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Edited Transcript of SK.PA earnings conference call or presentation 28-Feb-19 1:30pm GMT

Full Year 2018 SEB SA Earnings Call

69134 Écully Cedex Mar 9, 2019 (Thomson StreetEvents) -- Edited Transcript of SEB SA earnings conference call or presentation Thursday, February 28, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Stanislas De Gramont

SEB SA - COO

* Thierry de La Tour d'Artaise

SEB SA - Chairman & CEO

* Vincent Leonard

SEB SA - Senior EVP of Finance

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Conference Call Participants

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* Nicolas Langlet

Exane BNP Paribas, Research Division - Research Analyst

* Steve Levy

MainFirst Bank AG, Research Division - Analyst

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Presentation

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [1]

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Hello. Thank you for being here for the presentation of the annual results for SEB in 2018. I'll be giving this presentation with Stanislas de Gramont, who's the new General Director of the SEB group who joined us 2 months ago, who is in charge of the continental activities as well as digital. Stanislas comes from the Santori group in Japan and he spent most of his career with Dannon and just about every country you can imagine, in every continent you can imagine, very -- in international expansion in an area, which I'm persuaded will contribute a great deal to the SEB group. So I'd like to wish him welcome. We have Vincent Leonard, who's the general director in charge of Finance, CFO.

I'm going to spend about an hour to -- and then we'll be attempting to respond to any questions you may have. We have 4 portions, which will last of unequal duration. I'll be talking a little bit about 2018 first and the environment of that as well as what we've done and salient events in the group and the year that's just completed. Vincent and Stanislas will be talking about performance issues, figures for the moment, there are a few examples of that. Some difficulties and some successes as well, depending on the country. As a forecast, as is usually the case, there's not much on that at this time of the year, which is only normal. And then we'll be responding to your queries.

So let's start off. Let's talk about 2018. Now about the environment, the macroeconomic context was a bit complicated, especially in some geographical areas, either for political reasons or others or economic reasons. Turkey, Middle East and Brazil, difficult macroeconomic context. In Brazil, we had presidential elections. There were strikes. The real plummeted. Turkey, obviously, there was some political issues there, which led to the decrease in value of the Turkish pound. U.S. and China, there is a trade wall, you've heard about that and the consequences that could have on China. We didn't really observe too much of that in 2018 though, and we believe that 2019 will still be of good quality for us. Obviously, in Europe, there's the Brexit. We don't know where that's going. We have Italy and France, with the (foreign language), the yellow vests, and that's kind of complicated -- it has been complicated all through 2019 so far. The second salient fact in worldwide, in this case, was the fast-changing retail market. There's some deep changes in distribution and mass market and there's some very quick and very deep-rooted developments in the main players, the pure players, such as Amazon and Alibaba, Argina.com and China. This has disturbed the classical types of retail in all countries, and as you can see, there have been a lot of bankruptcies in the U.S. in brick-and-mortar retail outfits. So this is a promotion-driven environment, which is complicated. The third aspect, as usual, is the higher commodities prices. In 2018, there was an increase in cost of raw materials and a negative currency effect, especially in emerging nations, with effect as we all see is more than significant because it's greater than EUR 100 million in our operating profits in 2018.

As to the key figures, it's EUR 1,812,000,000 -- EUR 6,812,000,000, 7.8% in like-for-like, not including acquisitions and without currency in sales. With 2 parts to that -- 2 contributing factors to that, dealing with 2 aspects of our activity, there's the consumer activity, which is, on a majority, is most of our activity standing at EUR 6,177,000,000, up 4.2% like-for-like; and in professional activity, which is mainly hotel equipment activity and professional coffeemakers, strongly up at 12.8% -- I'm sorry, 14.3% like-for-like. If I carry on with the key figures in operating performance, 600, 812 -- I'm sorry, EUR 695 million for operating results from activity, with growth plus 8.5% like-for-like, with a very strong impact and with a strong growth at EUR 419 million, up at 11.8%, net debt standing at EUR 1,578,000,000, with a net -- with a gearing standing at 1.90. As I said, a gearing at 1.90, after the 2.36, which we did have at the end of 2016 subsequent to the acquisition of VMF. So we have gone below the level of 2 net debt-to-EBITDA and we had announced we would be under 2 in the beginning of 2018, and that is done.

The next slide is a bit complicated, but I'm not going to look at everything. So it's really just to go over, I believe, what contributes to the solidity of our model. So we have very strong and complementary brands, whether it be worldwide, premium or professional markets. Very broad product diversity. Both in consumer goods and professional goods and in small very professional brands, there are -- so the history -- our history has helped us start up. We think that these are very complementary activities, both PEM and -- so there are very big changes in distribution and specialist and so forth, and a balanced approach, a global footprint that is balanced between mature and emerging countries, and in this slide, we are obviously industrials. We have 41 industrial sites in the world. I think at 42 now, in fact. We just acquired Wilbur Curtis, I think they're in here, but -- so we are industrial producers and we're very proud of what we've been doing.

Three points about 2018. We have continued with the digital transformation. This is obviously a major phenomena. We'll see how this impacts us. We also have a commitment as a corporate citizen. We don't talk about it much because there's a lot of stuff under that heading. We don't talk about it too much, but we'll be evolving in that next year and there are also targeted acquisitions that we made, 2 major ones this year. Now about digital transformation. There are 3 aspects fundamentally to this: we have e-commerce and distribution, with pure players and brick-and-mortar; the product offering, we have connected products, we've seen some changes there; and in e-marketing, the whole relationship that we have with consumers via digital.

Now if I take a look and I focus in on e-commerce, talking about downstream, 220 connected distributors via Internet, and all the major distributors are connected. And digital represents almost 25% of our mass market sales, whether they be pure players or brick-and-mortar or click-and-mortar, very strongly up over 2018, we're up 15% 3 years ago, and this year we're up 60% given the weight of Alibaba and in China -- plus 40% in China. This is true in many other countries as well. So globally, things are ramping up quite nicely. There are some countries that are a bit weaker, but this is a general term that we've broadened out our approach to respond to the demand on the part of the major e-commerce retailers. There's a very strong increase in our products' SKU presence at 66% this year. We have succeeded indeed in transforming our product development model to be much more proactive and to be able to respond more quickly to changes in the digital markets, which are obviously faster than the click-and-mortar. It used to be that when you'd have a reference in Walmart, it would last a year.

Now we are referenced via the pure players. If it doesn't -- if it's not being sold in 2 weeks, they will be withdrawn. You won't be selling, so you'll have to change your model. So this have been -- kept us quite busy, but we are now able to properly respond to this demand. Now the second aspect is the digital offer with connected products. Why have connected products? Well, it does contribute services, recipes, for example, or advice if you are allergic to gluten, I hope you're not. But sometimes, you might have to replace gluten in a recipe if you're allergic to it, and it can help you, and the application is there to guide your cooking experience so that you can succeed in your recipes. So Cookeo, which I'm sure you know, is a product we launched some 3 years ago in France, is 25% of volume and all Cookeo devices are being sold with a connection. There are more than 800,000 monthly users of our applications, which is a great amount of sales for France, and we have also had another acquisition of 750 Gram International. This is a structure that manufactures -- that does advertising and online recipes in 5 languages. It's a small structure, but they're very agile, they're based in Paris and it's very interesting for us. We have 2 Italians, 2 Portuguese and so forth. Five nationalities, all mixed up in every possible direction, and they can supply recipes throughout the world in this little structure. They're very, very fine-tuned, which really gets us in with the start-up world, which is ideal in the digital context.

