.

And our next question is from Johan Eliason from Kepler Cheuvreux.

This is Johan Eliason, Kepler Cheuvreux. Talking about growing your presence in North America, you have some listed peers over there, mid-sized. Could you sort of elaborate on pros and cons of making a deal, acquiring 1 or 2 of those companies?

Sorry, it was really disturbed at the end. Can you repeat the last part of the question?

Did you get the first one, Alberto, [indiscernible]? Okay. I think we go to the -- to one of the web questions then. I have 3 questions from [ Andre ] at Crédit Suisse. So the first one is the laundry segment specifically. How has this business grown compared to the group overall? How do you expect this business to perform vis-à-vis the 4% organic target? So that was the laundry. The second question is margin expansion, that our understanding is that 2019 results was burdened -- were burdened with one-off costs related to separation. Could you please quantify the cost for the separation in the one-off costs? And thirdly, acquisitions. Do you have a pipeline of potential deal at the moment? And how active are you right now in the M&A arena?

Okay. So also in this case, I would let Fabio answer the second question about the cost. Let me start from the first one. The first one is about the laundry business. In the laundry area, we are -- it has been growing clearly. I think Fabio presented that. And it will grow. At least we believe it will grow even more in the future, considering the investment that we have been doing in introducing new product. In particular, on the laundry side, that we have been introducing many amazing new product that are creating value for the customers. In the -- we are in the middle of our innovation process, roughly 4 years, that will end next year. And in these 4 years, we have been not only digitalizing all the product in laundry, 90% of the product will be connectable, but they are completely renewed. So big ups and big opportunities on the laundry side. Answering to the third one about M&A. M&A is not something that tomorrow morning, I can decide to buy, I go there and I buy it. So yes, we have a long list of companies where we are building relation, we are monitoring, we are trying to be ready when the moment comes to initiate a discussion that could convince the other partner to join the Electrolux Professional group. We have also to remember that majority of the company in this industry are privately owned. So relations are strategically important. So Fabio, if you want to take the second one.

Yes. For what concern the EBIT margin in 2019, we have reported 11.4% EBIT margin. If I exclude the larger reported one-off that are the restructuring provision that I mentioned in quarter 3 of last year and the positive one-off related to a pension scheme transaction in quarter 2, the profitability of this group without item affecting [indiscernible] was 11.7%. Having said so, this 11.7% includes also cost related to the separation and the additional cost that we have as a stand-alone company, but we are not going to disclose this level of detail. Having said so, I can start to spend a few words about what I presented earlier. First, the restructuring plan is going to offset from quarter 3 the additional cost that this group is facing for the separation. Secondly, we have detailed and actionable plan to improve the margin that I believe are pretty strong because they are a combination of cost improvement initiative, meaning taking out costs from this organization, either related to product costs and I made the example related to direct labor productivity, but also bringing into a margin expansion through dedicated and focused investment in the high-margin business of our company. And I believe that what has been said during the last couple of hours, for example, on customer care, is proving that this strategy is paying off, not only in term of growth but also in term of profitable growth.

Okay. Thank you. I have 3 more questions from the web. The first one is the percentage of our employees in Italy. The second one is the innovation rate. Alberto spoke about 20% coming from new products the last 3 years. The question is, is there a difference between laundry and food with a higher innovation need? And the third question is, can we provide any information on the share of sales from hospitals?

Okay. First, Italy. In Italy, we have roughly 1,100 employee between Pordenone and Modena, that is the other side where we produce beverage appliances. So this means that is slightly less than -- something like 25%, 30% of our total employee are in Italy. Second question is about...

Innovation.

Innovation. Yes, innovation rate. So the fact that they have been renewing -- or better, that sales from product that have been launched during the past 4 years are accounting for roughly 20%. I would say that if I look back at this year, we have been introducing product both in laundry and food and beverage. So the growth is coming probably a little bit more from laundry than the food. But is -- we see that when we introduce new product, they are successful both on the laundry and on the food side. The third question was about the split about hospital. And again, we don't provide the exact split. But what I said earlier regarding also our approach and our estimation about the impact that the coronavirus can have on our business is saying that what we call hotels, commercial restaurants, installations are accounting for roughly half of our business. A little bit more on the food, a little bit less on the laundry side, food and beverage and laundry side.

Thank you. We still have several questions related to aftermarket sales where the online participants are asking about more details. But as said, we will not provide that. One question though. It's our workforce for customer service, whether they are our own workforce or if it's more of a third party. That's one question.

Yes. It is a mix. It is -- the answer is similar to the one that I provided when we were talking about direct sales or indirect sales. In some countries, we provide direct services, service performed by our people employed by Electrolux. In some others, we perform service with a service partner, a partner that have been trained and certified and employed by Electrolux. And they are working not only on our product but on others. So it is a mixed model. In some country, we have even what we call hybrid model. So where in the big metro area, we have our own people, direct service, while in the wider and larger region, we are relying on a service partner. So it is a mixed situation according to the geography and according also to the history.

Okay. I have 2 more. I have a few more questions on -- from the web. M&A strategy, what do we want to acquire? And how do we realize synergies? That's the first question. Second one is related to chains in North America, if we can indicate our organic growth in North America over the past 5 years and how this has progressed. And how much of your EBITA bridge that you presented medium term is, in fact, coming from progress in the chain area.

Okay. So let's take the last 2 that are related to the North America development. We don't provide the exact information about these things. But chains have been growing. And chains is clearly an organic growth. In particular, in 2019, we have clear success with other chains that are, by the way, in some way, making -- challenging the comparison of our 2019 results with the results -- with the performance in 2020, particularly during the first part of the year. The first question was about -- sorry, can you remind me?