Now in coffee, coffeemakers. So what about the professional coffeemakers? Online connected, whether it be VMF or Schaerer in the whole world, it makes it possible for us to follow remotely and to do preventive maintenance in one of the machine, whether it be in Chicago or Los -- L.A. or in Paris, we contract those machines in terms of maintenance -- in terms of professional machines, it means they would never break down. They can deliver hundreds of coffees -- cups of coffee a day with 0 downtime. So you need to be able to handle maintenance in that way that outside of the opening hours and other applications very important for our customers who have some -- Dunkin' Donuts, for example, one of our customers that we have in the U.S., more than 250 points of sale in the U.S. from 1 day to the next and store by store, they can know what the share of sales of espresso are. Or what about cappuccino, what's that market share? Or whatever. And you can modify the prices based on the consumption in the store, all those particular products in percentage terms. So that's obviously extremely useful service that we can provide to those customers.

The last aspect of the digital transformation is e-marketing. There's several ways of looking at this, plus 40% of our investments are now digital in nature. The 16 million visits to our group websites. There are more than 170 people have been recruited since 2015 that are working deeply in digital transformation, they can -- content manager, you have to write content to go along with the products and these can be people that are working on sales or in marketing with our customers. So this is obviously a very deep transformation with a spectacular development in various communities, whether it be Cuisine Companion, Cookeo or the last product, the Cake Factory. So I'd recommend you take a look at that. You can do some really good chocolate cakes with that, I can tell you. And you can't blow it. It will work every time. So Cookeo has taken off and the Cake Factory has taken off with the first Facebook community. 20,000 members in this community in 5 months. Very active because we have 4 new conversations a minute on that Facebook site. So it's really -- our marketing activity has been orientated around that. We succeeded in involving all of our -- all aspects of our company in the life of the product online. 350,000 influencers post on Instagram, but today, the consumers are participating, and they'd help us actually talking about our products. So this is a new method of communication with potential customers and for sales.

The second aspect is digital transformation. I'd like to talk about recycling to leverage the circular economy. We talk a lot about it, but what is this really mean for us? I'll take 2 examples. Recycled materials, in 2012 we started working on recycling materials, whether it be metals, plastics and we launched, in culinary arts, recycling aluminum, with sales operations that we ran for recycling products with different distributors in France and elsewhere. We get back the old pans and we recycle some 1 million a day -- a year that we recycle, whether they be frying pans or whatever, which really gave rise to, as of 2018, we launched the first 100% recycled aluminum product line, and they will only come from recycled aluminum. And in 2019, in the first half year, we've already started communicating on those products -- recycled products, and this works very well. We've been declared the preferred brand of the French population. So people are involved in sustainable development. This does have a cost and reparability. Now this has become a real advantage for brands when you know how to use it right. And as of next year, we are launching the first product line of Tefal, so this will be Tefal frying pans, and this will be available in all the major distributors, and they will be 100% aluminum that is recycled.

Secondly, the possibility to repair, we've been talking about it for a long time. We've always been involved in this. We've -- 93% of SDA volumes are repairable now. In other words, we can repair our products. We've already -- always underlined this. It is silly to throw away a product instead of repairing it so that you don't throw this away into nature. 6,235 repairs around the globe and 6 million spare parts. If one day, you look to the one region, in France, you will see what 6 million stored parts represent. 3D printers hopefully can reduce such inventories, but that's a lot of products in nature. What is key here is that consumers love it because we build products in Europe, excluding warranty, after 1 or 2 years growing by 40% over 5 years. So you see that consumers increasingly are quite open to the idea of not throwing a product and buying a new one, but repairing it. And also, we'll be offering as of this year a lump sum repair price.

And second section of that CSR is our -- we being corporate citizens. We have a set fund. Our mission is to fight against the exclusion through housing, jobs and training and health. In the case of France, the rest is done in our subsidiaries in each country for the past 10 years. We have about 500 supported projects. In China, we already built 22 schools, usually in remote areas, especially in the city-out region after the Szechuan earthquake in Vietnam and in India, we have centers for young adults living under the poverty line. In Brazil, we've worked a lot on healthy eating in favelas. In Colombia, it's also a social business program to benefit street coffee vendors so that the population can live decently and so the society diversified, but it's always -- there's always a purpose, which is fighting against the exclusion. This is our main topic. And also in France, we donate money in the [Tnemec] Institute, which aims at supporting youngsters coming from -- and the privileged areas, but who are very smart and want to give them a school, and we provide them some wages. We provide them with -- executives who provides support to show them the world to which they don't always have access. And so we are spearheading this in France, among others. So obviously, our way of looking at this is this -- there should be commitment from employees and every project should be supported and taken care of by the employees. That's the best way, we believe, to involve everybody.

Lastly, acquisitions. It's not a surprise, we do them on a steadily basis. The first one was already mentioned in the past. The joint venture in Egypt, we have had an agent for 40 years in Egypt, the Zahran family, who had the first joint venture 3 years ago with regard to electric products to develop small equipment -- domestic equipment in Egypt and we globalize this joint venture at the end of 2018 to turn it into 55%-45% for us, 55% joint venture. They will evolve fully into Cookwares and small domestic equipment, they're already #1 in kitchenware and preparation and ranked #2, #3 in small domestic appliances, we have 2 industrial sites in the Alexandria region with about 1,000 employees. Why Egypt? There's 100 million inhabitants with very strong economic growth, even though there might be ups and downs. 3 years ago, there was a strong devaluation of the Egyptian pound, and there's some political stability there right now. This will allow us as well to have an export base, because there are no customs duties between Egypt and a number of east and West African countries, the Middle East and Turkey. That way, we can have a local production base. The plant is very modern, so we are strong believer in this joint venture, which I signed in the presence -- during the journey of [Mr. Mike Horn] to Turkey several weeks ago.

Now a second acquisition, WMF, Wilbur Curtis, it was closed out early 2019. Who is Wilbur Curtis? #1 of the professional filter coffee. Remember, we have been into this with VMF Schaerer in the U.S. And if we take 100% control of that company, that has 25% market share on filtered coffee. Now filtered coffee in the professional, it's 1/3 for coffee filter, 1/3 for espresso and 1/3 for vending machines, these big closets. We are in the U.S. with the espresso, and we become now present on 2/3 of the professional coffee in the USA, with a company which typically is very complementary with us. As I told you, they are dealing with coffee filters. Maybe it's not the coffee you love every day; it's American coffee. But you're going to have to go there. Americans love it. So it's a country that is quite traditional. So filtered coffee still holds its position, and on the previous page, when you see the design of a coffee maker, it reminds us of movies in the '60s or even today, freshly brewed coffee as they say it -- that you find across the USA. It's a significant sector and it's very complementary with ours because clearly, in the coming years, every sales point that have filtered coffees now will be including espresso and our customers to whom we sold espresso need coffee filter product and we'd rather they buy from us instead from our competitive brand.

Now the prices range from $800 to $1,000 with regards to filtered coffee machines, while the others -- automatic espresso machines range from $3,500 to $10,000. So we are with share in VMF in a client acquisition of big clients, such as Dunkin' Donuts, so contracts can be significant, but they're volatile. You don't acquire new customers each year, but it gives us stability. And finally, like us, they are based in Los Angeles, in Montebello, and we are 30 miles away with a beautiful plant, which will be very interesting in order to have some finishing manufacturing for our machines. So I believe in these acquisition very much, which is quite recent. The closing dates back to early February and the team seemed to get along very well and we're very confident -- we've very straightforward ambition to become the leaders in professional coffee in the United States. So this is what I wanted to share with you for 2018.

Let's move on now to the figures, let's start with sales, which is the way we look at things normally. We've seen beautiful organic growth again this year at 7.8%. So on a like-for-like currency basis, and a currency effect, which is significant negative at EUR 211 million, and we'll see the specifics in a while, with 3.2 growth. And the other that you see a EUR 33 million, which represents -- for half of it, the consolidation of the Egyptian joint venture on the 1st of January, and the other half represents a change in our -- how we book our revenues on the business Lagostina in Canada.

So now the specifics of the currency trend, EUR 211 million, notice that nearly all of the currencies -- all the currencies we show here weakened versus the euro, among other things, the OCNY and the dollar, and in terms of euro, it's helpful, the dollar, but all the currencies have deteriorated, especially the emerging ones, the real, the Turkish pound, the ruble, the Argentine peso. All of this was quite violent, and see that this effect became more tamed during the year, which lead us to 2019 estimate currency effect, which will be weaker than what we had before in the previous year. That 7, 8 organic sales growth is -- comes against a very strong past. You can see the past 4 years, the 16 last quarter's organic growth at more than 6%, which is a beautiful mark. So growth remains quite steady.

Now sales by region on the bottom right-hand side on 7.8% organic growth for the group has split in 14.3 for the professional one, and within the group, plus 17 for coffee, beautiful performance coming from coffee, and consumer is 7.2%, and is in effect a loyalty program, which is penalizing us, would be 8.1% excluding this loyalty program. And you see that growth can be found in most of our regions around the globe, especially in the other EMEA countries. The whole region, Eurasia, Turkey, Russia, they're performing excellently at 12.5%, and on the previous column, you can see the strong currency effects, because we report 6.4% for a 12.5% organic growth for Turkey.

Now another region strongly up, South America at 8.2%. In China, of course, 24%. We had done 25% in 2017, so China continues, therefore, to move strongly forward at exceptional rates. The other Asian countries, 0 9. It's a distorted figure to the extent that excluding the loyalty program, we would be at 4. Therefore, the core business is performing quite solidly. And there are 2 regions, which are slightly more lackluster as you point forward. Western Europe, it would be 0 9, excluding the loyalty program, especially France, which hurt that region, we'll come back to this. And North America, which has been the name of the game, which had been a difficult region for us this year.

On the next page, the breakdown of sales by region, with this beautiful balance between mature and emerging countries, 44% of emerging countries, it's increasing by a few points over last year, and then you can see the split on the left-hand side by region. China is growing within such a split.

Now our top 20 countries. So good -- very sound on the whole, with 15 of them that are positive. Yes, firm, and only 2 of the top 10s, which are down in 2018. So beautiful growth, good share of those who are in the upper part with double-digit growth. So it's well-balanced across our portfolio. And they are represented here in alphabetical order. At least in French, they're in alphabetical order, it's not based on their growth rates. Thank you, Vincent. I will go over a number of those countries and classes of products to give you more specific update on what's going well and what is not performing so well. We'll talk about our achievements. China, of course, Central Europe, Mexico, Sweden, we haven't talked about Sweden, and Japan. We'll also talk about countries, where we had more difficulties, starting with the U.S. and France. And let's start with France, by the way.

So in France, 2018 turned out sluggish, down 3% of sales, with recurring factors. It's a sluggish market. Consumption is slightly up, and purchasing groups were -- we see now, food specialists, ganging up with other retailers, and there's a whole shift -- there are a lot of confusion among these big procurement groups, multiple weddings taking -- and multiple partners there in regard to the retail business in France. Is it -- well these are alliances and not weddings, by the way. That's how we can look at them with a twofold consequence. A lot of promotions are taking place because there's more competition in the sluggish market, and a deflationary pressure that is quite sharp. And also in 2018, the 2 factors, which were more one-off. We have fewer loyalty programs than in 2017, which represents EUR 5 million in revenue, and an exceptional effect yellow vest, difficult to quantify in absolute terms. Nevertheless, we know that we had a fourth quarter which was highly deteriorating, which gives us an indication of yellow vest impact and retailers with a Carrefour [DACH tier tact]. They all mentioned, with or without figures, the real visible impact of that yellow vest event now in France in 2018.

Now moving to the west, the other country where we had some difficulties in 2018 are the U.S. In this case, there are some structural effects. The traditional retail business is suffering in the U.S. We see bankruptcies, closures of stores and shops. The development of Amazon and e-commerce is very violent in the U.S., so it has definitely an impact on the number of stores and shops of our traditional distribution partners. In negative, there's a historical effect with the failure of the group's brand in 2017, which materialized in a decline in our SDA sales, so it's negative. But in positive terms, we have 2 classes of products that are doing well: Cookware is certainly only up by 1%, but still it's with Tefal and [boat land]; and also irons and leaders in market. And this is strength in leadership. Now in the U.S., the profitability is solid there, and we count shoring it up in the U.S. and it shouldn't change this year.

So that was the difficult stuff. Now let's move on to some more positive things. We talked a lot about this new year. So can you actually have a new exceptional year? But we have 25% growth in China, now this growth stands at 30% in SDA Cookware, and this is a mature market. So there is a remarkable growth here. But there are also some new categories out there, home care and linen care. This is a remarkable performance we've logged here. We can also cite what we call large kitchen appliances. We're still learning the tough terminology here, but we're getting there, whether they be extractors or hubs or whatever. Now this type of business is strongly up and this development is based on the depth of the portfolio and the breadth of the portfolio. Very, very robust. So we do confirm that we are #1 in Cookware and #2 in SDA. And we are also developing significantly in new segments, mugs and food conservation solutions, plus 40% like-for-like, up very dynamic. And this is the ambition in conquering these new categories. Very, very interesting developments there. 2 or 4 -- 2 or 3 years ago we acquired EMSA, and we are strongly developing the segment of what we called kitchen tools, between kitchen accessories. In China, we've got plus 40 in storage containers and mugs, very strongly up, very interesting market, very good margin.

Now something we don't talk about as much is Central and Eastern Europe. Now all of these countries in the north of Europe go from Baltic states in the south to the Balkans in the south and the ex-Ukraine. So this is almost the size of the U.S. EUR 300 million in sales, 21% growth in 2018, and this growth is very significant and all of the countries in the area. And in the specific area, we decreased in the Czech Republic, but most of the area, almost all the decreases are linked to loyalty programs, which are now renewed. So we are in growth everywhere. Very spectacular figures in Poland. It was the 15th biggest companies, up 30% in sales, we'll get back to that.

In market share, we are leading business in several categories of products. Very present in electrical cooking, we're developing vacuums, very strongly present there. And overall, the set of products is recurrent and very strong and doing very well. As to Poland, we spoke about that. What else could I say?

Vacuum cleaners. We chose, we multiplied the sales by 3.5 in 2018 compared to 2017. We can also talk about fully automatic vacuums, which have great performance in Poland in 2018. This is a country that is doing very well. We talked about North America, but we're kind of sad about the performance there. But there are countries that are doing very well in North America. We're talking here about Mexico, up 9% in terms of growth in 2018. The 17th biggest country in the group, that's a very leading market with a strong emphasis on linen care and electrical cooking. The flagship products are blenders, filter coffee machines, fans and garment steamers. In Mexico, this is off to a very good start. So this is also a country that is very robust with -- and cooking -- Cookware activities up 40% in electric cooking, and we strongly developed linen care. These are remarkable levels of performance.