M&A strategy.

M&A strategy, you're perfectly right. M&A strategy. We have been talking about M&A strategy. What I would like -- or we would like to get, we are looking at acquisition that are aligned with our strategic priority. And the strategic priority are expansion in North America, to get the critical mass, as I answer to one of your colleague earlier, getting a stronger foot into the chain business. I would say for the beverage side, we have been completing the range. We have a pretty -- quite competitive portfolio and the opportunities that are coming to be more locally present in the emerging market.

Okay. Thank you. I have 2 more questions then. One is related to raw material cost. If steel prices are coming down, will you be able to keep these savings? And in the other direction, can you offset higher raw material costs with price increases when needed? And then I have a question on CapEx. What are the CapEx needs outside of Thailand? Will CapEx versus sales go back to historical levels after 2020?

Okay. Thank you. And in this case, I would say that I will let Carlo answer the first question about the raw material, while I would ask Fabio answer the question about the CapEx.

About raw material, as we discussed this morning, steel is the most significant portion for our raw material. So steel is public as a price. We have global negotiations with the key players, steelmakers that are -- in order to guarantee, not only control on the price trend but also on the steel availability. So I think we are pretty strong in this perspective. We have a track record showing that we are able to have better prices than the spot market. So...

Okay. When it comes to the CapEx level, this group has been managing the profitable growth with a historical level around 2%. As anticipated during my presentation, in 2019 and for 2020, we are above this level because of the large investment that we are doing in this moment in Thailand. But I expect that already from 2021 onwards, we will go back to the historical level, and this is what our strategic plan is confirming.

Thank you. Two more questions from the web. One is about supplier and customer concentration, what can we say about that. The second one is about products from other manufacturers, whether we can include them in our digital platform. Those are the 2 questions.

Okay. So for what concern the supplier concentration, I would let Carlo talk about this. For what concern the customer concentration, we have a large distributor in North America that is, as I said, working with us. He has been working with us for more than 60 years and is representing Electrolux in that part of the world. So if you wanted to...

Yes. Supplier concentration is one of the key driver for us to announce our [indiscernible]. We said that we incremented our supply base quite significantly during the last years, thanks to the new acquisitions. Now we have the opportunity to reduce the supply base. And we can to do it having results not only on product cost but also on the working capital, leveraging on new conditions in terms of delivery terms and payment terms.

Thank you, Carlo.

Good. Then we have this question about integrating products from other manufacturers into Italy.

Oh, sorry, sorry. You're right. Yes. And part of our business, in particular, on the food side, but not only, also on the laundry side, is to deliver the full solution to the customer. When we do it, clearly, we are adding to the product that we manufacture, also the product that we purchase from other companies in the market. And when we do this, this product are becoming Electrolux product at the end. So they are part of our system, and they can be integrated and will be integrated in the solution we provide to the customers.

And we now have a question from the telephone conference. Please go ahead, operator.

Our question is from Johan Eliason from Kepler Cheuvreux.

It's Johan here, working from home, as you can understand, so I had some problems with my dog. But coming back to your M&A question, do you have mentioned if net debt target basically imply you would be paying cash for some acquisitions? Are you also open to more transformative acquisitions, potentially paying with your equity as well? Or how does your M&A now look at this for the time being?

I can answer part of this question, leaving also to Fabio to complete it. But we are looking at the scenario. For the time being, we are looking mainly at -- and they are the ones that also we perform that are bolt-on acquisitions, that are helping us to accelerate the growth and the achievement of the target that we have in line with the strategic pillars. I don't know, Fabio, if you wanted to spend some words about...

On the financial perspective, as you have seen during these couple of hours, we have, first, strong and steady cash flow generation year-over-year that are first giving us the additional money flows to support the organic growth and the acquisition. But we have also activated a credit line. We have a SEK 600 million long-term loan and EUR 250 million revolving credit facility. And these 2, we are going to use to support the organic growth and strategic-fitting M&A opportunities that may come on our way. So we have the firepower to manage acquisition that are in line with our financial targets.

Okay. I'll take the 2 last questions from the web. One is about the fact that we are currently implementing a new ERP system in our company that will take several years. What specific challenges does this present to the company? And does this project present any concern over the rigor of our financial control? That was the first question. Second question is related to profit and loss statement that we presented there, where you could see that gross margin decreased from 37% in 2018 to 35% in 2019. And are these figures representative of the underlying development in 2019? And if so, what are the main reasons for the decline of the gross margin in 2019? So those were the 2 questions.

Okay. Thank you. And in this case, I would ask Carlo to further elaborate about the ERP system implementation, and Fabio later on to further comment about the gross profit development. Please, Carlo.

It is true that our ERP landscape today is pretty fragmented. But we have BI tools in order to get all the information in a structural way, harmonized way in order to govern the group. We have a clear plan in order to harmonize the ERP system, and we have it for the years to come with a task force dedicated to this, both for business and for BIT.

Thank you, Carlo. Fabio?

For what concern the margin -- gross margin development in 2019, I would highlight 2 main factor. As anticipated during my presentation, 2019, we have completed the introduction on the market of new important strategic product that Torsten presented. And this meant somehow a peak of the -- for what concern the R&D spending that is reflected into the gross margin. The second factor that I would like to bring your attention is that in 2019, we had the full effect of the company we acquired in the previous year and the new company that we acquired uniquely in 2019. These company are running the business with lower gross margin but this not mean necessarily lower EBITA margin because they have a different cost structure than the rest of the group.

Thank you, Fabio. And with that, we say that was the last question for today, so thank you. This event will also be available by recording on our website later to date. And with that, I would like to say thank you for today, and goodbye.