We wanted to talk about Sweden as well. Now this is a developing market. There's a small growth there, but we are up 15%. We bought [el viash] 3 years ago -- 4 years ago. And OBH, we've reviewed the product lines. We have an integrated business, we've restructured it; now, we have a business with some very healthy growth in flagship products, such as cookware, steam cookers, linen care, nail clippers and the OptiGrill grilling product. That's plus 16% on OptiGrill specifically, if we talk about Sweden.

And what about Scandinavia? We're talking about Scandinavia, because it's a very complicated area because it's quite a long area. If you take the distance between 2 countries there, it's almost as far away as Athens. So for years, we didn't have any growth in these markets, and no results but we had to buy the local company, OBH, to restructure that. And now we're doing very well with a very good brand, it's the best brand in Scandinavia, and that's what we wanted to talk about. Now it's done.

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Stanislas De Gramont, SEB SA - COO [2]

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I spent 5 last years working at Santori, so I'm happy to talk about Japan. It's the sixth biggest market in the group in terms of sales. It's very profitable, and we've had some very strong positions there. And we are up 9% last year, like-for-like. Now historically, there's some flagship products, cookware, garment steamers and we started up very strongly with Cook4me, which is a Cookeo in Japan. That's up 63% in 2018. Now this is also based on a strong increase in our local stores. We have 33 Tefal stores, and that's up 20% in terms of sales in Japan. So the brand image is extremely strong in a country where French cooking arts are highly appreciated. So that's the world round-trip.

But you need to remember about this geographically is that most of our geographies are doing well in terms of growth. This type of growth is based on healthy fundamentals, innovation, the breadth of product line, which makes it possible to have a nice transition here. But when you look at the product line categories, we're talking about mass market. We're not talking about professional coffeemakers, but you can see there are several categories and we're going to talk about what works best, and that's home care. You have vacuum cleaners, namely. Now this is a segment where we decided to strongly invest, and that's doing very well. You'll see on the next page, and also, electrical cooking. This is one of our core businesses in the subgroup. These are different categories involved, there are mixers, there are lots of articles there, and here there are broad product lines and a strong growth in all countries.

More to the left, you have the food preparation. Now there's an effect of loyalty -- the problem with loyalty, but it's in -- this is where most of the loyalty programs are, and that's where we've lost some loyalty in 2018. So the core business is slightly down again. In linen care, we do possess the market, but the market is declining in itself. Now there's a bit of hope in the steamer products rather than traditional ironing. Well, I'll get back to the steamer market.

Now into leading products. On flagship products you have vacuum cleaners. Now sales in 2018, we're up 27% like-for-like. We cover all categories of vacuums. We have Trino vacuum cleaners with or without bags, we have sweeping vacuum cleaners, we have more versatile products. Because I know how to talk about vacuums now, and we do have other products, which are automatic or remotely controlled. And another innovation on the right is the Flex. Now this is versatile, where the brush part is foldable. So you can go under beds and furniture without leaning over. So that is a significant advantage. That is appreciated by homeowners, and it works just as well flat down as standing up. I tried it, and it works. We are significantly present in 30 countries in the world in this product center -- segment. We have a very strong market share in more than 20 of those countries. So I'm very proud of what we're doing in vacuums, and so am I.

Now let's move on to blenders. This is a very significant category in the food preparation. Here, again, these are markets that are present in more than 40 countries of the world. We have a 12% market share that's up 1.3%. We have very strong high added value products, such as high-speed blenders, up some 70%. But what's interesting is that this is a market that is taking off globally. In China, obviously, also in Brazil, very strongly, in Mexico, in Colombia but also in France and Germany and South Korea, and India, and Egypt, I believe, and Germany. So this is a market where there are huge amount of exchanges in different geographies, in Mexico, Colombia, on development, on innovation, and on sourcing as well. China, Europe. It's a market that is very dynamic indeed, and where we have had some wonderful successes.

And the last point, I wanted to talk about one of the strong flagship products in SEB is laundry care. Now this is bad for the ironing sector, with dry iron ironing or steam ironing. But the steamer products have been developing very strongly. We're very dynamic and with a huge amount of value being created in terms of growth in steamer, garment steamers. Sales in 2018 were up 28% like-for-like. We are present in over 65 countries and the global market share we have 21% of garment steamers, which is up 2 points compared to (inaudible) in China, it's in Japan, it's in the U.S, it's in Canada, in Russia, in Spain, Mexico, France, South Korea, in every country where we have garment steamers activities, we are strongly up.

And I wanted to wind up this presentation with the thermal mugs. We talked about this in China, but this is a more broadly -- broader effect. We are present in these products in more than 75 countries and growth was 47% -- 42% like-for-like compared to the preceding year. This is a new sector of activity where we have very strong foothold and we're doing very well with the strong growth having been logged.

We can talk about this for hours. But I'd like to hand over back to Vincent, who wants to talk money.

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Vincent Leonard, SEB SA - Senior EVP of Finance [3]

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Thank you, Stanislas. So starting off with a chart, which is not very exciting because we've said it all, but I was told I should really specify things. So as a reminder, sales are organically growing by 7.8%, 5 1 in reported form, and the operating margin on a like-for-like basis up by 8.6% and we then put plus 2.5%, by the way, EUR 695 million in 2017, we had PP one-off due to the acquisition of VMF, which were hurting our results by EUR 17 million. So there's a rise in the reported income at 11.3% over construction now. You can find here volume effects and price mixes, which are the breakdown of our -- it's the ORfA translation of our revenue. The effect of having sold more units creates that volume effect and working on the mix and on prices, creates an upside of EUR 88 million. Thierry mentioned the commodities environment, which was challenging and which hurt the cost of sales with the commodities effect represents EUR 57 million in this, so commodities effects are quite significant this year. Slightly more significant than what we foresaw at the start of the year. We thought it'd be around 50. It's more around 60. And growth drivers also up by EUR 24 million, we'll come back to it in a while. And administrative and commercial expense up by EUR 35 million, mainly commercial expenses, because those are investments in our so called -- our own retail shops and stores in numerous countries. We opened many new stores, and also, we invested in professional coffees. We've good growth drivers there. And Supor, growing -- by growing by 25%, request some strengthening of its commercial organization on a currency effect EUR 45 million, much higher than what we anticipated at the turn of the year or what we saw in the early year's parts. We were mentioning at the time an impact between 0 and EUR 10 million that would be adverse to us, and then it deteriorated substantially throughout the year. Until in the middle of the year, we mentioned about EUR 60 million perhaps, and finally, we land at EUR 45 million. So there's a significant decline compared to what we anticipated at the turn of the year. And a scope effect, which is Egypt. Now growth drivers are indicated at the bottom. 3.7% growth of these drivers on a like-for-like basis, especially as you can see here, we protected and continued to shore up strongly the innovation aspect, which is related to the long-term finding -- financing of our business.

Now in terms of cost operating -- so operating result from activity, it's down but it reflects the performance that was disappointing in France in 2018, and other expenses represent EUR 36 million, including both the end of our reorganization of our industrial and logistical layouts in Brazil. The cookware in Brazil was transferred to the e-tail side. Some costs related to the integration in different operations that in both mind, restructuring of VMF, and then other minor restructurings, which you've have each year in our businesses. And in these EUR 36 million, there's an impairment charge of EUR 10 million related to our Indian business. So we have been talking steadily about the difficulties in India that we are experiencing. Many reforms are taking place. We certainly have good things over the long term but are done in a very disturbing way for the short term, so they did hurt our business in the first few years there. So we have revisited our business plan, which led to the booking of these impairment expense. So broadly speaking, there's not much left in the balance sheet today in terms of India. There's still the brand and EUR 5 million of goodwill. The net income, well, we are getting there through the interest expense for financing, which is down slightly and reflects the downturn of the debt and also as we refinance and pay back expensive financing, I mean, the lower interest rates has an impact here. The other expenses and charges, you see something happened here. Actually, there were two nonrecurring effects.

On the first one, the ORNAE bond -- the convertible bond called the ORNAE, whose option of -- but must be put at the fair value at each closing due to the decline of the security at the end of 2018. So this is an upside representing about EUR 20 million versus our expense last year.

Likewise, here's the booking in Brazil of debt that we have on the state but we also recognized the -- what the moratorium interest due by the state and that represent EUR 20 million also and the cancel out the expenses of this item. But let's not get used to it because next year, we'll be coming back to something more standard.

Now taxes at 22%, with a few bookings of deferred asset-related taxes of tax losses that can be postponed in Germany and Spain but nothing major here. So last year, you might remember, the tax rate was very low due to two nonrecurring elements. I will not come back to it unless you have questions on this. The balance sheet is only an excuse to show you that we will be coming back to the operating WCR, which is on -- it's the second item, it's down, despite the very beautiful growth that we saw in 2018, and also the financial debt.

So all in all, so the working capital requirements are beautiful trend of our WCR ratio, which reflects the ongoing work. We talk about this at each closing. We are continuing to optimize our working capital requirement items here. This is a -- we also had some assets coming from our customers at the end of the year. And remember, we have more than 25%, 5 years ago. So we have truly moved forward in a resolute manner on these initiatives. However, it's not over. This is a major milestone. It won't be able to go beyond this, do better than this. We are at 16.4% this year. We are very happy about this spend. We are cautious about next year.

Now the debt, which is dramatically declining, nothing very special regarding this debt bridge. CapEx at EUR 200 million, which remain around a 3%, which you are used to, which is usually the group's standard. We'll talk about 2019 in a while. It will be a bit higher. Otherwise, out of the EUR 94 million of other non-working capital requirement is a cash out of structuring, buying our own shares, acquisitions, so [7.5 and 50 grams.] I mean all of this can be found here. And this deleveraging is leading us to the debt net over equity that you can see here at 0.7% and the adjusted net debt over EBITDA at 1.9% -- actually, 1.9%, yes, a rounded figure, well in line with the goals that we had set in early -- in May 2016. When we announced the acquisition of VMF, we had set that goal at the end of 2018.

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [4]

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Thank you very much, Vincent. A few words for 2019. Now -- we don't see any major difference with regard to the environment. Now the relationship between China and the U.S. seem to be a bit brighter but the Brexit and Italy and Europe remain quite challenging. And the situation, especially in Turkey, is not easy to grasp, so no major changes. And as we were saying, currencies and commodities still negative. Nevertheless, less unpleasant than in 2018. Because it's very difficult to predict currencies, and we don't go into this. We will not advise anyone on this. So what we are forecasting for 2019, it comes without a surprise. So organic growth of sales and the operating profit should be up as well.

So in regard to the Consumer business, we still believe in the momentum that would be positive in Eurasia and Eastern Europe, mainly. In China, of course, maybe not as wide-ranging as what we had this year but at least, we believe the momentum will remain positive; and a better balance in Europe, a bit better perhaps than we have this year. And in the U.S., a priority will be to maintain profitability with our 2 key product families, Cookwares and Ironing.

Now Brazil, we will capitalize on our regained competitiveness in SDA. That was the major purpose behind stopping in São Paulo our plan and transferring this to a brand-new plant in the Rio state and we're already very happy. We are back on track with being #1 with their fans, quite ahead of our competitors. And we have been ranked second due to their competitiveness being better. Now this -- after this first milestone, we need to continue to develop this.

With regard to coffee now, continued growth there in Professional Coffee. As you know, Professional Coffee being a market based on big contracts, so by construction, is more volatile. It's like with general consumers, when you have a contract with 1,000 or 2,000 machines with Dunkin' Donuts, it might not be renewed the next year. So you might have less steady income. We believe that this year again, we should have growth in Professional activity with the first effects of the integration of Wilbur Curtis in the U.S.

In terms of CapEx now, we -- our investments are roughly 3% of sales over major period of time. It's more [3/8] a bit higher this year. We did some big investments in China. We're continuing to grow our capacity in Shaoxing, which is being built in near Hangzhou based on demand. And we also invested in a plant to produce our products for fixed, immobile kitchen equipment. And we also have increased our production capacity in Switzerland, as we are manufacturing all of the professional coffeemakers in Schaerer and we have some big contracts in the U.S. as well as well as some investments in France and a [pot avec] plant in the South of Lyon.

So this is what we wanted to talk about for this year. Obviously, we'll talk a bit more about it later on. And during the half year period as well, we'll get back to this. That's basically what we wanted to say, but now we are at your disposal for any questions or comments you may have. I think we have an hour. Who has microphone? Okay so please -- here we have someone.

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Questions and Answers

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Nicolas Langlet, Exane BNP Paribas, Research Division - Research Analyst [1]

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Nicolas Langlet from Exane. I have three questions. The first...

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [2]

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Only? That's just the beginning.

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Nicolas Langlet, Exane BNP Paribas, Research Division - Research Analyst [3]

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About the price mix in 2018, you have EUR 80 million in the ORfA. I think your EUR 30 million having to do with tax receivables in Brazil so that's a premix about EUR 50 million. Now is this a level that you think you can sustain over 2018 -- 2019? Maybe even do a bit better, given the price increase that you've got on board this year? Second question about the WMF synergy, you haven't talked about that at all. Is that still a thing? And where do you stand in the EUR 40 million plan by 2020? And the last question, about Wilbur Curtis. You had -- you gave us the contribution in terms of sales. Could you tell us a bit more about profitability in terms of the investments as well for that acquisition?

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Vincent Leonard, SEB SA - Senior EVP of Finance [4]

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Great. I'll take the two first ones. The price mix for 2019, it's a bit early. It would be kind of a difficult subject to deal with at this point in time or courageous, I'd say. Quite courageous. So I'm not that courageous. I would say that we've got some price hikes across, so there's an onboarding there. But as we said earlier, in 2018, there were -- how can I call it, there was a trading effect in commercial negotiations. The difficulty in mass markets, which -- that react to our pressure and there is a downward pressure in prices and margin. So we're used to this. We've had years like this before. We always bounce back. And this year, we are able to navigate in that environment pretty well. We have different ways of leveraging that. I would say, yes, we will -- theoretically, yes. Because if you look at all of these -- the first 6 or 7 preceding years, you have this type of price mix effects that is favorable. But as you noticed, it's quite variable, including for the -- a same amount of sales. From one year to the next, you have to accept that it really is part and parcel of what our business is all about. It can be quite volatile. But over the long haul, we have ways of leveraging and handling that. So in 2019, there are different ways that we have to protect our margins.

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [5]

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A long answer.

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Vincent Leonard, SEB SA - Senior EVP of Finance [6]

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That was the first point. So about synergy, we had indeed, spoken about we're targeting EUR 40 million by 2020. We're still targeting that. But everything that has to do with actions plans in terms of cost savings, cost cutting, all of that has been implemented and is bearing fruit. So there's no surprises there. It's true that as we said on many occasions over the last few months at least, that the Consumer business in VMF, the recovery of that Consumer business in terms of their -- its profitability will be a bit slower than planned, is slower than planned, due to the fact of an environment -- the retail environment and mass market in Germany, specifically, in channels where VMF is strong, their channels where there's historically the subgroup is not very present, furniture stores, department stores. So all of that leads to the fact that the base is not -- it has slightly effaced itself. So it takes more time. But on the contrary, we are way beyond or ahead of our road map in coffeemakers for all the good reasons we already spoke about. So there you are. It's a highly contrasted snapshot in these 2 parts of the VMF business but we are very happy and there's no doubt about that, that we now have VMF with us, with a great potential for development.

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [7]

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Third question was about Wilbur Curtis profitability. As we said, the sales were in -- over full year was about $90 million. We're over in the 2028, we have 1 month of that -- I'm sorry, 20 -- 11 months, 11 months, I'm sorry. 11 in 2019 because we signed beginning in February. In terms of profitability, we are follow -- well within profitability of Professional Coffee, hybrids they are more 15%, EBITDA of 17%. So it's good profitability. In terms of investments, you asked a question about investments. The acquisition cost, I'm sorry, no. No way. Sorry, my friend. We don't talk about this kind of thing. We bought a -- that company from the Curtis family. They were owners of the company since 1941 and we signed an NDA. We're not talking about the price. That's a reasonable price. It's a good price. What can I say? But no price. For the moment, what we can say is that these are assets and that they're industrial assets because they're very modern factory, with a lot of investments that were made recently in terms of R&D and in terms of laboratory work. So we think we have a really good tool right now in several types of coffeemakers. The most fashionable one is the core brew in the U.S. and we think that we have here a very strong position. And Wilbur Curtis is really a company that's going to be able to help us take off very quickly in our business approach to the U.S., without having to make huge amounts of investments in the future, obviously. So these will be reasonable investments, if any. It was a good try though, for the purchase price. Second row here.

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Unidentified Analyst, [8]

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[Peud Chadeau]. To carry on with the bridge. When you look at the volume effect, EUR 80 million in your ROPA, I think the impression that the transformation rate of sales and volume effect is a bit weaker than what you had historically. The answer is in fact is that the Consumer of WMF? Is that -- or is it something else? What's the doodoo?

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Vincent Leonard, SEB SA - Senior EVP of Finance [9]

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I think that what you're saying is true, but the response is kind of the same. As we said over the year, we've had trading conditions that were quite extent -- extended.

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [10]

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And in the distribution environment, we said a lot, very promotional, present in purchasing. We see clearly, just like in the press every day and what the analyst is saying about retail. There's a whole phenomena of this -- there's a real disturbance. We're confident at how we think is going to work out, little by little. But in the U.S., this is going to take -- require a massive restructuring. 1 million square meters will be sold off or closed and with some grouping effects. But this has to be gone through and we'll have to take a bit with respect to that.

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Vincent Leonard, SEB SA - Senior EVP of Finance [11]

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Also mix effects. As you know, this is complex to calculate, volume and price mix. So as to France is doing less well than some other years and it does weigh heavily. France is more profitable though than the group average.

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Unidentified Analyst, [12]

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One last question. There's a strong growth in professional coffeemakers. Are you able -- with that growth, are you able to keep the same operational result? Are there not productivity issues that might be slightly down on a one-off basis?

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [13]

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Why would that be?

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Unidentified Analyst, [14]

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Because it's hard to produce that many -- much volume.

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Vincent Leonard, SEB SA - Senior EVP of Finance [15]

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We are able to do it. We're keeping our heads over water, no problem. Professional Coffeemakers are profitable. They stand at the same level. We've anticipated that despite the ramping up. We said during the year, maybe that's what you're thinking about is we had a hard time delivering. We had a bit of over cost, overruns because we were delivering by plane and hiring people that we can find in the U.S. to take care of installing all of this. That's true. But over the year, the profitability of coffee was fine.

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Vincent Leonard, SEB SA - Senior EVP of Finance [16]

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We have investments higher for next year because we are increasing our capacity for that very reason. There might be inventory effect of a temporary nature. When we have a problem, we try to handle all the problems at once.

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Unidentified Analyst, [17]

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[Steffon Regiff], Family Finance First. The first question has to do with Professional Coffee in the U.S. Over 5, 10 years, what size are you targeting? What's the size of the market? What market share do you think you can get? Do you have an idea of where you stand? With respect to all of that, where do you want to go? Second question, for Mr. de Gramont, I have three questions. The first is a quickie. Why did you decide to join the subgroup, given the career you've had perhaps and other opportunities? Why the SEB group? And in 2 months, what have you appreciated in SEB? And what things do you think could be improved? Third question...

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Stanislas De Gramont, SEB SA - COO [18]

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This is going to be quick.

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Unidentified Analyst, [19]

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Third question, you've had a long career. We don't know you, that's why we're asking these questions. What successes have you enjoyed in your career? And what didn't work sometimes?

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Stanislas De Gramont, SEB SA - COO [20]

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The first one is for you, Thierry. Want me to answer?

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [21]

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Yes, go for it. Go for it. Go for it. I'll answer if I have time later on after he's finished.

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Stanislas De Gramont, SEB SA - COO [22]

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Three things maybe. First of all, SEB is good. That's the French slogan. SEB se bien. These are new categories. This is a worldwide business. It's a huge business, worldwide, very dynamic, very attractive, very seductive as groups go. It's also a company that's a family French company. French family company with a lot of values, strongly ingrained, which was part and parcel of my life at Danone. And perhaps a third reason would be, I met the management team that has done some remarkable things and that I'm learning stuff from them. And I think that learning is really a motivation -- a source of motivation and passion to be in a learning situation. So what have I seen over the last few months? First of all, welcome of excellent quality from the directors, plant managers. This is not a surprise, but it was very encouraging indeed, very warm welcome. The company is passionate, and it's committed. People at SEB are -- I haven't met everybody, obviously, but I've been to the U.S., I've been to France and people at SEB are passionate about their products, about their activities and very committed. I think that's one of the explanations of their positive results. And this is really compliant with what I was looking for, what I was seeking. So what have I done in my career? Well, I don't like to talk about this, but I was in construction in Danone in Canada. I was in construction in -- recovering French manufacturing renovation in fresh produce as well. It was not very good when I got there. So if you had to describe this, it would be some construction, commitment of teams, creating energy, giving energy and injecting passion and moving towards things that are both simple and essential and that respond to consumer needs. That's what drives my career and has driven it. This was off the cuff. I didn't prepare this at all.

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [23]

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Now the question about the coffeemakers in the U.S. Today, basically, filter-based coffee is 1/3 of the market. One leader has 50% of that market. Number two, Wilbur Curtis has 25% of the market. So that's the number two impact. So the issue here is filter coffee is not going to grow maybe 10% or 15% a year because it's quite stable. But however, there's a leadership position to be taken so we need to get the right teams to do that. That's the priority. If you change positions, you know that's going to mean in terms of sales. What we'll -- we need to move from 25% to 50%, that means we have to double. In terms of espresso coffee, we have 50% of the market. I believe that this market share will go down because the market is going to develop considerably as a whole. So we're not in a situation where we can't get 70% of market share. I think that would be -- not would be the priority. However, if you're going to -- the market is going to be maybe twice as big. So here again, is good growth. So we haven't even asked ourselves the question about knowing what the objective would be over 3 years because this -- there's a very strong growth in the U.S. in terms of profitability, which is very good profitability, it's quite productive compared to the average in the group. So it's a very stimulating situation.

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Unidentified Analyst, [24]

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[Marianne Phillis, Societe Generale]. Could you get back to WMF? And about the distribution network in Germany to see how things are changing this year, to see if there's been some restructuring that needs to be done or any adjustments in that merger? Another question is I wanted to get back to the volume effects having to do with the impact of volume effects on transformation in terms of the sales figures to see if [Talia] and the restructuring there have weighed in and more positively in 2019? Or will there be more positive in 2019?

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [25]

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About retail in Germany, I think that we clearly said that the retail network in Germany of WMF is fundamentally bigger in Germany. There was a very profitable portion of that having to do with, what do you call it? Correct.

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Vincent Leonard, SEB SA - Senior EVP of Finance [26]

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Machines?

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [27]

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But there's some stores that are doing right, that has the right size, they have the right lease cost. Still in retail, there's some stores that are too small or they have rent that's too high. So obviously, in our own network in Home & Cook, in the upcoming years, we may be closing some stores and openings others. That's the first one. The second point, it is clear and Vince has said this already, the networks that suffered the most over the last 2 years in Germany were the department stores. And you can include in that sector VMF partner stores as style based over the great deal because they're highly affected by other circuits, i.e. home furniture that we're getting into the market. So yes, there will be some restructuring, closing of some stores. At the same time, we'll be opening others. So we are not worried by the condition of retail of WMF in Germany. And we will pursue as we did this year, opening stores. We opened a VMF -- WMF store in Spain, and we will continue to open other stores outside in the so-called [Daher] zones, as Germany called them, [Daher zones] as such Germany and Austria. So to continue, but in terms of German retail, there's nothing to worry about. Nothing has evolved negatively since the beginning.

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Unidentified Analyst, [28]

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What about restructuring cost? How much does that weigh in the equation?

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [29]

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Nothing major. Nothing major.

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Vincent Leonard, SEB SA - Senior EVP of Finance [30]

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The restructuring is happening ideally when you reach the end of a lease. So we're not doing anything crazy. So it doesn't amount to much. It's peanuts. Another question having to do with the transformation, the hit rate and the bridge volume. The answer is no. Not on the hit rate, criteria has two impacts. First of all, we missed some sales because we weren't producing. So there's less volume. And secondly, what we produced was produced with the productivity, which was not really up to scratch. And it took us a while to ramp up, and I'm talking about Cookware here. The whole SDA is doing fine. That was already doing fine last year. So no, there's no impact on the hit rate. There is an impact on the cost of goods side in the bridge and cost of sales. And there's an impact on lost sales or due to lost sales. The impact. I didn't say anything about the synergy, yes? Does that answer your question? Because otherwise -- okay.

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Steve Levy, MainFirst Bank AG, Research Division - Analyst [31]

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Steve, MainFirst. About the PCM side. You talked about SDA. You're confident that 1 contract would represent at least as much as the major contracts you signed in 2018. So we have some feedback of your level of confidence, was that signed or not? Secondly, the level of inventory and retailers was quite high at the end of the year. And so the end, you said it was good for you in T4 (sic) [Q4] but that indicates that T1 (sic) [Q1] should be slightly down, right? There should be a sellout that was a bit slower in T4 -- in Q4, sorry. Do you have a different point of view now, since the amount was quite high? Was Q1 -- was that -- did that normalize in Q1? And the third question, about your guidance, in terms of growth for 2019 and your profitability, could you be a bit more precise about your expectations?

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [32]

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The answer -- the general answer, no. Well we answered the last one first and very directly. Excuse me, but we never give indications at the beginning of the year because the share of sales is in the second half year more than in the first half year, and especially the last quarter. So be that as it may, at the time, in April, we'll say that the operating profits at the end of March have no significance whatsoever. It means nothing because it's so weak compared to the whole year figures. So if you would take a position today, it would seem to me to be a bit off the wall. You might -- lead you into error. What I can say, perhaps, is that if we have a market that can grow 3%, say worldwide, our objective is obviously to have a growth that's higher than the market. About operating profits, well, hopefully, it should increase in volume. So beyond that, I think it would not be appropriate. We'll talk a bit more in March, especially when we get towards the month of July. About SDA, the contracts that would avoid us having to deal with this phenomenon of decline in the professional activity because we have good figures in 2018 throughout the U.S. and in China and in U.S., as we indicated. We have signed enough contracts so that we can say today with confidence that we believe we will do even more growth in Professional Coffeemakers in 2019. So that answers that part of the question. At least you got something precise there. About the second question, I'll hand over to Vincent.

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Vincent Leonard, SEB SA - Senior EVP of Finance [33]

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About inventory and distribution, no, we actually don't have a feeling that distribution is overstocked at the end of the year. There's no deleveraging effect here on Q1.

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [34]

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There may be a few local exceptions, but we do not have the feeling that we benefited from a sell in, in the fourth quarter that was high. On the contrary, as you were saying, I think on the contrary, we all had a situation where retail was very vigilant about their inventory, very prudential approach. They'd rather miss sales than overstock rather than taking any risk in terms of inventory. That's what I call temporary disturbances in distribution. You better try to -- it's better to buy inventory and try to sell the stock, at least you make some margin, right? But anyway, our sell in, in Q4 was not made easier by that situation. Fourth question.

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Steve Levy, MainFirst Bank AG, Research Division - Analyst [35]

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Before WMF, you used to say, outside of ForEx effect and raw material cost, roughly 11% in terms of profitability. With WMF today, do you have the impression that the -- that you can reach that?

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [36]

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We've always said between 10% and 11% was reasonable over a long period. We always said that we wanted to be between 10% and 11%. And I confirmed that, that is the case. Depending on the year. There are years where there would be more impact in raw material effect and in currency effect and ForEx effect. When they had a crisis in Japan, as you recall, with the huge devaluation of the yen or the crisis in Russia, where the ruble has collapsed. I think our policy was to -- we were able to be reasonable. We don't always -- when there's a major effect out there, we don't want to unnecessarily compensate on that because you might lose a big part of market share and it cost a lot of money to win that back. So sometimes, it take -- leave it 2 years to get back to stability. We allow 2 years. Otherwise, it might be have -- it might be having negative impact on the position of the group and that local geography. So obviously, over a long period, we will lie between 10% and 11%, very clear. Not including SDA.

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Unidentified Analyst, [37]

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I'd like to ask you 2 or 3 questions. First of all, are there any signs of a slowdown in China? And the second thing is about the distribution, retail circuits, with all that you mentioned about retailers, is your main distributor going to become Amazon soon? Did you see the comments this morning between food and nonfood? Could you go briefly over that situation? And what about major kitchen appliances, are you going to develop that elsewhere or not? And about the number of SKUs, are you going to have small series that work well for innovation and series that are going to be a bit more stable that would work everywhere? How are you going to adjust to innovation based on consumer demand? The example of that and there's a great example where there were products in the demand is not necessarily coming from this -- the consumer, the idea is to persuade the consumers to buy the product. So do you start from the consumer demand to innovate? Or are you leading the consumer? So what's the mix between innovation and responding to their demand? Because at a point in time, you have 1 million people in the Cake Factory and the consumer -- is this based on consumer need? Or is it based on your offering?

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [38]

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On China, 2018 turned out to be as -- like 2017, exceptional, with twice exceptional. I mean, recently, we cannot count on 25% per annum forever, especially as we are already ranked #1 in regard to Cookware and in terms of kitchen electrics. Will it be 25%? Well in our wildest dreams, we are not banking on such a high rate of growth. However, clearly, we should remain on with two double-digit figures, but we don't see any situation that would be different from a double-digit, two double-digit growth. We are still in a market which is growing well, and our conviction is that it could continue because the market creates value in the developed areas that is the Chinese consumers are interested in buying increasingly sophisticated products. Look, when we bought Supor, we are selling products at the maximum of EUR 50. Now we sell high-speed blenders and other product at EUR 150 and there's demand for this -- there's a trade up, therefore. We have a geographic expansion still in China. Even though we're highly present, we still can grow further in the smaller cities in the Areas 3 and 4. And thirdly, for the past 3 years, we've been launching new families of products: vacuum cleaners, garment-related items and we had a bit also -- so with all of this, we are not at the level of the market share that we have with the rest on large kitchen appliances. We still have a lot of work to do. So there's further growth potential, in our view. Obviously, we have to keep an open eye on China. We've talked about the car industry that became sluggish all of a sudden. We believe that our products are at levels of products, which are low -- well over or above low, and we should see further growth in China. Look, this leads me to large kitchen appliances. Now do we intend to develop our sales of kitchen fixed equipment -- equipment outside of China for the moment. It's not a goal that we are pursuing.

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Stanislas De Gramont, SEB SA - COO [39]

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Now the second question, which is a very complex question. And if I had an absolute answer, I would be a retail adviser. Firstly, the retail business has always evolved. We started with small outlets and small distributors. And then we had specialized mass merchandisers, food merchandisers came next. And we ourselves, in various countries where we operate, we have distribution retail context, which are quite different. Let's take a look at China, for example. Alibaba, on the one hand, centralized delivery and you have networks of distributors, wholesalers, sub-wholesalers, who take your products 2,000 kilometers away from the plant. So by nature, this business knows how to adjust to an open-ended distribution context. It has always been so. Now the second point, and this is what creates the current confusion about today, everyone is trying to do everyone else's trade. Amazon is trying to sell all classes of products at the prices of the retailers. They want the Walmart's range, width and prices, Carrefour is trying to get involved in hypermarkets and even in smaller online and offline smaller stores. People like [Casino], they're also involved in discounts and Darty for example or [Magazine Wizard], which is a specialist in Brazil, which aims at making 50% of their revenue on the online after 7 or 8 years, once they have 900 material stores in Brazil. So there's a huge confusion and such confusion has a short-term tension on the level of promotions and request for lower prices. And that stress or tension is directly proportional to the momentum in the market. There's more tension when you have a sluggish market and vice versa. Now we'll have to adjust. That is what is the right value proposition, which is not only a product or price, but also it is after sales, a demo and -- which is adjusted to each distribution network. We can adjust quite well in every country where we operate and we don't see any major differences between the different customers or channels. And lastly, I should have started with that, everything starts with the consumer and the confusion comes from the consumer. It is estimated that about 75% of purchases, the consumer went to -- at one point on the web before buying and 75% is done -- I mean, of the purchasing is actually done in the physical stores. So you see, our job -- and this why Thierry led to has spoken about the digital as a major breakthrough, we want to understand where is the consumer as a marketing target and where are they in terms of merchant consumer target. And the digital is everywhere and in everything. Now do we have a distribution that is changing quickly? Certainly not. Is it the first time? Certainly not. Is this something that worries us? Rather not because we see more opportunities of strengthening and enhancing our relationship with consumers who will be directly in contact with the brand.

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [40]

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Let me add to this, if I may. When you look at what's going on in China, today, whether Alibaba or [Lely.com] they have taken a strong stakes or even majority of these stakes in -- with specialists in the food business, in every channel. Even [Alexon Bonpar] mentioned this, we will be in the home line channel, where major retailers and perhaps all those who today exist, might not exist tomorrow. But what seems obvious, though, is that there will be a restructuring with retailers who will be going through every kind of channel. And so how long will this take? We don't know. We will adjust according to the situations and countries. This is what the demands do. Now coming to your last point, look, how can I state that? Look, we are in a business, which we thought was the most offshored, about 80% or 90% of the products are products sold in the country come from China or Vietnam. We've seen Chinese production cost, they were at $1 when we were at more than EUR 30 per hour in 2004, the basic filter coffeemakers were moving from EUR 20 -- EUR 19 -- EUR 20 up to EUR 5 to round it up. When we see the -- and these products divide by 4, there's one thing we took away from this, without innovation, we would be dead. So from that standpoint, our motto is quite fundamental. We can really move through only by having a global reach and innovate. So innovation is our -- is spearheading everything and want to please consumers, want to satisfy consumers' needs, if possible. And it's obviously not always very easy. If possible, by inventing the products they haven't even thought of. This is what we succeeded in doing with the without oil frying pan for chips and french fries and other vacuum cleaner manufacturers provide an extra benefit. Everyone can contribute in this business. This year, we have some beautiful and great innovations to show. But without -- it does not mean that we should sell only products that are totally innovative. Because consumers also need -- well they really are ready to spend EUR 1,500 for a Krups coffee maker. They love coffee. They're even ready to sell EUR 2,500 in Germany. But if they never buy tea, but if you have guests to provide tea, you need a kettle. So they're ready to buy a kettle at EUR 10. So we need everything. So our bias is very simple, we invest crazily in innovation, with our R&D, our marketing -- product marketing, people, anthropologist that we use, the design and all of these teams work together to obtain innovation. When they are very innovative, we manufacture them in Europe, especially in France. However, for basic products, they are manufactured in our Chinese plants, which helps us to have the right cost, to have the right prices and the margins we wish to have. So we need these two, and these two make it sure that we can move on over the long term. Without our production in basic products in China, we could not finance our innovation, but it's our innovation that will help us to have hopefully, long-term life. Does it answer your question?

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Unidentified Analyst, [41]

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Question, in the fourth quarter, you talked about the positive effect in Brazil. However, what about the guidance when we talk about the reported ORfA this year?

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [42]

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That's for you.

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Vincent Leonard, SEB SA - Senior EVP of Finance [43]

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In the fourth quarter, yes, we indicated that we would book a debt on the Brazilian state and it was recognized in terms of sales. And it had an effect -- not that 100%, but a large part was reflected in an increase in the ORfA on the operating results.

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Unidentified Company Representative, [44]

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So by including the bridge that you presented at the time you talked about the EUR 30 million top line debt, it fell into what?

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Vincent Leonard, SEB SA - Senior EVP of Finance [45]

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It fell into the price mix category in the other financial interests. It's related to the same debt in Brazil. We were granted by the courts debt on the Brazilian debt, which was recognized partly in sales. And for the interest part, it's seen as the interest-related income. Sorry, it's off mic here. It represents EUR 20 million. So the overall effect, it's a debt. Why EUR 20 million? Because it's a litigation going back to about 10 years ago in 2004. So we won this recently, but it was there in the past, 10 years ago already. We also explained even in the press release that certainly there is such an effect, but many other things took place in Brazil in 2018. So that all in all, there's no -- there's nothing else really that we need to do. There was a bankruptcy of a retailer, a distributor there. There was a strike in May of the transportation industry. They were on strike during the last week of the month. It was difficult to ramp up our Cookware and new plant. So it has hurt us in Brazil, really, all in all.

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Thierry de La Tour d'Artaise, SEB SA - Chairman & CEO [46]

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Any other question. Have we answered your question? I wanted to make sure that you got your answer. Are we okay? Okay. Fine then. If there are no further questions, thank you very much. And we will see you again for the half year results.